Leaving Germany after a dismissal does not take your severance out of the German tax net. Under German domestic law and most double-tax treaties, a severance payment for a job you performed in Germany generally remains taxable in Germany — even if it lands in your account months after you have deregistered and moved abroad. At the same time, the year and the country in which the payment arrives can move your net result by five figures in either direction. This article maps the terrain from the employment-law side. It is informational only: cross-border severance taxation is Steuerberater territory, and every serious exit from Germany should be planned by your lawyer and a tax advisor together — before the settlement is signed, not after the money has been wired.
Germany usually keeps the taxing right
Domestic law: § 49 EStG
Once you give up your German residence, you become subject to limited tax liability (beschränkte Steuerpflicht). Severance paid to a former employee counts as German-source income under § 49 Abs. 1 Nr. 4 Buchst. d EStG to the extent the income from the former employment was subject to German taxation. Your former employer must withhold German wage tax on the payment — regardless of where you now live and regardless of what your bank details say.
Treaty allocation: where the work was performed
Double-tax treaties (DBA) decide which country may ultimately keep the tax. The modern line — reflected in the OECD commentary and codified in Germany through § 50d Abs. 12 EStG — treats severance as additional remuneration for the former activity: it is taxable where the work was physically performed. If you worked your entire German employment in Germany, that points squarely at Germany. If you split your working time across countries (remote periods abroad, split payrolls, secondments), the severance may have to be apportioned across states in line with your workday history.
Two hedges are essential. First, individual treaties deviate: Germany has agreed specific severance rules and consultation agreements with several states (Switzerland, the Netherlands, Luxembourg and Austria among them), and the treaty with your new residence state controls your case. Second, your new residence state may also tax the payment and grant a credit or exemption — the combined result depends on both systems. This is precisely the analysis a Steuerberater with cross-border experience must run against your facts.
Do you lose the Fünftelregelung as a non-resident?
The Fünftelregelung — the relief that softens progression on concentrated one-off payments — is not applied by the employer in payroll; it is claimed through an income-tax assessment (Veranlagung). For non-residents that raises a mechanical problem: wage-tax withholding on severance is in principle final for limited taxpayers, and without an assessment there is no Fünftelregelung.
The escape route: EU/EEA nationals can generally apply for an assessment (Antragsveranlagung) and claim the relief that way. Two caveats belong in every plan:
- Progressionsvorbehalt: in the assessment, your worldwide income — including the new salary abroad — is typically counted when setting the German rate. A well-paid new job can erode much of the Fünftelregelung benefit.
- Third-country nationals: access to the assessment route is more restricted. Whether and how you can claim relief must be checked for your citizenship and residence constellation individually.
None of this should be improvised after the fact. Our general guide to severance taxation covers the domestic mechanics; the cross-border overlay belongs with your tax advisor.
Timing: departure year versus payment year
Because severance is taxed on receipt (Zufluss principle), the payment date in your settlement is a genuine planning lever:
- Payment in the departure year: you were German-resident for part of the year, so the severance stacks on top of your salary for that year, and foreign income earned after departure is typically counted for the German progression rate. Often the most expensive variant.
- Payment in the following year: you are then a pure non-resident with, ideally, no other German income — frequently a materially lower German burden, subject to the Progressionsvorbehalt and assessment questions above, and subject to how your new residence state taxes the inflow in that year.
The payment-due-date clause in an Aufhebungsvertrag or court settlement is negotiable like everything else. In our practice we routinely fix the payment date to the tax plan — but the plan has to exist first, which means the Steuerberater needs to see the draft before signature.
Social security: generally exempt — with edge cases
A genuine severance for the loss of the job (echte Abfindung) is not contributory pay: no German pension, health, nursing-care or unemployment contributions are due on it, whether you are still in Germany or not. Watch the edge cases: payments that really compensate outstanding salary, bonus or vacation are contributory; and voluntarily insured members of the statutory health insurance can face contributions on severance under their fund’s rules. If you keep any German insurance relationship after departure, have the interaction checked.
RSUs, bonuses and other trailing income
Severance is rarely the only payment that follows you across the border. Equity awards that vest after your departure are typically allocated to the country where you worked during the vesting period — so RSUs vesting months after you left can still be partly German-taxable, with your former employer withholding German wage tax pro rata. The same allocation logic applies to trailing bonuses. Practical consequences:
- List every open equity tranche, bonus entitlement and deferred payment in the settlement — with amounts, vesting dates and payment dates.
- Ask the tax advisor to model the German and foreign treatment of each trailing item, not just the severance.
- Keep a clean workday calendar for your final years — apportionment disputes are won with records.
If you are litigating or negotiating the exit itself from outside Germany, our guides on termination from abroad and working from abroad cover the procedural side.
The coordination checklist: lawyer plus Steuerberater
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Brief both advisors before signing
The lawyer negotiates amount and structure; the tax advisor models the net in both countries. Both need the draft — sequencing them costs real money.
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Fix the payment date deliberately
Departure year or following year is a decision, not an accident. Write the chosen due date into the agreement.
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Model both scenarios in euros
Have the advisor compute the net severance for each candidate payment year, including Progressionsvorbehalt from expected foreign income.
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Inventory the trailing items
RSUs, deferred bonus, vacation payout, pension components — each has its own allocation and timing logic.
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Assemble your workday history
Travel calendars, remote-work records, secondment letters. Apportionment across countries follows physical presence.
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File in both states
Decide who files the German assessment application and what gets declared where. Keep the withholding certificates (Lohnsteuerbescheinigung).
Worked example
Software architect, EU citizen, moves from Munich to Spain at the end of October after an operational dismissal. Settlement: €90,000 severance. Salary January–October: €70,000 gross. Two payment scenarios (figures rounded and purely illustrative — the actual numbers depend on the treaty, the Spanish side, church tax and personal circumstances):
- Payment in December (departure year): the €90,000 stacks on €70,000 of salary; the Fünftelregelung brings little at that income level. Illustrative German tax on the severance: roughly €35,000.
- Payment in January (following year): as a non-resident with no other German income, an assessment with the Fünftelregelung can bring the German tax on the same €90,000 to an illustrative €10,000–20,000, depending on how much new Spanish salary counts through the Progressionsvorbehalt — before the Spanish treatment is layered on top.
The gross severance is identical; the coordination is worth a five-figure amount. Which scenario actually wins in your case is exactly the question your Steuerberater must answer with real numbers — before the payment clause is signed.
Frequently asked questions
My employer withheld full German wage tax although I had already left. Is that wrong?
Usually it is correct: withholding on German-source severance continues after departure. Relief comes afterwards — through a German assessment, the treaty mechanism or a credit in your new residence state. Which route applies to you is a tax-advisor question.
Will my new country tax the severance as well?
Possibly — many states tax residents on worldwide income and then credit or exempt the German tax under the treaty. The combined burden depends on both systems, which is why advisors on both sides should look at the draft before signature.
Are social-security contributions deducted from my severance?
A genuine severance for loss of employment is generally contribution-free in Germany. Disguised salary components are not — and voluntarily insured health-fund members can face fund-specific rules. Have the payment breakdown checked.
I worked partly outside Germany during my employment. Does that reduce the German tax?
It can. Where the treaty allocates severance to the states in which the work was performed, your foreign workdays can carve a portion out of the German tax base. Documentation of the workday history is what makes or breaks the apportionment.
Should the settlement state a net severance amount?
Almost never. German settlements state gross amounts; the employer withholds what the law requires. If cross-border withholding is unclear, address it with a cooperation clause — the employer supports treaty relief and issues the certificates you need — rather than a net promise.