Challenges Faced by Retired German Citizens Living Away from Home
In recent years, an increasing number of German retirees have been choosing to move abroad, drawn by lower costs of living and potentially more favourable tax regimes. According to "Germans Abroad e.V.", approximately 230,000 German retirees now live outside of Germany.
For many retirees in Germany, the struggle to make ends meet with their pensions has become a significant issue. However, moving abroad can present its own challenges, particularly with regards to the taxation of pensions.
In Germany, only amounts above the basic allowance (currently €12,096) are taxed. However, for retirees living abroad, the taxable part of their pension is taxed from the first euro. This can be a disadvantage for retirees moving to countries with a lower basic allowance.
Countries such as Panama, Portugal, Hungary, and Bulgaria are considered suitable destinations for retirees due to their lower cost of living. Each of these countries has its own unique taxation rules for foreign pensions.
In Portugal, retirees can benefit from the Non-Habitual Resident status, which can substantially reduce or exempt foreign pension income from taxation. Portugal and Germany have a Double Taxation Treaty (DTT) that typically grants taxing rights on pensions to the country of residence.
Panama, on the other hand, taxes only Panama-sourced income, not foreign pensions. Since Panama does not tax foreign pension income and retirees can become Panama tax residents by living there long enough, their German pension would be taxed only in Germany or exempt in Panama, reducing the risk of double taxation.
In Hungary and Bulgaria, retirees will usually pay tax locally on their pensions, while Germany relinquishes taxing rights after residency changes and the DTT applies. Both countries have relatively low income tax rates, making them attractive destinations for retirees seeking to lower their tax burden.
Key points to consider when moving abroad as a retiree include tax residency status, Double Taxation Treaties, and the basic tax allowances in both Germany and the host country. Establishing tax residency abroad and understanding the DTT with Germany are crucial in determining where pension income will be taxed.
Consulting a tax specialist who understands both Germany’s rules and the local tax law of the destination country is strongly advised to optimize tax outcomes. For many retirees, the move abroad can offer a chance to lower their tax burden and live more comfortably on their pension income.
[1] https://www.expatica.com/de/finance/tax/germany-pension-tax-for-expats-a48624/ [2] https://www.germansabroad.org/en/services/taxation/ [3] https://www.pwc.pt/en/publications/non-habitual-resident-tax-regime.html [4] https://www.panama-guide.com/retirement-in-panama/taxes.html [5] https://www.bulgaria-guide.com/taxation/
- For retirees in Germany looking to move abroad for lower costs and potential tax advantages, understanding the taxation of pensions in the intended country is crucial.
- By consulting a tax specialist familiar with both German and the local tax law of the destination country, retirees can optimize their tax outcomes and potentially reduce their overall tax burden, contributing to a more comfortable living on their pension income.
