Taxation of a severance payment possibly associated with a change of residence to a foreign country.
April 28, 2011 | 40,00 EUR | answered by Dipl.BW/SB Ulrich Stiller
I am currently negotiating with my employer about a mutual termination agreement including a severance payment. Potential date for the termination of the contract: end of October 2011.
I have the following questions regarding this:
- Would it be more tax advantageous in general if I could receive the severance payment in 2012 (because I might be unemployed for a certain period of time)?
- I might want to move to Brazil in 2012 and change my residence there. What would this mean for the taxation of the severance payment (assuming I change my residence abroad first and then receive the severance payment)? Where would the severance payment need to be taxed in this case? What would be the more tax advantageous option? Taxation in Germany or in Brazil?
- If taxed in Germany, I roughly estimate that approximately 42% of the severance sum would go to the state. Would the tax deductions be already taken at the time of payment; meaning I would only receive around 58% of the total amount? If so, would this also be the case if my residence is abroad?
- In the event that I move my residence abroad, I would rent out my property in Germany. Where would I need to pay taxes on the rental income?
Dear client,
Thank you for your inquiry, which I would like to answer based on the information provided and in the context of your situation as follows:
There is currently no double taxation agreement with Brazil. If you do not have a residence or habitual residence in Germany at the time of the severance payment, you are not subject to unlimited income tax in Germany. There is also no limited tax liability regarding the severance payment, as it does not fall under § 49 of the Income Tax Act. Therefore, the severance payment would be tax-free in Germany and would have to be taxed in Brazil. I cannot tell you the tax rates in Brazil as a German tax advisor.
Without detailed knowledge based on your description, it is difficult to determine whether receiving the severance payment in 2011 or 2012 is more favorable from a tax perspective. If you receive the payment in 2011, your regular salary, which is paid alongside the severance until your exit date, also plays a role. Subject to a detailed examination based on figures, receiving the payment in 2012 might be more favorable, as your regular salary has ceased and you only receive the severance. However, receiving unemployment benefits will negatively impact this, as it increases the tax rate on the severance under the progression clause, even though the benefits are tax-free. The precise calculation would require knowledge of the severance amount and the amount of the unemployment benefits.
Without knowing any specific figures, a definitive statement cannot be made. The above information applies due to your residence in Brazil.
Renting out the apartment in Germany, if you do not have a residence there, is subject to limited income tax using the basic table and without considering the tax-free basic allowance of €8,004, as this involves income under § 49 of the Income Tax Act. The difference between rental income and expenses is subject to taxation.
In your case, you should consult a tax advisor in detail BEFORE signing the termination agreement.
Best regards,
Ulrich Stiller
Tax Advisor/Diploma in Business Management
