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PENSIONS

Why nearly 200,000 pensioners in Germany don’t have to pay taxes

Income tax is also due on pensions in Germany. But some pensioners who still had to pay taxes on their last returns are exempt this year. Why is that?

Published: 13 February 2023 15:55 CET
A pile of coins
A pile of coins with the word "pensions" in German behind it. Photo: picture alliance / dpa | Andreas Gebert

Around 195,000 pensioners will no longer have to pay taxes this year, according to a response from the Germany’s Finance Ministry to a question from the Left Party, which was obtained by Redaktionsnetzwerk Deutschland (RND). 

The reason for this is that Germany’s basic tax-free allowance, to which every taxpayer is entitled, increased from €10,347 in 2022 to €10,908 this year.

At the same time, however, 87,000 pensioners will become taxpayers in 2023 as they’re set to receive 3.53 percent (western Germany) or 4.25 percent (east Germany) more pension from July. 

Put together, this means that around 5.9 million pensioners would be liable for taxes in 2023.

Over one million eastern Germans affected

The east German representative of the Left Party in the Bundestag, Sören Pellmann, considered it “good news that more than 100,000 pensioners will be exempt from tax liability this year.” 

But he called pension taxation in general still “a major irritant.”

“More than a million east Germans are affected,” Pellmann said about the region where most Left Party voters are based. For many, he said, the taxation is incomprehensible. 

Germany’s coalition government must “finally consistently protect small and medium-sized pensions from the tax office,” he said. 

“The increase in the basic tax-free amount by 6.3 percent is not enough, if only because of inflation.” 

Pellmann instead called for “a major tax reform for pensioners and an increase in the basic tax-free amount to at least €14,400.”

When you have to pay taxes as a pensioner

To check whether you are liable to pay tax as a pensioner, you need to determine the taxable part of your pension. This depends on the year in which you retire: the later you stop working, the larger the portion of your pension you will have to pay taxes on will be.

If you retire in 2023, you will have a pension allowance of 17 percent; in return, the taxable portion will be 83 percent. You will then not have to pay tax on the amount corresponding to this percentage pension allowance for the rest of your life. 

READ ALSO: Why taxes on pensioners have risen up to 500 percent since 2010

Those who retire in 2040 will then have to pay tax on 100 percent of their pension income. However, the coalition government plans to stretch the period to 2060.

If your taxable portion of pension income exceeds the basic tax-free amount, you will also have to file a tax return as a pensioner.

READ ALSO: Pensions in Germany: How the new government plans to solve an age-old issue

Vocabulary

pensioners – (der) Rentner

basic tax-free allowance – (der) Grundfreibetrag

liable for paying taxes – steuerpflichtig

irritant/annoyance – (das) Ärgernis

We’re aiming to help our readers improve their German by translating vocabulary from some of our news stories. Did you find this article useful? Let us know.

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PENSIONS

Irish pensions in Germany: What you need to know

If you're an Irish pensioner who's thinking of moving to Germany, here's what you should know about where your pension will be taxed, which pension plans are tax liable in Germany and what applicable tax rates are.

Published: 21 May 2024 09:20 CEST
Updated: 21 May 2024 12:00 CEST
Irish pensions in Germany: What you need to know

Whether it’s near Berlin’s Brandenburg Gate, in Bavarian beer tents, or on Rhineland wine tours – you’re likely to run into a fair few Irish tourists in Germany – yet thousands also make Germany their full-time home, including retirees.

According to population data from Germany’s Destatis statistical agency, there were just under 18,000 Irish nationals living in Germany at the end of 2023. Just over 3,500 – or around 20 percent of the Irish people living here – are aged 60 or over.

READ ALSO: Irish in Germany – How many are there and where do they live?

Retirees from Ireland – like anyone else – might come for a change of pace, a less rainy climate, cultural offerings, and (relatively) cheaper cost of living combined with higher standard of living.

Some might be living off their pensions alone, or at least have a significant portion of income coming from their pensions. Keep in mind as well that even though being an Irish national makes it fairly straightforward to retire to Germany because of your shared EU rights, you still have to register as a resident.

You’ll also have to take out public health insurance if you don’t have available private coverage, with contributions determined based on you having enough of your own income to live on. Note that this calculation will be on any income you have – not just your pension. There’s no hard or fast rule on how much you should have in Germany, but you should certainly be taking in more than the poverty line, which is €1,200 a month. 

So how does receiving an Irish pension in Germany work?

EXPLAINED: Do your pension contributions abroad count in Germany?

Irish pensions in Germany

Ireland and Germany have a double tax agreement, originally signed in 1962, but having been amended several times since – most recently in 2021. This essentially removes the possibility of paying tax twice on your pension, and in most cases the tax responsibility is ceded to the country where the recipient is a resident, in this case Germany.

However, it can depend slightly on the type of pension you receive, and whether it’s an occupational pension (otherwise known as a private pension plan) or a public sector pension from a public sector, government, or civil service career.

The rules on pension tax between Germany and Ireland are a little confusing, but still designed to avoid double taxation. Image by TungArt7 from Pixabay

So what’s the difference?

Essentially, if you get an Irish public sector pension, it will be taxed in Ireland as before unless you are both a German citizen and tax resident in Germany.

This is confirmed by the Irish government here: “You may be receiving an Irish pension from the Government or a local authority. In general, this pension is taxed in Ireland regardless of your residence status. Refer to the Government Services article of the Double Taxation Agreement between Ireland and the country you intend to be resident in.”

READ MORE: How can pensioners from abroad retire in Germany?

Private/occupational pensions

Now, what about private or occupational pensions? Generally speaking, if you receive a private pension from an Irish company, you’ll be taxed in whichever country you’re tax resident in.

Per the Irish government: “If you receive an Irish occupational pension from a private sector employer, your pension will be taxed in the country that you are tax resident in if you are both:

To make sure you aren’t taxed in Ireland, you can request a PAYE Exclusion Order.

How much are Irish pensions taxed in Germany?

As stated earlier, state pensions from any country are treated as earned income by the German system.

Therefore, Irish pensions in Germany are subject to progressive tax rates ranging from 14 percent to 45 percent.

There may be some differences though depending on your situation, so be sure to ask for professional advice if you think you need it.

What about ARFs and PRSAs?

If you withdraw money from either your Approved Retirement Fund (ARF) and Personal Retirement Savings Accounts (PRSA), you will be taxed at source regardless of your residence status, so in Ireland.

According to the Irish Tax Institute, “owners of ARFs, vested PRSAs and AMRFs who are not resident in Ireland may be subject to taxation on this income, both in Ireland and their country of residence and subsequently tax relief may be available under the terms of a DTA (Double Taxation Treaties)”, which Ireland has with Germany.

This means that while you may be required to declare this in both Ireland and Germany – you can typically offset what you’ve already paid in Irish tax on your German tax.

Please note, we are at The Local are not financial experts. The information above is designed to help, but if you are unsure of what steps to get yourself in order tax-wise, seek professional advice.

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