Germany–Switzerland · Double taxation agreement
Article 18 · Article 19 · Article 21 of the tax treatyWhich country taxes pensions between Germany and Switzerland?
There is no single rule for pensions under the Germany–Switzerland double taxation agreement (DTA). A private-sector occupational pension may fall under Article 18, a public service pension under Article 19, while statutory social insurance benefits and certain Swiss occupational pension fund benefits may be classified under Article 21 in accordance with case law. Only after this treaty classification can it be determined whether Germany or Switzerland has the right to tax the benefit.
Starting point
Treaty classification determines taxing rights, rather than the country from which the payment comes
A pension from Germany does not automatically have to be taxed in Germany. Similarly, a Swiss pension does not automatically result in taxation in Switzerland.
The Germany–Switzerland tax treaty allocates taxing rights according to the type of benefit. The first step is therefore to establish the legal arrangement on which the payment is based.
It is particularly important to distinguish between remuneration for past employment, state or public-law pension benefits, and income not expressly covered by the treaty’s specific pension provisions.
“Pension” is not a single, uniform category under the treaty
The description on a payment statement or pension benefit statement does not determine taxing rights. Even two payments that both serve a retirement purpose may fall under different treaty articles.
Overview
Treaty classification of common pensions between Germany and Switzerland
The following overview shows the usual starting point for the assessment. Special rules, the specific pension institution and the actual legal nature of the benefit may lead to a different classification.
| Benefit | Typical treaty provision | Basic principle | Points to consider |
|---|---|---|---|
| Private-sector occupational pension | Article 18 | Generally taxable in the country of residence | Assess public service and special pension arrangements separately |
| Private-sector retirement payment arising from former employment | Article 18 | Generally taxable in the country of residence | Establish the legal basis of the payment |
| Public service pension | Article 19 | Generally subject to a special rule assigning taxing rights to the paying state | Consider frontier worker provisions and other special rules |
| Swiss AHV pension received by a German resident | Generally Article 21 | Generally taxable in Germany | Statutory social insurance benefits do not automatically fall under Article 18 |
| German statutory pension received by a Swiss resident | Generally Article 21 | Generally taxable in Switzerland | Also examine the treaty’s special rules for people leaving Germany |
| Certain Swiss occupational pension fund benefits | Article 21 or Article 19, depending on the structure | The specific institution must be assessed | Distinguish between pension funds governed by private law and those governed by public law |
| Pillar 3a | Depends on the product | No automatic allocation to a pension article | Distinguish banking, investment fund and insurance arrangements |
Article 18 of the tax treaty
Pensions arising from past employment
Article 18 concerns pensions and similar remuneration paid to a person resident in one contracting state in consideration of past employment.
Subject to the special provision in Article 19, such benefits are generally taxable only in the recipient’s country of residence.
- The benefit must relate to past employment
- Private-sector occupational pensions are a typical example
- The country of residence generally has the right to tax
- Public service benefits fall under Article 19
Example: a German occupational pension received by a Swiss resident
An occupational pension arising from former private-sector employment in Germany may generally fall under Article 18. If the recipient is resident in Switzerland for treaty purposes, Switzerland generally has the right to tax the pension.
Article 19 of the tax treaty
Public service benefits follow their own rules
Article 19 concerns remuneration, including pensions, paid by Germany, Switzerland, German federal states, Swiss cantons, municipalities or certain bodies governed by public law for services rendered.
Such benefits are generally subject to a special rule assigning taxing rights to the paying state. The right to tax may therefore remain with the country whose public service gave rise to the pension entitlement.
The Germany–Switzerland tax treaty also contains special provisions for certain situations, particularly those involving frontier workers and public service pension institutions.
Do not treat public-law and private-law pension funds as equivalent
Article 19 may be relevant to Swiss public service pension institutions. Before determining the treaty classification, it should therefore be established whether the benefit arises from employment or pension provision governed by private law or public law.
Article 21 of the tax treaty
The residual rule is particularly important for statutory social insurance benefits
Article 21 covers income not expressly addressed in the preceding articles of the treaty.
Such income is generally taxable only in the contracting state in which the recipient is resident.
For various Swiss social insurance and occupational pension fund benefits, the German Federal Fiscal Court has held that they are not automatically classified as pensions under Article 18 or public service pensions under Article 19. In these cases, Article 21 may be the relevant treaty provision.
Effect of classification under Article 21
Where a benefit falls under Article 21, the country of residence generally has the exclusive right to tax it. For a German resident, this would be Germany; for a Swiss resident, it would generally be Switzerland.
Swiss AHV pensions
AHV pensions for German residents: generally Article 21
Switzerland’s Old-Age and Survivors’ Insurance (AHV) is the statutory first pillar of the Swiss pension system.
Under the Germany–Switzerland tax treaty, a statutory social insurance pension is not allocated to Article 18 merely because it serves the economic purpose of an old-age pension.
Under the case law relevant to the treaty, such a social insurance benefit generally falls within the residual rule in Article 21.
If the recipient is resident in Germany for treaty purposes, Germany therefore generally has the right to tax the Swiss AHV pension.
Calculating the German tax is a separate question
The treaty only determines which country may tax the benefit. The actual German tax treatment of the AHV pension then follows German income tax law, particularly the rules for statutory pension taxation.
German statutory pension insurance
German statutory pensions received by Swiss residents
The same approach may be relevant in the opposite direction. A German statutory social insurance pension is not automatically a pension within the meaning of Article 18.
Where the recipient is resident in Switzerland for treaty purposes, a standard German statutory old-age pension is generally allocated to Switzerland for taxation under Article 21.
German income tax law may initially provide a domestic right to tax German pensions. However, this right is restricted by the treaty’s allocation of taxing rights.
Also examine the treaty’s special rules for people leaving Germany
The Germany–Switzerland tax treaty contains special rules for certain individuals after they leave Germany. When an actual move takes place, the pension’s treaty treatment should therefore not be assessed entirely in isolation from other German income and continuing ties to Germany.
Swiss occupational pension funds
For second-pillar benefits, the term “pension fund” alone does not determine the treaty classification
Swiss occupational pension funds form part of employment-based retirement provision. For tax purposes, however, they may represent very different legal arrangements.
For example, in a case involving benefits from a Swiss pension fund governed by public law, the German Federal Fiscal Court held that the benefit concerned was neither a pension under Article 18 nor public service remuneration under Article 19. Article 21 therefore applied in that case.
On the other hand, Swiss public service pension benefits may fall under Article 19 where certain conditions are met. For pension funds governed by private law, the German distinction between the mandatory component and a separate extra-mandatory component must also be considered.
Mandatory component
The statutory component of Switzerland’s second pillar. Assess its German domestic tax classification and treaty treatment separately.
Extra-mandatory component
Pension funds governed by private law may include a separate private-law pension arrangement.
Public service
For benefits arising from public service, Article 19 and any applicable special agreements must be examined.
Keep treaty analysis separate from German income tax law
Whether a lump sum benefit is taxed in Germany under section 22 of the German Income Tax Act (EStG) or under insurance taxation rules is a separate question from which country has the right to tax it under the treaty.
Private-sector occupational pensions
Article 18 is the usual starting point for private-sector occupational pension provision
Where a retirement benefit arises from former private-sector employment, Article 18 is generally the first treaty provision to examine.
For example, if a German occupational pension is paid to a person resident in Switzerland, Switzerland may generally have the right to tax it as the country of residence.
Conversely, a private-sector Swiss occupational pension received by a German resident may generally be allocated to Germany for taxation, provided Article 18 actually applies.
Not every pension fund benefit automatically falls under Article 18
Swiss pension institutions in particular require a separate legal assessment. Describing a benefit as occupational pension provision is not sufficient to apply Article 18 without further review.
Public service
Civil service pensions and comparable public service pensions form a separate category
Article 19 must be examined for pensions arising from former service to Germany, Switzerland or a territorial authority governed by public law.
The basic principle therefore differs from Article 18. For public service pensions, the right to tax may remain with the paying state even though the recipient lives in the other country.
Germany and Switzerland also have special agreements concerning certain benefits from Swiss public service pension institutions and certain frontier worker situations.
Always assess Article 19 cases separately
Nationality, the nature of the former service relationship, the specific pension institution and any previous frontier worker status may affect the treaty treatment.
Lump sum instead of a pension
A one-off payment does not automatically change the applicable treaty article
Many Swiss pension systems allow full or partial lump sum benefits as an alternative to a regular pension.
Treaty classification therefore does not depend solely on whether a benefit is paid monthly or as a one-off amount. The starting point remains the legal basis of the benefit.
For example, the German Federal Fiscal Court has also separately assessed the treaty classification of one-off termination and lump sum benefits from Swiss pension funds.
| Benefit | Treaty assessment |
|---|---|
| Regular private-sector occupational pension | Generally examine Article 18 |
| Lump sum settlement of private-sector occupational pension benefits | Check whether it remains a pension or similar remuneration within the meaning of Article 18 |
| Lump sum benefit from a Swiss pension fund | Identify the institution and legal arrangement; Article 21 or Article 19 may be relevant |
| Lump sum benefit from public service pension provision | Examine Article 19 and any special rules |
| Pillar 3a lump sum payment | Assess the specific product structure and treaty classification separately |
Tax treaty and domestic taxation
The treaty determines the country; domestic law determines the tax
The double taxation agreement generally does not provide a complete set of rules for calculating the income tax payable on a pension benefit.
Instead, it allocates taxing rights between Germany and Switzerland. Once the country entitled to tax has been identified, the benefit must be assessed under that country’s domestic tax law.
Residence
Determine the country of treaty residence at the time of payment.
Type of benefit
Classify the benefit as a statutory pension, occupational pension or public service pension.
Treaty article
Identify Article 18, Article 19, Article 21 or an applicable special rule.
Domestic taxation
Calculate the tax in the country entitled to tax the benefit.
Frequently asked questions
Pensions under the Germany–Switzerland tax treaty
Are all pensions treated the same way under the treaty?
What does Article 18 of the Germany–Switzerland tax treaty cover?
What does Article 19 cover?
What does Article 21 cover?
Where is a Swiss AHV pension taxed if the recipient lives in Germany?
Where is a German statutory pension taxed if the recipient lives in Switzerland?
Does Article 18 apply to a Swiss occupational pension fund?
Where is a private-sector German occupational pension taxed if the recipient lives in Switzerland?
Where is a public service pension taxed?
Does a lump sum payment change the treaty treatment?
Does the treaty also determine the amount of tax?
Can Swiss pension benefits still initially be subject to withholding tax?
Further reading
Pensions and retirement provision between Germany and Switzerland
Germany–Switzerland tax advice
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