German Taxation of Swiss Pensions: A Comprehensive Guide

Many Germans work in Switzerland to benefit from a higher pension later in life. A tax advisor explains what needs to be considered regarding taxation.

Individuals who have worked in Switzerland their entire lives can look forward to a higher pension. However, it becomes complex when the pensioner lives in Germany.

According to the double taxation agreement between Switzerland and Germany, the right to tax lies with the country of residence. Therefore, Switzerland is not allowed to deduct any tax. If withholding tax is nevertheless deducted, it cannot be offset in Germany and must be reclaimed in Switzerland.

The Swiss pension is taxed in Germany according to the personal income tax rate, meaning within the framework of the progressive tariff. However, the type of pension is crucial.

The Three-Pillar Principle

The Swiss pension system is based on three pillars. The first pillar is state provision and covers basic living expenses. "This makes it comparable to a German statutory social security pension," says tax advisor Julian Thalmeir. The so-called deferred taxation applies to it: a portion of the pension is taxable, while the rest remains tax-free. The taxable portion depends on the year the pension begins. Those who retire later must pay tax on a larger portion; from 2058 onwards, the pension will be fully taxed.

The second pillar, the pension fund, is more complex. Similar to Germany, this concerns occupational pensions, but it plays a larger role in Switzerland – partly because a portion of it (Pillar 2A) is mandatory for most employees. "The mandatory part is taxed on a deferred basis," explains Thalmeir. Lump-sum payouts are also generally taxable there. However, there is also the supplementary voluntary provision. When paid monthly, it is taxed at a favorable yield portion, which depends on the age at which the pension begins. Important: Those who opt for a lump-sum payout of their assets will continue to benefit from complete tax exemption for contracts concluded before 2005. But beware: For monthly pensions, the legislator has just eliminated this privilege through a new regulation – they are now always taxable, even for old contracts.

The third pillar comprises private provision and is treated in Germany similarly to a private capital investment. Therefore, it is usually taxed more favorably with pensions through the taxation of the yield portion or as capital gains on lump-sum payouts. There is no distinction between tied provision (3A) and free provision (3B) in Germany.

Pension Allowance Remains Unchanged

Thalmeir explains the tax calculation with an example: If someone lives in Germany and receives only a Swiss pension, the taxable portion is determined first. The year the pension begins is crucial.

For instance, if a person retired in 2006 and receives €12,000 annually, the taxable portion is 52 percent. In this case, €6,240 would have to be taxed. The remaining amount of €5,760 is fixed as a pension allowance and remains tax-free for life. Important: This allowance will not change. If the pension increases later, the additional amounts are generally fully taxable. For example, if the pension increases to €13,000, the allowance remains €5,760 – the additional €1,000 is fully taxable.

Mistakes to Avoid

There are also some important details to consider when filing a German tax return for Swiss pensions. Firstly, it is essential to request a breakdown of the pension fund into mandatory and supplementary provisions, because without this certificate, the tax office cannot correctly apply the more favorable taxation. Furthermore, Swiss pensions must be included in appendix R-AUS and not in the normal appendix R. For the conversion from Swiss Francs to Euros, the bank exchange rate must not be used; instead, the monthly ECB reference rate or an official annual rate should be used.