Expatriates Where should I move when I retire?

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You will come across a lot of technical terms in books, on forms and, last but not least, in the tax assessment. Here we explain the most important.

Those who have already reached the age of 64 before the start of the calendar year will receive the retirement benefit in accordance with Section 24a. It benefits all income that you have in old age (e.g. from renting or capital income from which no withholding tax is deducted). The tax office will automatically take into account the retirement benefit based on your date of birth. You do not need to apply for it in your tax return.

Annuities and pensions are not favored: pensions are favored through taxation with the taxable portion and pensions through the pension allowance.

The retirement benefit is deducted from the total income. The total amount of income is only obtained after deduction of the retirement benefit.

Proceedings are pending in which a lawsuit has been filed but no judgment has yet been issued.

If a procedure is pending before the Federal Fiscal Court, you can refer to this procedure in your objection to a tax assessment. The tax office does not process your tax assessment on this point, but lets the objection rest until the Federal Fiscal Court has decided (procedural rest or rest of the process).

If proceedings are only pending before a tax court, you can also refer to these proceedings in an objection, but you are not entitled to a suspension of the proceedings.

A tax assessment notice can be revoked or changed if it is subject to review or if it has been issued provisionally. The change or cancellation is possible until the statute of limitations has expired.

Tax assessments can also be changed within the statute of limitations in the event of an apparent incorrectness. Obvious inaccuracies include typing or calculation errors.

If the aforementioned cases do not exist, the taxpayer can contest the tax assessment within the objection period (one month). The decision can be changed in favor (but also to the disadvantage!) Of the taxpayer.

Private expenses are usually not taken into account for tax purposes. However, special situations can lead to extraordinary burdens, and you can then take them into account in a tax-reducing manner. However, strict requirements must be met.

The legislature differentiates:

  • extraordinary burdens of a special kind. These are cases that are expressly defined in the Income Tax Act;

  • Exceptional loads of a general nature that are not specified in the law and must be proven individually.

The tax office automatically deducts the so-called reasonable burden from the total of your total extraordinary burdens of a general nature that you claim in your income tax return. You must always bear your extraordinary burdens on your own in this amount.

Disabled people can claim a lump sum for disabled people instead of exceptional burdens. This should be used if the expenses per itemized statement are lower than the respective lump sum.

Which flat rate is used depends on the degree of disability:

Degree of disability (in percent)

Lump sum for the disabled (annually)

25-30

310 euros

35-40

430 euros

45-50

570 euros

55-60

720 euros

65-70

890 euros

75-80

1,060 euros

85-90

1,230 euros

95-100

1,420 euros

With the BL (blind) or HI (helpless) feature, an increased lump sum for the disabled of € 3,700.00 can be claimed.

The lump sum for the disabled is granted annually. This also applies if the disability did not exist until the end of the year.

If the lump sum for the disabled is used, the typical extraordinary burdens caused by the disability may no longer be claimed. Atypical, extraordinary loads are still taken into account. These include, for example, health resort costs, surgery costs, medical expenses (in acute cases), costs for household help, travel costs.

The Federal Fiscal Court, based in Munich, is the highest court (federal court) in tax matters.

Its senates judge revision decisions with a cast of five judges. Resolutions are passed in a cast of three judges.

The Grand Senate consists of the President and six judges, and one judge is sent from each participating Senate. The Grand Senate is convened if the individual Senates have issued different judgments, the legal questions are of fundamental importance and if the judgment of the Grand Senate is necessary to ensure uniform jurisdiction and to further develop the law.

The tax courts of the individual federal states are responsible for the first instance jurisdiction in tax matters. In the event of a legal dispute in tax matters, the tax court of the respective federal state is responsible first. Only in the second instance, when the decision has been approved for revision, can the case be submitted to the Federal Fiscal Court for decision.

Due to the progressive tax rate - to put it simply - almost every euro earned is charged with a different tax rate, from the basic tax-free amount to the initial tax rate and the top tax rate. The average tax rate or personal tax rate indicates what percentage of the annual income must be paid to the tax office.

ELStAM is an abbreviation for electronic income tax deduction features. These features include:

  • the tax class and the individual factor for tax class IV,

  • the number of children,

  • the allowances,

  • the church tax deduction features.

The tax offices and the Federal Central Tax Office are responsible for storing and maintaining this data. With the abolition of the old cardboard income tax card and the introduction of electronic transmission procedures, you have replaced the registration offices. The deduction features are stored in a central database of the financial administration and the registration authorities transmit existing personal data to them.

If there are changes in the person or in the environment of the taxpayer, either the employee can make the change on request or the tax office of its own accord.

After the end of the year, employees receive the electronic income tax certificate from their employer. In addition, the employer electronically transmits the wage data to the tax office via the Internet. So that the encrypted data can be identified there, the employer creates an identification and classification feature from the employee's personal data - the eTIN (electronic Taxpayer Identification Number).

The tax office already has the wage data and can use it for the income tax return.

Employees do not need to attach the printout of the income tax certificate to their income tax return. Instead, they enter their eTIN on the front of Appendix N on their tax return.

ELSTER stands for electronic tax return and means that the tax return can be sent to the tax office via the Internet.

There are limitation periods so that taxpayers can be sure that the tax office will no longer correct an old tax assessment. In tax law, they are called deadlines.

After the assessment period has expired, no more tax returns may be submitted, no more tax assessments may be issued or changed in any way. The tax office may no longer make changes to the detriment of taxpayers, but they may no longer enforce tax advantages.

The fixing period is four years. Exception: In the case of frivolous tax reductions, the assessment period is five years, in the case of tax evasion ten years.

For most taxpayers, the assessment period begins at the end of the calendar year in which they submitted the tax return to the tax office - regardless of whether they are obliged to file a tax return or whether they do so voluntarily. If you do not submit a tax return for one year, although you are obliged to do so, the assessment period does not start until three years after the end of this calendar year.

Every federal state has at least one tax court. In the event of a legal dispute in tax matters, the tax court of the respective federal state is responsible first. Only in the second instance, when the decision has been approved for revision, can the case be submitted to the Federal Fiscal Court for decision.

A finance court has a president, a chairman and other judges. The senates formed by the finance court make their decisions with three professional judges and two honorary judges. The honorary judges do not participate in resolutions and preliminary rulings.

In order to exempt capital income from taxation, the investor must submit an exemption order to the respective bank. Exemption orders can be issued to several credit institutions, but may not exceed the total savings allowance.

The saver allowance (saver lump sum) is € 801.00, for spouses assessed together, € 1,602.00 remains tax-free.

If the taxable investment income (e.g. interest income) exceeds the exemption, the bank must withhold the withholding tax and pay it to the tax office.

With a progressive tax rate - to put it simply - every additional euro earned is taxed a little higher. The marginal tax rate indicates which percentage applies to the next higher euro.

Until the basic tax-free amount is reached, the marginal tax rate is zero; it rises continuously from the initial tax rate to the top tax rate.

The basic allowance serves to secure the subsistence level. Taxable income is not subject to any income tax up to the basic tax allowance. If the taxable income exceeds the basic allowance, income tax must be paid.

year

Basic allowance for single people

Basic tax allowance for married people (for joint assessment)

2018

9,000 euros

18,000 euros

2017

8,820 euros

17,640 euros

2016

8,652 euros

17,304 euros

2015

8,472 euros

16,944 euros

2014

8,354 euros

16,708 euros

If the private household is dissolved due to the need for care, the home costs incurred are to be reduced in order to reduce the household savings. If the prerequisites (home accommodation) are only met for part of the calendar year, the pro-rata amounts (1/360 per day, 1/12 per month) are to be applied.

Hospital placement costs are regularly recognized as an exceptional burden without a reduction in household savings.

That is how high the household savings are

year

per year

per month

per day

2018

9,000 euros

750 euros

25 euros

2017

8,820 euros

735 euros

24.50 euros

2016

8,652 euros

721 euros

24.03 euros

2015

8,472 euros

706 euros

23.53 euros

2014

8,354 euros

696.17 euros

23.21 euros

As income increases, so does the tax rate. And when the state then has more of a raise than the employee himself, he is the victim of the cold progression.

Due to the progressive tax rate, the tax burden rises faster than the salary in percentage terms. For example, with a three percent raise, you pay four or even five percent more taxes. The net plus is in most cases less than the gross increase. If it is below the gross increase, your real wage has even fallen: the employee can afford less than before.

To prevent this effect, the basic tax allowance and the benchmarks of the progressive tax rate would have to be increased by the inflation rate every year.

Employees who are subject to unrestricted income tax are assigned wage tax brackets for the execution of the wage tax deduction.

Spouses can choose between different combinations of income tax brackets.

Until 2004, pensions were taxed with the favorable income component. This has been different since 2005: the contribution to the pension insurance is gradually being fully exempt from tax. In return, the later pension - after a long transition phase - is then fully taxable. For each new age group of pensioners, the statutory pension will be taxed gradually higher in a transitional arrangement up to the year 2040.

All basic pension systems are subject to downstream taxation without distinction. The general rule is: Pensions and other insurance benefits, the contributions of which are tax-deductible as pension expenses, are taxed downstream (Section 22 No. 1 Clause 3 Letter a Double Letter aa EStG). These are:

  • Pensions from a statutory pension insurance;

  • Pensions from occupational pension schemes;

  • Pensions from the agricultural retirement fund and

  • Pensions from a private Rürup pension / basic pension.

The Oberfinanzdirektion is subordinate to the Federal Ministry of Finance and the State Ministry of Finance and manages the financial administration for the federal government and for the states. It monitors the application of the law and supervises the subordinate authorities. These include the tax offices and the state building construction offices.

The legislature only allows an exception to the downstream taxation in part and under very specific conditions within the framework of the so-called opening clause. The prerequisite is that contributions above the amount of the maximum contribution to the statutory pension insurance (West) have been paid for at least ten years by December 31, 2004. Important: It is not sufficient that the salary was above the respective contribution assessment ceiling - contributions must actually have been paid above the maximum contribution.

Only contributions in which the taxpayer was involved are taken into account. The entire contribution is always used as a basis, regardless of whether it was borne entirely or partially by the taxpayer himself.

The existence of the prerequisites must be proven once with a contribution certificate from the pension insurance or pension fund and the opening clause applied for in Annex R of the tax return. In that case, the part of the pension is only taxable with the favorable income component that is based on the contributions above the maximum contribution. The other part of the pension is taxed downstream with the higher taxable portion. If a one-off benefit, e.g. from a professional pension fund (pension, death benefit, etc.) is based on contributions above the maximum contribution, it is tax-free.

Note: For employees there was the possibility to pay contributions above the maximum contribution to the statutory pension insurance, only up to 1997 within the framework of the higher insurance according to § 234 SGB VI in the version valid until December 31, 1997. The opening clause is therefore particularly suitable for the self-employed and members of professional pension institutions, some of whom had paid very high contributions up to 2004.

If a taxpayer cares for a close relative and receives remuneration for this, this income is tax-free if the basic care services are provided in accordance with Section 37 SGB XI. If the taxpayer cares for a friend who is not related to him, then the remuneration he receives for his care services is taxable.

The amount of the care allowance depends on the degree of care need.

The care allowance is not intended to constitute payment for the care services provided by the carer or caregivers. Rather, it puts those in need of care in the position of giving relatives and other caregivers material recognition for care provided in the home.

On November 13, 2015, the Second Long-Term Care Act (PSG II) was passed. The law came into force on January 1, 2016, the new assessment procedure and the change in the benefit amounts for long-term care insurance came into effect on January 1, 2017.

With the Second Long-Term Care Act, a new definition of the need for long-term care and a new assessment procedure were introduced: The previous distinction between those in need of care with physical limitations and those with dementia is no longer applicable. Five care levels, which are uniformly applicable to all persons in need of care, replace the previous system of three care levels and the additional determination of significantly limited everyday skills (especially dementia).

The level of benefits decides what the person concerned can do himself and where he / she needs support - regardless of whether he / she suffers from dementia or physical limitations. Physical, mental and psychological restrictions are therefore equally recorded and included in the classification. The degree of independence is measured in six areas and combined (with different weightings) to form an overall rating:

  • mobility

  • Cognitive and communication skills

  • Behaviors and psychological problems

  • Self-sufficiency

  • Coping with and independent handling of illness or therapy-related demands and stresses

  • Design of everyday life and social contacts

    With our care level calculator, you can carry out an initial self-assessment independently and free of charge: Answer the questions in the 6 modules and see whether you are entitled to a care level and what financial support and benefits in kind you are entitled to.

Because of the extraordinary burdens a taxpayer incurs by caring for a person who is not only temporarily helpless, the taxpayer can claim a lump sum of € 924.00 per calendar year instead of a tax reduction according to § 33 EStG (care lump sum). The following requirements must be met for this:

  • the person in need of care is not only temporarily helpless,

  • the care is carried out in Germany either in the carer's home or in the home of the person in need of care and personally

  • the carer does not receive any remuneration for the care.

If a person in need of care is cared for by several taxpayers in the assessment period, the lump sum is divided according to the number of caregivers.

A progressive tax rate (tariff) is used for income tax. This means that the income tax rate increases with increasing income. A high income is therefore subject to a higher income tax rate than a low income. The progressive tax rate is intended to take into account the individual ability of the taxpayer.

In 2018, the income tax rate has the following structure:

  • Taxable income between € 0.00 and € 9,000.00: The tax burden is 0 because the marginal tax rate is 0%.

  • Taxable income between € 9,001.00 and € 13,769.00: The marginal tax rate is between 14% and 24% (progression zone I).

  • Taxable income between € 13,770.00 and € 54,949.00: The marginal tax rate is between 24% and 42% (progression zone II).

  • Taxable income between € 54,950.00 and € 260,532.00: The marginal tax rate is a uniform 42% (proportional zone I).

  • Taxable income from € 260,533.00: The marginal tax rate is 45% (proportional zone II).

The start of the pension is the point in time from which the pension is actually approved, possibly also after retroactive approval. In the case of additional pension payments, the beginning of the pension is also to be understood as the time at which the pension entitlement arose.

When the pension application is made or when the pension is paid for the first time does not matter for the start of the pension. The date of the pension notification is also irrelevant. Even if an approved pension is reduced to zero, for example because your own income is taken into account, it still starts to run from a tax point of view.

The start of the pension is stated in the pension notification and must be entered on the front of Appendix R.

The pension insurance institutions are legally obliged to electronically transmit annual reports on taxable pension payments made to a central office of the financial administration. For each contract and each pension, a separate pension receipt notification is required according to the officially prescribed data record.

However, the law does not provide that the pensioner concerned also receives a copy of the notification of pension receipt! The legislature considers it sufficient that the pensioner is informed that the pension is communicated to the central office.

The pension receipt notifications are sent by March 1st of the following year. The reported data are not binding for the tax office. For tax-free pensions (e.g. from statutory accident insurance), no notification of pension receipt will be sent.

The special expenses include expenses that are attributable to private life and that cannot be taken into account as income-related expenses. Special expenses reduce the total amount of income and lead to a reduction in the tax burden. The following are recognized as special editions, for example:

  • Maintenance payments to the divorced or permanently separated spouse,

  • Pensions and permanent burdens based on a specific obligation,

  • Contributions to insurance for life or death,

  • Contributions to additional voluntary long-term care insurance,

  • Church tax paid,

  • Tax consultancy costs,

  • Donate.

In the same way as special expenses, the loss allowance as well as the expenses for monuments and for certain cultural assets that are particularly worthy of protection are to be deducted.

The aim of introducing the tax identification number (IdNr) was to simplify the taxation process and reduce bureaucracy. In addition, the tax identification number gives the tax authorities extended control and comparison options that could not be guaranteed with the earlier practice of assigning tax numbers in the federal states.

In principle, the IdNr is assigned to every natural person registered in Germany by the Federal Central Tax Office. They are valid for a lifetime and do not change if you move or get married. The IdNr is an 11-digit number and does not contain any information about the taxpayer or the responsible tax office.

Its scope also extends to the withholding tax at credit institutions and the comparison with social security agencies.

In this article, we explain what you have to do if you can no longer find your tax identification number.

At the end of a calendar year, the assessment for income tax is carried out. The income of the past calendar year is then taxable.

If no income has been generated from non-self-employed work (wages), an unrestricted taxpayer is only obliged to submit a tax return if he has earned taxable income in the calendar year that exceeds the basic tax allowance. However, a tax return must always be submitted if a loss was made in the previous year.

Pension expenses include, for example, risk insurance that only provides benefits in the event of death.

Since January 1st, 2005, pension costs have been exempt from tax up to a maximum of 60% of up to € 20,000.00 per year. This proportion will gradually increase by 2% annually to 100% by 2025.

A cheaper test is used to check that taxpayers are not worse off than the old law. If there is a deterioration, the old law takes precedence over the new law.

Other pension expenses are deductible up to a maximum of € 1,900.00 if a tax-free health insurance subsidy is granted or if you are entitled to an allowance in the event of illness. The maximum amount increases to € 2,800.00 for people who have to pay their health insurance contributions on their own. In the case of jointly assessed spouses, the joint maximum amount results from the sum of the maximum amounts due to each spouse.

This applies, for example, to contributions to health and long-term care insurance, accident insurance, liability insurance, term life insurance as well as endowment and pension insurance that were taken out before 1.1.2005.

In principle, advertising costs can be taken into account as a lump sum with the lump sum or by means of individual proof of the costs.

For retirees, there is currently a flat fee of 102 euros for income-related expenses. This is automatically taken into account by the tax office if you can not prove any higher income-related expenses. Typical advertising costs for retirees are, for example, union fees and all costs that are incurred in connection with receiving a pension. This also means that you, as a pensioner, have to prepare a tax return - you can deduct the costs for tax software or books on the subject as income-related expenses.

The lump sum for income-related expenses is an annual amount that can always be applied in full if a pension was drawn in the year in question.

Always check whether the lump sum is exceeded in the case of individual proof of the income-related expenses. If this is the case, income-related expenses should be proven in detail by receipt.

The reasonable burden is deducted from the sum of the extraordinary burdens. Only these remaining extraordinary burdens will be taken into account in a tax-reducing manner. With the deduction of the reasonable burden, the economic capacity of the taxpayer should be taken into account.

Amount of the reasonable burden

Amount of income (total amount)

up to 15,340 euros

from 15,340 euros to 51,130 euros

over 51,130 euros

no children and using the basic table

5 %

6 %

7 %

no children and use of the splitting table

4 %

5 %

6 %

one or two children

2 %

3 %

4 %

three or more children

1 %

1 %

2 %