Should contributions to foreign insurance policies also be declared in the tax return?
The consideration of insurance contributions in the German tax return extends beyond domestic insurances. Here is a summary of the relevant regulations:
- Health insurance and pensions: In addition to German insurances, contributions to foreign statutory pension insurance providers can be claimed as "pension contributions" (according to § 10 para. 2 no. 2c EStG). Contributions to "other insurances" from foreign companies may also be deductible, provided there is still room within the insurance maximum amount. However, the foreign company must be based in an EU or EEA country or have permission to operate in Germany (according to § 10 para. 2 no. 2a EStG).
- Economic connection and special expenses: In principle, social security contributions paid abroad are not deductible as special expenses if they are economically connected to tax-free income. This applies if income earned abroad is tax-free in Germany and is only considered under the progression clause (according to § 10 para. 2 no. 1 EStG).
- Special regulation since 2019: Since 2019, there has been a legal regulation allowing for an improved deduction of special expenses for contributions paid in the EU/EEA to statutory pension, health, nursing care, and unemployment insurance. This is applicable if:
- the income from employment is earned in a member state of the European Union or a contracting state of the European Economic Area agreement,
- this income is tax-free in Germany under a double taxation agreement, and
- the employment state does not allow for the tax consideration of pension expenses in the taxation of this income.
This regulation applies to various types of pension expenses (according to § 10 para. 1 EStG).
- Judgements and developments: The Federal Fiscal Court has ruled in favour of taxpayers in several cases (BFH rulings of 27.10.2021, X R 28/20 and X R 11/20; BFH rulings of 10.11.2021, X R 13/20 and X R 14-16/20) who wanted to deduct contributions to nursing care insurance in Luxembourg and basic health insurance in the Netherlands as special expenses in Germany. This was allowed because no tax-reducing consideration occurred in the respective countries. However, it is important to note that pension expenses related to income from third countries (e.g. China, Brazil, or India) are excluded from this regulation (BFH ruling of 14.12.2022, X R 25/21).
Overall, contributions to foreign insurances can be considered in the German tax return, provided certain conditions are met.
Note: It is advisable to inform yourself about the current regulations and rulings or to seek professional tax advice if necessary.
