If an employer terminates an employment relationship with an employee, the issue of severance payments frequently arises. Such payments are to compensate for the employee losing his or her job. This "severance" from the employer has numerous different implications. In addition to certain aspects of labour law, the taxation law implications also play an important role here.
In accordance with the German Income Tax Act (EStG), severance payments are always taxable and must be declared in the annual tax return relating to the year of payment. In most cases, the employer will have already deducted the corresponding income tax directly and paid this to the tax authorities. Under certain circumstances, favourable taxation under the German one-fifth rule comes into consideration.
Tax consultancy in relation to severance payments is multi-faceted. Examination of the conditions necessary for favourable taxation in accordance with the one-fifth rule is particularly important in German national law. Moreover, the year in which the severance payment was made is, for the most part, relevant for the level of tax burden. International aspects can also play an important role here. Due to globalisation, changing employer frequently involves a move abroad to accept a new professional challenge. In this context, the respective double taxation agreement for the taxation of severance payments must be consulted.
For over 20 years now, KONLUS has advised its clients on the taxation of income, including the taxation of severance payments. We have advised on both domestic cases and those with an international dimension. We assist our clients in the process of developing a provision for severance payments with the employer. In this context, our cooperation partners support us in matters relating to labour law. In addition, we assist our clients in consultations with the tax office as well as enforcement of the corresponding legal positions. Our experienced staff provide competent advice specific to your particular circumstances.
As a member of PrimeGlobal, a referral network of independent auditing and tax consultancy firms, we have expert contacts worldwide in the areas of tax consultancy, auditing and management consultancy. Our ongoing collaboration with colleagues in the United States, Malta, Great Britain, South Africa, Switzerland and many other countries enables us to consider international matters from other perspectives (that is, not only from a German perspective).
Our range of services includes:
- A tax review of contracts in terms of severance payments.
- We advise you on the best way to structure severance payments in Germany, especially with regard to fulfilling the conditions necessary for favourable taxation in accordance with the one-fifth rule.
- We also specialise in providing comprehensive tax advice to private individuals in relation to the taxation of severance payments with a foreign dimension while applying the double taxation agreement.
- We also provide tax advice in relation to the taxation of severance payments in countries with which Germany does not have a double taxation agreement.
- The preparation of tax reports and requests for binding information and information relating to an income tax appeal.
- The preparation of income tax returns as well as a review of tax assessments.
- We can represent your interests in dealings with the tax office and we can initiate opposition proceedings.