Living in Denmark with a pension from Germany

As a cross-border commuter, receiving a pension from Germany while residing in Denmark always requires reference to the double taxation agreement between Germany and Denmark. Accordingly, the pension from the German pension insurance is always subject to taxation in Germany.

Conversely, the right of taxation lies with Denmark in the case of a German residence and a Danish pension. This illustrates that the right of taxation lies with the state that pays out the pension.

Depending on when the pension began, only a certain percentage of the annual pension is taxable. This is based on the fact that during the contribution phase (contributions to the pension insurance), the contributions were never 100% tax-deductible. Therefore, during the payout of the annual pension, only a certain percentage must be taxed.

Just like with the taxation of the wages of a cross-border commuter, the pension can be subject to either limited or unlimited tax liability in Germany.

Limited Tax Liability as a Cross-Border Commuter

In the case of a person with limited tax liability, only the pension is taxed in Germany. Accordingly, deductions for expenses such as insurance, tradesman services, as well as medical costs cannot be claimed in this case.

Furthermore, the taxpayer does not receive the basic tax-free allowance, which exempts a certain part of the income from taxation (comparable to the Danish personfradrag). Therefore, they must pay taxes on the pension starting from the very first EUR 1.

Ultimately, the income tax is calculated by the tax office on the resulting taxable amount. This system means that, provided no advance tax payments have been made, additional tax payments can always be expected.

Cross-Border Commuters with Unlimited Tax Liability 

Under certain circumstances, even if the pensioner lives abroad, unlimited tax liability may be considered upon application. However, this is only possible if the income from Denmark is lower than the basic tax-free allowance or if the income from Germany (German pension) accounts for 90% of the total income.

The special feature here is that the Danish pensions must be determined according to the German rules. This means that it is not the Danish gross pension that is decisive, but rather the part that would be taxable if it were a German pension.

If such an application is submitted, this would have the consequence that all income must be declared in Germany. This includes not only the German pensions, but also the income from Denmark. Although the Danish income is not taxed directly in Germany, it is used to determine the tax rate.

The advantage of unlimited tax liability lies in the fact that, in this case, insurance, tradesman services, and medical costs can be deducted for tax purposes. In the final step, the basic tax-free allowance is also deducted from the remaining income.

If, after deduction of the basic tax-free allowance, the remaining amount is EUR 0.00 or below, no tax would arise. If this is the case, an application for non-assessment can even be submitted to the tax office. If the tax office approves, the pensioner will no longer have to submit tax returns in the future.

Compared to limited tax liability, unlimited tax liability is therefore more advantageous in many cases: Anyone who has no or little income besides the German pension saves taxes if an application for unlimited tax liability is submitted.