Taxation of foreign pensions
November 3, 2010 | 30,00 EUR | answered by Michael Herrmann
A Swiss citizen (retiree) has his primary residence in Germany from the start of his retirement and receives a pension from the German Pension Insurance (BfA), as well as a company pension and a state pension from Switzerland. How are these pensions taxed? Are they taxed in Switzerland with progression clause in Germany, or are they fully taxed in Germany? In this case, are they taxed according to the "AltEinkG" (portion of 62%) or are they fully taxed at 100%?
Dear inquirer,
First of all, thank you very much for your inquiry, which I would like to answer based on the information provided and in the context of your use within an initial consultation. The response is based on the description of the situation. Missing or incorrect information about the actual circumstances can affect the legal outcome.
Since you have your residence in Germany, you are subject to unlimited tax liability here.
The pension payments from the AHV / IV and the Swiss pension fund after the occurrence of the benefit event are - like benefits from the German statutory pension insurance - generally to be classified as other income with the tax share (§ 22 No. 1 Sentence 3 Letter a Double letter aa Income Tax Act). For pensions starting in 2005 or earlier, the tax share is 50%, for pensions starting in 2010 it is 60%.
Upon request, a more favorable income share is applied to life annuities and other benefits, provided that these payments are based on contributions made until 31.12.2004 that exceeded the maximum amount for the German statutory pension insurance (contribution assessment ceiling) (§ 22 No. 1 Sentence 3 Letter a Double letter bb Income Tax Act). You must prove that the amount of the maximum contribution to the German statutory pension insurance was exceeded for at least ten years. Cross-border workers (including existing pensioners) who started working in Switzerland before 1.1.1995 and can prove that the pension fund contributions have exceeded the respective maximum contributions to the statutory pension insurance for at least ten years can achieve a more favorable tax treatment for a portion of the payments from the pension fund.
Pension payments from the statutory social security system can only be taxed in the state where the pension recipient is resident, i.e. in the state of residence (Art. 21 Swiss-German DTA). The source state does not have the right to tax. This also applies to ongoing payments from a pension fund.
Pensions for former private sector employment and similar compensation can only be taxed in the state of residence, i.e. the state where the pension recipient is resident. The source state does not have the right to tax (Art. 18 para. 8 DTA).
I hope that with this information, I have provided you with a sufficient overview of the situation within the scope of your use, and remain
Yours faithfully,
Michael Herrmann
Diploma in Financial Accounting (FH)
Tax consultant
