Proposed tax changes from 01.01.2025 (Jahressteuergesetz 2024)
Posted: Fri Jun 07, 2024 1:04 am
The proposed tax changes for 2025 were published in the Jahressteuergesetz 2024, see this Haufe article (which like all Haufe articles resists translation by GoogleTranslate): https://www.haufe.de/steuern/gesetzgebu ... 23320.html
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US pension plans (401k, IRA): from 01.01.2025, the whole withdrawal is taxable
Germany's highest financial court, the Bundesfinanzhof, had ruled in 2020 (BFH-Urteil vom 28. Oktober 2020, X R 29/18) that anyone who has an US pension plan (401k, IRA and so on) only has to tax the difference between what was paid out and what had been paid in (= the growth), if they hadn't profited from any German tax breaks on the contributions.
So basically, that they were allowed to have their cake and eat it too
The Bundesfinanzhof's argument had been that just because you got a tax break on the contributions in the USA, this does not allow Germany to tax the entire payout and that Germany is only allowed to tax the "growth".
Well, the BMF unfortunately noticed this and will introduce a change to § 25 Nr. 5 Satz 2 EStG from 01.01.2025, which will mean that even if you had tax breaks only in the USA, Germany will still make you tax 100% of the withdrawal from your US pension plan.
Ah well, it was nice as long as it lasted.
Here's the DeepL.com translation of the relevant part of the above Haufe article:
Kleinunternehmer turnover limit rises to 25,000€
If your 2024 turnover that has a VAT location of "Germany" (so turnover you had from a non-German business client doesn't "count" towards the limit) was up to 25,000€, you are still a Kleinunternehmer in 2025.
Here's the DeepL.com translation of the relevant part of the above Haufe article:
**********************************************************************************************************
US pension plans (401k, IRA): from 01.01.2025, the whole withdrawal is taxable
Germany's highest financial court, the Bundesfinanzhof, had ruled in 2020 (BFH-Urteil vom 28. Oktober 2020, X R 29/18) that anyone who has an US pension plan (401k, IRA and so on) only has to tax the difference between what was paid out and what had been paid in (= the growth), if they hadn't profited from any German tax breaks on the contributions.
So basically, that they were allowed to have their cake and eat it too
The Bundesfinanzhof's argument had been that just because you got a tax break on the contributions in the USA, this does not allow Germany to tax the entire payout and that Germany is only allowed to tax the "growth".
Well, the BMF unfortunately noticed this and will introduce a change to § 25 Nr. 5 Satz 2 EStG from 01.01.2025, which will mean that even if you had tax breaks only in the USA, Germany will still make you tax 100% of the withdrawal from your US pension plan.
Ah well, it was nice as long as it lasted.
Here's the DeepL.com translation of the relevant part of the above Haufe article:
- Benefits from foreign company pension schemes (Section 22 no. 5 sentence 2 EStG)
Under current law, benefits from foreign company pension schemes are not subject to full deferred taxation in accordance with Section 22 no. 5 sentence 1 EStG even if the benefits to be taxed are based on contributions that were tax-privileged or tax-exempt abroad. In these constellations, there may be a better position compared to the standard domestic case if, for example, a tax exemption was granted for contributions in the foreign taxation and only the income (Section 22 no. 5 sentence 2 EStG) is taxed on the pension benefit in Germany (see BFH of 28.10.2020, X R 29/18, BStBl II 2021 p. 675). In order to avoid this preferential treatment, the law clarifies that not only a tax exemption of contributions for German taxation, but also a comparable tax exemption or preferential treatment of contributions for foreign taxation leads to benefits within the meaning of Section 22 no. 5 sentence 1 EStG.
Entry into force: Applies from 1.1.2025 (Art. 45 para. 7 in conjunction with Art. 4 no. 4).
Kleinunternehmer turnover limit rises to 25,000€
If your 2024 turnover that has a VAT location of "Germany" (so turnover you had from a non-German business client doesn't "count" towards the limit) was up to 25,000€, you are still a Kleinunternehmer in 2025.
Here's the DeepL.com translation of the relevant part of the above Haufe article:
- Reform of the small business regulation (Sections 19 and 19a UStG)
The new regulation serves to implement the so-called Small Business Directive (Directive (EU) 2020/285). Previously, only entrepreneurs based in Germany were able to make use of the small business regulation of Section 19 UStG in Germany. The new regulation also enables entrepreneurs based in the rest of the Community to apply the small business regulation in Germany.
Section 19a UStG introduces a special notification procedure so that entrepreneurs based in Germany can claim the tax exemption in another member state. The BZSt is responsible for carrying out the reporting procedure and the cooperation with other member states required by EU law. The entrepreneur participating in the special reporting procedure must submit a turnover report for each calendar quarter in accordance with sec. 19a para. 3 UStG (new). This must be submitted to the BZSt within one month of the end of each calendar quarter exclusively by electronic means using the officially prescribed data set.
The new sec. 19 para. 1 UStG exempts transactions carried out by domestic small businesses from VAT, thus introducing a genuine tax exemption (excluding input tax deduction), in contrast to the previous sec. 19 para. 1 UStG, according to which VAT is “not charged” for small businesses (which presupposes a basic tax liability). The prerequisite for exemption is that the total domestic turnover (Section 19 (2) UStG) did not exceed EUR 25,000 in the previous calendar year and does not exceed EUR 100,000 in the current calendar year.
If the lower domestic threshold is exceeded in the current calendar year, the small business regulation can no longer be claimed in the following year. In principle, EU law requires that the tax exemption no longer applies if the lower domestic threshold is exceeded. However, the Member States may introduce an upper domestic threshold, up to which the small business scheme may continue to be applied in the current calendar year. In order to continue the small business regulation in the year in which it is exceeded in an unbureaucratic manner, use is made of the option under EU law to set the upper domestic limit at EUR 100,000. If the total turnover in the current calendar year exceeds the upper domestic limit of EUR 100,000, the small business regulation can no longer be applied from this point onwards.
If the entrepreneur commences his commercial or professional activity, Section 19 (1) sentence 1 UStG must be applied with the proviso that the total turnover in the current calendar year does not exceed the amount of EUR 25,000. The turnover that exceeds the limit is already subject to standard taxation. The turnover generated up to the point at which the limit is exceeded is tax-free.
The reformed small business regulation results in various consequential changes in other regulations (e.g. Sections 15, 15a UStG). In addition, a new Section 34a UStDV will be introduced in the UStDV for simplified invoices from small businesses (not to be confused with invoices for small amounts!).
Entry into force: 1.1.2025.
, just as one would have to pay tax on 100% of the US pension funds withdrawn while residing in the 
. That was our expectation when retiring here. So we can’t really complain. We simply got a windfall for a few years.