Can I also receive my severance pay tax-free abroad?
February 14, 2023 | 55,00 EUR | answered by Lorenzo Zimmermann
Dear tax advisor,
My name is Theodor Krüger and I work for a German company that is headquartered abroad. I am about to receive a severance payment as my employment is being terminated. I am unsure whether I can receive this severance payment tax-free abroad or if I must pay taxes in Germany.
I am currently in a situation of uncertainty as I do not know exactly how the tax regulations for severance payments abroad work. I am concerned that I may be double-taxed or that I may miss out on important tax advantages if I do not take the right steps.
What options do I have to receive my severance payment tax-free abroad? Are there specific regulations or agreements that I need to consider to avoid tax disadvantages? How can I ensure that I optimize the taxation of my severance payment and do not suffer any financial losses?
I look forward to your professional advice and thank you in advance for your support.
Sincerely,
Theodor Krüger
Dear Mr. Krüger,
Thank you for your inquiry regarding the tax treatment of your severance payment, which you will receive from your German employer due to the termination of your employment relationship. It is understandable that you are concerned about possible tax consequences in this situation and want to ensure that you do not incur any financial losses.
It is important to note that severance payments in Germany are subject to taxation. The taxation is based on the general provisions of the Income Tax Act (EStG). The severance payment is added to the taxable income and taxed according to the individual tax rate. However, there are certain tax-free allowances and regulations that can be applied depending on the situation to minimize the tax burden.
If your German employer is based abroad, this may have implications for the tax treatment of your severance payment. It depends on whether there is a double taxation agreement (DTA) between Germany and the country where your employer is based. A DTA establishes rules to avoid double taxation and determines in which country the income will be taxed.
To receive tax-free treatment of your severance payment abroad, it is important to review the provisions of the relevant DTA. Generally, the severance payment is taxed where you as an employee are resident. So if you reside abroad, you may have to pay taxes on the severance payment there. It is advisable to seek advice from a tax advisor with international expertise to ensure that all tax aspects are considered.
Additionally, it is important to collect and retain all relevant documents and records to be able to prove how the severance payment was treated for tax purposes in case of any inquiries from tax authorities. Proper documentation is crucial to avoid any potential tax disadvantages.
Overall, I recommend that you promptly contact an experienced tax advisor who can assist you in optimizing the tax treatment of your severance payment. Together, you can review all relevant aspects and ensure that you tax your severance payment in the best possible way without incurring any financial losses.
I hope that this information has been helpful to you and I am available to answer any further questions you may have.
Kind regards,
Lorenzo Zimmermann, Tax Advisor
