Global: Transfer of Value / International Tax

Transfer of Value

  • International Transfer of Pension Capital
    • In general it is possible to transfer pension capital from one expat pension plan/country to the next before pension age.
    • The constant value of the existing expat pension claims will be transferred to the next expat pension plan/country and implemented as suitable according to its pension claims.
    • It is relevant if the existing and new expat pension plan have a DB/DC/CDC/hybrid nature as this impacts how to determine its constant value and financial implications.
    • Each country has its own legal/tax/procedural regime and substantial differences exist. For the procedure it is relevant if the transfer is within or also outside of the EU.
    • Distinguish between authorization from civil versus tax authorities.
    • Distinguish between individual versus collective transfers and a legal entitlement versus just the possibility to ask for a transfer.
    • If a transfer transforms an existing DB/CDC pension claim into a DC pension claim, question if you prefer to trade existing and paid for guarantees for (substantial) interest rate and investment risks.
  • Transfer From versus Transfer To a Country
    • A country can have different legislative requirements about ‘transfer from’ and ‘transfer to’.
    • One often sees that countries with high quality pension systems have stricter regulations about value leaving the country than for value coming to the country.
  • Prevent Unnecessary Risks
    • Due to the technical, legal, tax and product aspects of international transfer of value, it seems advisable to obtain advice beforehand.

International Tax

  • 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.
  • Conclusion
    • 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.