Preogressionvorbehalt vs Burger mit free Pommes dazu

16 posts in this topic

Fine with paying all taxes. But to hear, "foreign income is not taxed, but it enters Progressionvorbehalt..." I find it very annoying. Foreign income IS taxed.

 

You visit a takeaway for a 6.49€ burger, without pommes.

Or you can add pomes to it, in which case the pommes are FREE. Because of some law they subscribe to, they are not allowed to charge for pommes. Pay nothing for them. But if you take it with pommes, the cost of the burger ups to 9.99€.

Oh, but the pommes are FREE.

And this is fair: if you eat more you should be paying more. You know, fairness... :wacko::blink:

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Some good points you make here @Gambatte.

I have often thought something similar myself about  Progressionvorbehalt   .

 

Upon arriving in Germany, i heard / read about this a few times of "foreign income is not taxed, but it enters Progressionvorbehalt",  and i must admit that i was 'slightly confused' at first.

I kept thinking, it is clearly a 'quirk' of the German tax system maybe

- i.e. well, it certainly sounds like it is 'tax relevant', as it potentially increases the overall tax rate.

 

Certainly, this whole topic is now very relevant for my rental income from UK, post-Brexit (annoyingly - yet another disadvantage of Brexit...its a long list!).

In end-effect, it means that any foreign rental income (non-EU i.e. the UK) is definitely now 'tax relevant', and certainly not tax-free.

 

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1 hour ago, DannyThru said:

I kept thinking, it is clearly a 'quirk' of the German tax system maybe

- i.e. well, it certainly sounds like it is 'tax relevant', as it potentially increases the overall tax rate.

 

Its a feature of the German taxation system being over-engineered & thus exceedingly complex.

There is no interest among decision-makers in changing things - rather the opposite.

 

In the case of Progressionvorbehalt its due to the German taxation rate being a curve rather than (as in UK) a straight line with a couple of kinks.

 

I recently asked my brother in the UK how much work it was to fill out the UK taxation forms each year - he said "zero" because its all automatic.  "They" know his salary & possible income from capital gains etc.  He gets a letter each year saying how much extra he has to pay (or not).

 

Things would be different if he was self-employed or owned rented property.

 

 

 

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It's not the complexity per se that irritates me most.

It's the perversity of "we are not taxing your foreign income", when in fact it is as if they were taxing it, see the free pommes example.

Although admittedly they "tax" it much less than if they were taxing it directly...

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(from Deloitte)

  Working & Living in Germany | Deloitte Deutschland

brochure can be downloaded....

 

 

 

Rental income

 

Rental income from real estate in Germany is taxable in Germany at the taxpayer’s tax rate. Deductions, such as mortgage interests, depreciation or other expenses (e. g. maintenance) are allowable. Losses may be offset against other taxable income.

 

 

Rental income from countries that are members of the European Union/EEA is in most cases exempt from German taxation.

 

*****Rental income from countries that are not members of the European Union/EEA is mostly exempt from German taxation but will be taken into account when calculating the personal tax rate (progression income).*****

 

 

Rental losses from foreign sources cannot be offset against positive income taxable in Germany but could be offset against positive income from the same source in future years.

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I could rehearse the policy behind the Progessionsvorbehalt but life is too short.  The simple explanation is that Germany has a domestic law right to tax your worldwide income as a tax resident in Germany and sets its rate of tax on the basis of that worldwide income, as HEM says, on a progressive curve, rather than the actually less progressive slabs used in the UK.  There is actually a pretty strong argument to say that the German system is actually fairer than the UK system in this regard but let's not go there...

 

Separate to that Germany has agreed a form of wording with another tax authority that it will relinquish its right to tax certain types of income, or will retain that right but give credit for foreign tax suffered on the same income, where both fiscs have the right to tax - the DTAs - but has also agreed/stipulated with the other fisc that it will retain the right to set its progressive tax rate by reference to worldwide income. But they are not taxing the foreign income.

 

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4 minutes ago, GaryC said:

But they are not taxing the foreign income.

Free pommes.

 

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22 minutes ago, Gambatte said:

Free pommes.

 

Do the maths

 

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6 minutes ago, GaryC said:

Do the maths

 

9.99 - 6.49 = 3.50

3.50 > 0

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Apples and pears, sorry.  If you had 10,000 of employment income and 10,000 of German property income what would be your rate of tax on your Employment income?  Put the property income in another country (ignoring those "special" EU rules) and what rate of tax would you pay on your employment income?  The same.  The fact that the Germany agrees with another country that it will not exercise its right to tax the property income (as long as it is effectively taxed in the other country) does not change the mechanism by which it sets the rate of tax on your German taxable income based on your worldwide income.

 

If you don't like it yo have a few options:  lobby parliament; bring the source of income within scope of German tax; dispose of the income source; or move to another country where you like the tax system more.  I imagine there are a few other options too.

 

Do I like or agree with the German policy?  Nope.  Am I passionate enough to do anything about it?  Also nope...

 

You might also care to look at the DTA on property income as it is different to pensions.  For property each country "may" tax the income.  Germany choses not to but the UK requires you to return that income and claim tax credit relief. Which one does or doesn't give you free pommes and which one ends up with you actually paying more?  I am not going to do that maths as life really is too short but you could set-up a spreadsheet to work it out...

 

 

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Gary, can I politely suggest we agree life is too short to feet bitter about taxes?

 

Even though I'm the one who started complaining 🥴

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45 minutes ago, Gambatte said:

Free pommes.

 

It may well be free e.g. if your domestic income isn´t taxable (e.g. because it´s too low) or if you have no domestic income at all.

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We can - not that I am feeling bitter about taxes or anything on this sunny morning

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1 hour ago, Gambatte said:

It's not the complexity per se that irritates me most.

It's the perversity of "we are not taxing your foreign income", when in fact it is as if they were taxing it, see the free pommes example.

Although admittedly they "tax" it much less than if they were taxing it directly...

 

When I was telephoning back in 2017/18 with HMRC about my UK state pension (liable for taxation in the UK - but is below the Freibetrag) they were shocked to hear that the Germany taxed it via the back door.

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8 minutes ago, HEM said:

 

When I was telephoning back in 2017/18 with HMRC about my UK state pension (liable for taxation in the UK - but is below the Freibetrag) they were shocked to hear that the Germany taxed it via the back door.

But if you only have a UK pension as income (or I think a pension that was paid for over 15(?) years from untaxed income), and nothing from DE then it is tax free in DE since there is nothing to put the Progessionsvorbehalt to/on. Therefore theoretically at least, it would be possible to have foreign income tax free?

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Maybe - but that is not my case as I have a patchwork of pensions including a German state pension & a company one.

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