Portugal vs. Spain vs. Italy: Southern Europe’s Taxation of Pensions for German Retirees – Where Your Pension Goes Furthest

German Pensions Abroad: What You Need to Know About Taxation

Before we dive into each country, let’s clarify the basics. This is where most mistakes happen.

The Double Taxation Treaty: Your Most Important Safeguard

Germany has so-called double taxation treaties (DTAs) with Portugal, Spain, and Italy. This means: You won’t pay taxes on your pension in both Germany and your new country of residence.

Here’s the catch: The DTA defines which country has the right to tax. And this is where the crucial differences between these three countries come into play.

The German State Pension: What You Need to Know

Your German statutory pension is only lightly taxed in Germany if you move abroad. The reason: Taxation rights usually shift to your new country of residence.

But beware: Private and company pensions are often treated differently. Here, Germany often reserves the right to tax.

A practical example: Hans (67) receives €1,800 monthly from the state pension and €600 from a company pension. If he moves to Portugal, he’ll pay tax on the state pension there. The company pension, however, remains taxable in Germany.

Why Residency Is So Important

This is where things get interesting: Your tax residence is key for taxation. You have tax residence where you usually spend more than 183 days per year.

So you really have to make a decision. One foot in Germany, one in Portugal—tax-wise, that doesn’t work.

Portugal: Why German Retirees Often Fare Best Here

Portugal has experienced a real boom in German retirees in recent years—and for good reason.

The NHR Program: Almost Tax-Free for Ten Years

Portugal’s secret weapon is called “Não Habitual Resident” (NHR). This program has been available since 2009, and it’s a real game changer for retirees.

How it works: As an NHR, you pay just 10% tax in Portugal on your German pension for ten years—provided the pension hasn’t already been taxed in Germany.

An example: Maria (65) receives a monthly state pension of €2,200. In Germany, she’d pay around €180 in taxes on that. As an NHR in Portugal: 10% for ten years.

That’s over €21,000 in savings over ten years. Impressive, right?

After NHR: What Happens Next?

After ten years, the NHR program ends. The standard Portuguese tax rates then apply. And they’re moderate:

• Up to €7,703 annually: 14.5%
• Up to €11,623 annually: 23%
• Up to €16,472 annually: 28.5%
• Above that: up to 48%

Also: Portugal grants a basic allowance of €760 per month for retirees over 65. That’s €9,120 annually tax-free.

Cost of Living: Where Portugal Shines

Lower taxes are only half the story. Portugal also stands out when it comes to the cost of living:

The Downside: What You Need to Look Out For

Portugal isn’t perfect. Here’s what you should be aware of:

• Language: Portuguese is harder to learn than Spanish
• Bureaucracy: Dealing with government offices often takes longer than in Germany
• Infrastructure: Limited options away from the coast
• NHR uncertainty: The program could be changed

Spain: Pension Taxation Between Tradition and Modernity

Spain has always been a favorite for German retirees. But tax-wise? Things are more complicated than most think.

Spanish Income Tax: The Reality for Retirees

In Spain, retirees pay income tax according to a progressive scale. The 2024 rates:

• Up to €12,450 annually: 19%
• Up to €20,200 annually: 24%
• Up to €35,200 annually: 30%
• Up to €60,000 annually: 37%
• Above: 47%

Additionally: Spain has no special tax allowance for retirees. Only the general personal allowance of €5,550 per year applies.

An example: Klaus (69) receives €2,000 per month in pension (€24,000 annually). In Spain, he’ll pay about €4,200 in tax per year—that’s much more than in Portugal.

Regional Differences: Not the Same Everywhere

This is interesting: Spain has 17 autonomous regions. Each can set its own tax rates.

The most favorable regions for retirees:

1. Madrid: Often 1–2 percentage points lower
2. Andalusia: Reduced rates for low incomes
3. Valencia: Moderate surcharges

The most expensive regions:

1. Catalonia: Up to 4 percentage points higher
2. Basque Country: Separate tax regime, often higher

Wealth Tax: The Nasty Surprise

Most Spanish regions levy a wealth tax. The allowance: just €700,000 per person.

This means: If you own a paid-off house in Germany worth €400,000 and savings of €350,000, you’ll already owe wealth tax.

Rates range from 0.2% to 3.5% per year. That can really hurt.

Health Insurance: A Significant Cost

In Spain, German retirees often need private health insurance. The costs:

• Age 65–70: €150–250 per month
• Age 70–75: €250–400 per month
• Over 75: €400–600 per month

This significantly offsets the savings on cost of living.

Italy: Dolce Vita With Tax Surprises

Italy entices with culture, great food, and a mild climate. But when it comes to taxes, it’s often the worst of the three countries for German retirees.

Italian Income Tax: Higher Than Expected

Italy taxes pensions at regular income tax rates:

• Up to €15,000 annually: 23%
• Up to €28,000 annually: 27%
• Up to €55,000 annually: 38%
• Up to €75,000 annually: 41%
• Above: 43%

Plus a regional tax of 1.23% to 3.33%, depending on the region.

And: The basic allowance is relatively low at €8,174 per year.

The 7% Rule for Retirees: Too Good to Be True?

Italy promotes a 7% flat tax for new residents. Sounds tempting, but:

• It only applies to foreign-sourced pensions received in Italy
• The scheme is limited to five years

For many retirees, this provision simply doesn’t apply in practice.

Property Taxes: The Hidden Cost Driver

Italy imposes various property taxes that often take Germans by surprise:

Cost of Living: Varies Greatly by Region

Italy shows huge regional differences:

Southern Italy (Calabria, Sicily): Low cost, but limited infrastructure Tuscany, Liguria: Expensive, but high quality of life Northern Italy: Often more expensive than Germany

An example: In Palermo, a 2-room apartment is €500–700. In Florence, it’s €1,200–1,800.

The Big Comparison: Portugal vs. Spain vs. Italy for German Retirees

Let’s get specific. I’ll show you where you’ll do best tax-wise, using three typical retiree profiles.

Scenario 1: The Average Retiree

Profile: €2,000 statutory pension per month, €50,000 in savings

Winner: Portugal by a wide margin

Scenario 2: The Wealthy Retiree

Profile: €3,000 pension per month, €800,000 in assets

Winner: Portugal, but Italy surprisingly beats Spain

Scenario 3: After the NHR Program

Profile: €2,500 pension per month, NHR program expired

Conclusion: Portugal remains the top choice, even after NHR

Non-Tax Factors: What Else Matters

Taxes are important, but not everything. You should also consider these factors:

• Language: Spanish is easier for Germans than Portuguese or Italian
• Healthcare system: Spain has the best public system
• German community: Well-established in all three countries
• Climate: Varies greatly by region
• Culture: A matter of taste—all three countries have much to offer

Practical Steps: How to Optimize Your Pension Taxation

Theory is all well and good. But how do you actually put this into practice? Here’s your step-by-step guide.

Step 1: Take Stock of Your Pensions

Before deciding anything, you need to know what you have:

1. Statutory pension: What’s your gross monthly payment?
2. Company pension: Do you have any company pension entitlements?
3. Private pension: Riester, Rürup or private annuity?
4. Investment income: Interest, dividends, rental income?

Make a list of all your income and the amounts. This is your starting point.

Step 2: Get an Expert Tax Assessment

Now, the most important step: Get your personal situation reviewed.

Why? Because every case is unique. What’s best for Hans might be completely wrong for Maria.

Seek advice from a professional familiar with international taxation. Not every tax advisor has this expertise.

Step 3: Plan the Timing of Your Move

Timing is critical. Keep these points in mind:

• Move mid-year: Often more tax-efficient
• Before pension begins: Easier than during retirement
• NHR application in Portugal: Must be submitted in the first year
• Deregistering in Germany: Important for establishing tax residency

Step 4: Clarify Your Insurance Needs

Don’t underestimate this step. Clarify in advance:

Step 5: Test-Run Before Your Final Decision

My tip: Spend six months living in your country of choice as a trial. Rent an apartment, get to know the bureaucracy, test the healthcare system.

Keep your German address meanwhile. That way, you can try things out with no tax consequences.

Avoiding Common Mistakes With Pensions Abroad

From my consulting experience, I know the most common pitfalls. Here are the top five mistakes—and how to avoid them.

Mistake 1: Only Looking at Tax Rates

Many retirees compare only tax rates. That’s too shortsighted.

Better: Look at total costs, including living expenses, health insurance, and wealth tax.

A low tax rate is meaningless if your health insurance costs €400 per month.

Mistake 2: Keeping Dual Residence

The classic: “I’ll keep my German apartment for the summer.”

This can get expensive. Germany might argue your main place of living remains there. Then you’re fully liable for taxes in Germany.

Solution: Make things clear. Either Germany, or your new country.

Mistake 3: Underestimating the Language Barrier

Dealing with government offices, medical visits, tax consulting—all are in the local language. Without basic knowledge, it gets tough.

My advice: Start language courses at least a year before moving.

Mistake 4: Planning Too Late

Many don’t even consider moving abroad until they turn 65. That’s often too late for optimal tax planning.

Better: Start planning at least two years ahead. Some tax benefits only apply with early planning.

Mistake 5: Choosing the Wrong Expert

Not every accountant is familiar with international taxation. I often see advice along the lines of “It’ll somehow work out.”

Choose experts who specialize in taxation for expats. It may cost more up front, but it’ll save you plenty of money and trouble in the long run.

Frequently Asked Questions

Do I have to pay tax on my German pension abroad?

That depends on the double taxation treaty. In Portugal, Spain, and Italy, your statutory German pension is usually taxed in your country of residence, not in Germany.

Can I extend the NHR Program in Portugal?

No, the NHR program expires automatically after ten years. Extensions are not possible. Standard Portuguese tax rates apply thereafter.

What happens to my health insurance?

As an EU citizen, you’re entitled to healthcare in any EU country. However, additional private health insurance often makes sense, since public coverage can be limited.

Can I keep my property in Germany?

Yes, but it remains taxable in Germany. Rental income must be taxed there. If you sell it within ten years of living in it yourself, capital gains tax also applies.

How do I register in Portugal, Spain, or Italy?

You must register with local authorities and obtain a tax ID. In Portugal it’s the NIF, in Spain the NIE, in Italy the Codice Fiscale. The process usually takes 2–4 weeks.

How much does professional advice cost?

A comprehensive analysis of your situation typically costs between €1,500 and €3,000. That may sound like a lot, but for a typical pension it often pays off in tax savings in the first year alone.

Do I have to deregister in Germany?

Yes, if you move your tax residency abroad, you must deregister in Germany. If you keep a German address, you risk having Germany consider you fully liable for tax there.

Can I move between countries?

In principle yes, but it can have tax disadvantages. In Portugal, for example, you’ll lose NHR status if you leave the country. So think such a move over carefully.