Elimination of double taxation on pensions: Identifying the individuals benefiting from this change - Abolition of Double Taxation on Pensions: Identifying the Affected Individuals
In Germany's post-funded taxation system, double taxation on pensions has become a topic of interest for many retired individuals. This article aims to shed light on the factors determining who is affected by this issue and potential solutions that could alleviate the burden.
The primary determinants of double taxation on pensions in Germany are tax residency status, type of pension and its provisioning, nationality and place of residence after leaving Germany, and the application of international double taxation treaties.
Individuals who are considered tax residents in Germany are subject to taxation on their worldwide income, including pensions. On the other hand, non-residents are generally taxed only on their German-source income. The way a pension fund provisions liabilities also plays a significant role in determining tax treatment and potential double taxation. Pension funds that allocate dividend income to pension liability reserves should not be subject to withholding tax, but foreign funds that do not create comparable pension provisions can be.
German nationals can make voluntary contributions until retirement age, making them generally ineligible for pension refunds and exposed to different taxation rules compared to non-nationals. International double taxation treaties provide relief by crediting taxes paid abroad or exempting income to avoid double taxation. However, the effectiveness of these treaties depends on their specifics and whether pension income qualifies for relief under these treaties.
Those whose pensions are not provisioned comparably to German pension funds or who lack beneficial treaty coverage are more likely to face double taxation issues. However, there are potential solutions on the horizon. Future pension tax allowances could provide relief, and the Federal Finance Court has demanded legislative adjustments to avoid double taxation completely.
Retired individuals with double taxation have not seen any changes from the new law, but only tax notices issued after August 30, 2021, can be challenged. It is essential to note that all older tax payments are now final and cannot be contested. Factors such as the tax-free portion of the pension, tax-free subsistence minimum, health and long-term care insurance contributions, standard deduction for advertising expenses, and standard deduction for special expenses cannot be included in the tax-free portion of the pension.
In conclusion, those affected by double taxation on pensions in Germany’s post-funded system depend on their tax residency, pension fund provisioning practices, nationality/residence status, and the application of international double taxation treaties. The good news is that potential solutions such as future pension tax allowances and legislative adjustments are being considered to alleviate this issue. It is advisable for affected individuals to seek professional advice to navigate the complexities of the tax system and ensure compliance with the regulations.
- In light of the complexities surrounding double taxation on pensions, the necessity of vocational training for the understanding of personal-finance matters becomes crucial, especially for community members who are affected by this issue in Germany's post-funded taxation system.
- To address double taxation on pensions, potential solutions like the introduction of future pension tax allowances and legislative adjustments, as suggested by the Federal Finance Court, could benefit from additional vocational training programs focusing on finance and personal-finance management within the community.
