Receiving your pension overseas is crucial information to know
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German retirees considering a move abroad should be aware of several financial and tax implications that can impact their pension and overall financial well-being. This guide outlines key factors to consider when planning a permanent or temporary relocation.
Duration of Stay Abroad
One crucial aspect to consider is the duration of the stay abroad. If retirees plan to spend no more than six months a year outside Germany, their pension will continue to be paid normally, and they will remain unlimited tax liable in Germany. This means their pension income will be taxed there with all regular allowances and deductions intact.
However, if retirees intend to stay abroad for more than six months a year, this counts as a permanent move, leading to limited tax liability in Germany. This results in losing many tax benefits such as spouse splitting, extraordinary expenses deductions, and child or single parent allowances, causing potentially higher taxation on their pension income from the first euro.
Taxation and Double Taxation Treaties
Another essential factor to consider is taxation and double taxation treaties. Germany may lose the right to tax the pension if the retiree is tax resident abroad (in some countries, especially if double taxation agreements exist). Many DTAs allocate taxing rights for pensions to the country of residence to avoid double taxation. Retirees should verify whether their destination country has a DTA with Germany and the specific rules on pension taxation.
For example, the US-Germany tax treaty generally taxes pension income only in the retiree’s country of residence, thus avoiding double taxation. Similar rules exist in other treaties.
Pension Payment and Refund Eligibility
German nationals cannot request a refund of their pension contributions even if they leave Germany permanently, as they can pay voluntary contributions until retirement age regardless of residence. Non-German nationals who contributed fewer than five years might be eligible for a refund; others receive pension payments at retirement age even if living abroad.
Other Financial Considerations
Retirees must also consider the cost of living abroad and quality of local healthcare, which can be advantages for those moving abroad. Additionally, retirees must consider the obligation to file tax returns in Germany for any German-source income they maintain, such as rental income on German properties.
Losing German tax allowances due to limited tax liability can increase German tax burdens if Germany taxes the pension partially or fully under its limited tax regime.
Factors to Consider Before Moving Abroad
Retirees should consider the following factors before moving abroad:
- Duration and permanence of stay abroad (above or below six months).
- Country of new residence and whether a double taxation treaty exists with Germany, and its provisions regarding pensions.
- Impact on tax liability and possible loss of tax allowances in Germany.
- Whether pension payments continue automatically and eligibility for pension refunds (if applicable).
- Possibility of filing tax returns in both countries and administrative burdens thereof.
- Cost of living and healthcare quality abroad as part of financial planning.
In conclusion, a retiree must research the tax legislation in both Germany and the intended country of residence, check for applicable DTAs, and consider how permanent residency status affects German tax liability before moving. Consulting with a tax advisor experienced in international retiree taxation is advisable to optimize financial and tax outcomes.
[1] Tax Office Neubrandenburg [2] German Pension Insurance (DRV) [3] US-Germany Tax Treaty [5] German Federal Finance Ministry
- When retirees plan to stay abroad for more than six months a year, their pension income may be subject to higher taxation, as Germany's limited tax liability status could result in losing tax benefits such as spouse splitting, extraordinary expenses deductions, and child or single parent allowances.
- Retirees should verify if their destination country has a double taxation agreement (DTA) with Germany, as many DTAs allocate taxing rights for pensions to the country of residence to avoid double taxation. For instance, the US-Germany tax treaty taxes pension income only in the retiree’s country of residence.
