Company pension scheme and retirement capital
September 21, 2009 | 100,00 EUR | answered by Dipl.BW/SB Ulrich Stiller
I am a German tax resident and will be going into early retirement at the age of 60 on 1.1.2010 through a partial retirement scheme. My German employer will be paying me a company pension of approximately 3,200 euros per month. Additionally, I will receive a one-time payment of 127,000 euros in 2010 from a retirement fund I have saved up over the years from my variable compensation. I am familiar with the German rules of averaging income over five years.
Can I achieve a more favorable or even tax-free situation by relocating my residency abroad (e.g. to France or what do you recommend)?
Dear advice seeker,
Thank you for your inquiry, which I would like to answer based on your information and in the context of your involvement in an initial consultation as follows:
Unfortunately, severance pay is taxed in Germany and, for example, in France it is tax-free due to the existing double taxation agreement.
Based on your description, subject to a detailed examination of the documents, a severance payment and therefore compensation in the sense of § 24 EStG may be present.
If you give up your residence, for example, on January 2, 2010 in Germany and no longer have a habitual abode here, there is no longer an unlimited tax liability according to § 1 para. 1 EStG 2009 in Germany because:
1. You no longer have a residence in Germany
2. You no longer have a habitual abode in Germany
You have fulfilled the first requirement by giving up your residence. The second requirement, the abandonment of the habitual abode, is likely to also be fulfilled when you move away, as the habitual abode requires your physical presence in Germany for a continuous period of at least 6 months, which will also not be the case for you.
CONCLUSION: There would be no unlimited tax liability from January 2, 2010.
However, there is § 1 paragraph 4 EStG. According to this, natural persons who neither have a residence nor their habitual abode in Germany are subject to limited tax liability if there are domestic (German) income as defined in § 49 EStG. In your case, there is domestic income as defined in § 49 para. 1 no. 4d EStG 2009:
"Income from employment (§ 19) that a)is exercised or exploited in the country, b)is granted from domestic public funds including the funds of the Federal Railway Property and the German Federal Bank with regard to a current or former employment relationship, without a payment claim against the domestic public fund being required, c) is received as compensation for a position as managing director, authorized signatory, or board member of a company with management in Germany, d) is paid as compensation in the sense of § 24 No. 1 for the termination of an employment relationship, to the extent that the income received for the previously exercised activity has been subject to domestic taxation."
Your previous income from employment has been subject to domestic (German) taxation. Therefore, when the severance payment is made as compensation for the lost income, limited tax liability applies.
CONCLUSION: The severance pay is taxed in Germany within the framework of limited tax liability.
However, since the tax year 2008, limited tax liability individuals are also entitled to the so-called Fifth Regulation (§ 50 para. 1 sentence 3 EStG) as a tax relief, just like those with unlimited tax liability.
I hope my explanations have been helpful to you.
Sincerely,
Ulrich Stiller
Tax consultant
