Earning money in ("un")retirement? The planned active pension and its challenges
Under the government's draft legislation on active pensions, employees who continue to work beyond the standard retirement age will be eligible for a monthly tax allowance of up to €2,000 from 2026. This incentive is intended to encourage people to continue working and counteract the shortage of skilled workers. But how attractive is the oxymoron (a contradictory term) "active pension" chosen in the government draft for employers, and what challenges might arise here?
A. Background and content of the regulation
The German government's coalition agreement includes tax exemptions designed to strengthen the labor market. The draft legislation will be the first step in this matter by implementing the active pension regulation. According to the planned Section 3 No. 21 of the Income Tax Act (EStG), income from employment for people who have reached the statutory retirement age will remain tax-free up to €2,000 per month. An additional requirement is that the employer pays contributions to the statutory pension insurance scheme for this purpose. The planned tax exemption will only apply to regular and other income from employment (Section 19 (1) sentence 1 No. 1 EStG).
However, other income from employment, such as benefits from company events, pension payments, regular contributions to company pension schemes (Section 19 (1) sentence 1 no. 1a - 3 EStG) and benefits granted or earned for periods before reaching the statuory retirement age, are not eligible for tax relief. Income from other types of income, such as self-employment and business operations, is also excluded from the exemption.
By Anne Dechow, Prof. Dr. Nikolaus Kastenbauer and Mario Mitrovic
Draft Amendment of the Letter by the German Federal Ministry of Finance on the Tax Treatment of Wages under Double Taxation Agreements
The German Federal Ministry of Finance (Bundesfinanzministerium; BMF) has presented its draft amendment to the letter dated December 12, 2023, concerning the taxation of wages under double taxation agreements. The draft especially contains amendments to the review of treaty residency, changes to the employer certificate with respect to the cross-charge of wage costs to a host company in the context of the determination of an economic employer and changes to the treatment of wages during an exemption period.
Although the draft amendment addresses simplifications regarding the review of treaty-residency and economic employership, it does not meet the demands of the practice, as expressed by the Federal Chamber of Tax Consultants and the leading associations in their respective statements of September 25, 2025 on the draft amendment. This article addresses the planned changes specifically relating to the assessment of treaty residency, describes how the Dutch-30%-Ruling will be handled and outlines the changes to the employer certificate. The changes in treatment of wages during an exemption period will be covered in a separate article.
By Christina Neugirg and Belinda Yasemin Baron
Rhineland-Palatinate State Tax Office: Distinction between wages and income from capital assets in employee (capital) participation schemes (MIP)
The Rhineland-Palatinate State Tax Office („LfSt”) summarizes the criteria for classifying income from employee (capital) participation in a recent announcement. Particularly in cases involving foreign countries, complete documentation and clear evidence, as well as an increased obligation on the part of those involved to cooperate in substantiating their case, are crucial. This article summarizes the information and approach of the LfSt in a practical manner.
Step 1: Examination of economic ownership
For tax assessment purposes, it must first be examined whether and when the employee has acquired economic control or economic ownership of the asset participation. According to the content of the agreement, the employee must be able to exercise all essential rights associated with the shareholding (property and management rights, in particular profit distribution and voting rights) and effectively enforce them in the event of a conflict. However, acquiring economic power of disposal does not require the employee to be able to immediately convert the benefit into cash by selling the shares. In case of doubt, the employee must submit all necessary documents relating to the employee participation program and, if necessary, provide a German translation. As these are foreign matters on a regular basis, the employee has an increased obligation to cooperate in providing evidence. Conversely, this also means that the employer must be able to provide its employees with valid documents if necessary.
If the review shows that no economic power of disposal was acquired, the asset participation cannot be attributed to the employee. In this case, the benefit from the employee participation program is limited to a cash payment that accrues to the employee at the time of the "sale"; this cash payment is taxable as wages when it is received. In this case, the employer must withhold wage tax and social security contributions.
By Nikolaus Kastenbauer, Martina Rygula and Silas Rosing
BMF letter dated 11 November 2025 – Tax exemption under Section 3 No. 46 of the German Income Tax Act (EStG) and tax treatment of electricity costs borne by the employee
The Federal Ministry of Finance (BMF) has reorganized the tax treatment of employer benefits in connection with the charging of electric and hybrid electric vehicles and replaced the letter dated 29 September 2020. The principles apply in all open cases and – subject to individual transitional provisions – for the period from 1 January 2017 to 31 December 2030.
Scope of application and key changes
The charging of a private electric or hybrid electric vehicle, or a company electric or hybrid electric vehicle provided for private use, at a company facility belonging to the employer or an affiliated company is tax-exempt pursuant to Section 3 No. 46 EStG, provided that this benefit is in addition to the salary already owed (Section 8 para. 4 EStG). There is no limit on the maximum amount or number of eligible vehicles.
Eligible vehicles also include electric bicycles, if these are classified as motor vehicles under traffic law, and small electric vehicles.
By Stefan Sperandio, Marina Rygula and Hosay Güvenisik
Corporate fitness programs
Benefits play a decisive role in employee retention and recruitment. Company fitness programs, which enable employees to train in fitness centers and other facilities run by cooperation partners, are also becoming increasingly popular benefits.
The following section takes a closer look at the wage tax issues that arise with these programs and how the courts and tax authorities view these benefits.
Wage tax principles
As part of employer-sponsored corporate fitness programs, participating employees have the right to use the facilities included in the program, such as fitness centers, golf courses, saunas, or swimming pools. Contracts are regularly concluded with so-called system providers (Urban Sports Club, EGYM Wellpass, etc.) for these programs, on the basis of which employees can train at the facilities.
From an wage tax perspective, this benefit is considered a payment in kind (provided that the employer grants its employees ongoing use of certain fitness facilities by granting them actual access).
By Stefan Sperandio, Johanna Wolter and Simeon Wahl
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