Retrieved from 1 January 2016 is the new tax treaty with Germany has come into force. It replaces the treaty from the 1950s.
Tax Treaty with Germany
This treaty contains significant changes to the taxation of pensioners. For taxpayers who receive a pension from one country but live in another (pensioners), the introduction of this new tax treaty may have adverse financial consequences. To accommodate this group of taxpayers, transitional provisions and a transitional arrangement have been included.
Transitional law (general transitional provisions)
In 2016, the first year following the entry into force of the new tax treaty, a general transitional arrangement applies. If the new rules were to result in a tax disadvantage, taxpayers may choose to continue to apply the rules of the old treaty for one further year. For some residents of Germany who receive a pension, annuity or social security benefit from the Netherlands, this choice means that they will continue to pay tax in Germany on this Dutch income in 2016 as well.
This transitional provision will cease to apply on 1 January 2017.
Transitional arrangements: living in Germany, receiving a pension from the Netherlands
Under the old tax treaty with Germany, occupational pensions were taxed in the pensioner’s country of residence. The Dutch pensions of residents in Germany were taxed in Germany. German tax law results in a more favourable tax treatment of pensions than that in the Netherlands. Depending on the start date of the pension, only part of the pension is subject to tax. In contrast, a pension in the Netherlands is fully subject to tax at a rate of up to 52%.
Under the new tax treaty, pensioners receiving a pension, annuity or social security benefit totalling more than €15,000 per year will pay tax in the country from which the payments originate. This means that a taxpayer living in Germany who, for example, receives a state pension (AOW) and a Dutch occupational pension totalling more than €15,000 per year from the Netherlands will be liable for income tax on these payments in the Netherlands. In the Netherlands, the tax rate on the total pension amounts to a maximum of 52%. Calculations show that in many cases this leads to a significantly higher tax burden than was the case under the previous arrangements.
As a result of the new treaty, a large group of residents in Germany who receive a pension, annuity or social security benefit from the Netherlands have faced a significant increase in their tax burden. In addition to the general transitional provisions mentioned above, a specific transitional arrangement applies to them for a period of six years.
Time to get used to it
Former State Secretary for Finance Frans Weekers said on this matter: “I believe it is important that this group of pensioners is given time to adapt to this situation. That is why I wish to introduce a six-year transitional arrangement to ensure that the consequences of this change in tax law are phased in more gradually.”
A lower tax rate applies temporarily to pensions, annuities and social security benefits. The rate will be increased gradually over a period of six years. The table below shows how the rate will change:
| Year | Maximum rate |
| 2016 | 10% |
| 2017 | 10% |
| 2018 | 15% |
| 2019 | 20% |
| 2020 | 25% |
| 2021 | 30% |
Conditions
In order to make use of this transitional arrangement, the taxpayer must meet a number of conditions. The transitional scheme may only be opted for if the pensioner has been a resident of Germany without interruption since 12 April 2012 and received the first payment of the pension in question before 1 January 2016. The scheme can no longer be applied once the pensioner ceases to reside in Germany, even if only temporarily.
Please note: this transitional arrangement does not apply to benefits for which the right of taxation had already been allocated to the Netherlands under the old treaty. Examples of this include a lump-sum payment in lieu of an annuity and AOW, WIA, WAO and WAJONG benefits. In such cases, the tax is allocated on a pro rata basis.
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