Anyone who has paid into a company pension scheme abroad must prepare for a change in the law that came into effect on 1 January 2025. The Annual Tax Act 2024 has brought about an important change – with noticeable consequences for returnees and expatriates.
What has changed?
Since 1 January 2025, the following applies: Payouts from foreign pension schemes are fully taxed in Germany if the contributions were tax-privileged abroad – regardless of whether Germany had a right of taxation during the savings phase. Before the reform, these benefits – for example, from US 401(k) plans or Swiss pension funds – were only taxed proportionally: either on a yield basis or as a so-called net amount (benefit minus contributions).
Example: 401(k) pension plan (USA)
US employees regularly pay into their 401(k) plans from untaxed income, which is attractive from a tax perspective during the savings phase. Before the reform, such payments were only taxed in Germany on the difference (capital minus contributions). Now, the entire payout is taxable if the contributions were tax-privileged abroad, which is usually the case.
Options for action
Those who made their payout before 1 January 2025 were in many cases still able to benefit from the old, more favourable rules. For everyone else, the following now applies:
- Carefully check existing entitlements and payment dates,
- take advantage of scope for structuring when returning or moving away, and
- a case-by-case analysis is essential for tax optimisation.
Conclusion
The new rules on the taxation of foreign pension plans are a silent but substantial extension of the tax rules. Those affected should understand the new legal situation and plan accordingly.