National Taxation of Pensions
- In Europe one often sees that due to the Reversal Rule by employer paid pension premiums are exempted from wages taxation. The own contribution is tax deductible. The pension annuity is taxed as of pension age. Taxation is therefore much later and often at a modest rate. If not all conditions are met, instant and total taxation including a stiff fine might materialize.
- Each country can have certain limitiations on these kind of tax benefits. For example Holland has a maximum amount of pension earning wages.
- Other countries have certain extentions of benefits:
- For example the UK has the Lump Sum possibility to receive the total DC pension capital at once as of 2015 and as of age 55.
- Furthermore the UK still has the 25% tax exemption.
- As well as the QROPS possibility to transfer UK pension capital from the UK to a recognized location without taxation.
- Expats who reside in Holland can apply for a 30% tax ruling. If granted they can i.e. receive 30% of their wages without tax. In general these 30% cannot be included in the pension earning wages. Only in specific instances it is allowed.
Double Taxation and Pensions
- I.e. the country where the retirering expat resides is entitled to tax regardless of nationality/origin of pension. Many exceptions (often for governmental pensions) do exist.
- It might prevent high tax claims by using international (mostly bilateral OESO based) double tax treaties and unilateral national regulations on double taxation.
- Double tax treaties don’t create the right to tax. They regulate which country may implement existing national tax law.
- Several countries like for example Holland have an extensive international network of bilateral double tax treaties. Use it to your advantage.
- Before retirement expats should have checked the tax situation of each pension claim.
- International optimalization of pension taxation is complex. It requires the advice from a specialist. It will be much cheaper than the cost of the lack thereof.