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I live in Germany and I am a full-time employee. I subscribed to insurance in a foreign country, on top of the German statutory insurance.

The main benefit of this insurance is that, after 5 years of subscription, I can get 103% of the amount I have paid. As an additional benefit, in case I die because of a disaster, I get paid 1.1x the amount I have paid.

So it is more of a saving plan provided by an insurance company.

Do I have to pay taxes for the payouts?

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If you (can) keep it for 12 years and until you are 63, it looks like you can get some tax benefit:

This sounds like the german "Kapitallebensversicherung": you or your next of kind get the full insurance amount, plus the interest up to that point. It is usually not restricted to dying to a desaster though, so you might want to check that.

A Kapitallebensversicherung was (in times with higher interest rates) a reasonable part of the pension system, and as such got similar tax advantages as other pension plans. Old policies (before 2005) were completely tax free - and you were even able to deduct some of your contributions (similar to other pension products).

For a new policy, you would at least pay taxes on only half of your gains - given some requirements though: the policy needs to run for at least 12 years, and should end after you turn 63 (to be reasonably pension-adjacent).

There are some minor additional requirements, and one of those is rather striking: to get the 50%-tax benefit, the payout in case of death after 5 years has to be at least 110% of the principal - which hits your description too precise to have happened at random.

So I assume that the rest of the policy is constructed in a similar way to meet all the requirements. You should double check though, since it might be constructed for the rules of the other country (which just happen to have a similar rule about the 110% because EU harmony or something).

But I think there is a good chance that, provided you keep the policy until you are 63, and for 12 years, you should get the tax benefit.

Otherwise, you will have to pay taxes (Abgeltungssteuer, not income taxes) on capital gains. But to clarify: not on the principal (e.g. the money you paid in), just on the 3% gain, as with most other investments.

For completeness: your next of kind might have to pay inheritance tax on the (full) payout, although for most relations, there are high tax exemption limits.

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