For US citizens living abroad, tax residency is the key determinant of where income is taxed, not the income's source or the payer's location. While Americans are always subject to US tax regulations on their worldwide income, their country of residence also has the right to tax that same income, including US-sourced pensions.
However, for those residing in high-tax European Union jurisdictions, US tax liabilities are often effectively eliminated through foreign tax credits and exemptions. As a result, these individuals should prioritize managing their tax obligations in their country of residence before focusing in turn on their US liability.
A key principle for Americans moving abroad is that to avoid potential US tax liabilities at year-end, the tax paid in their country of residence must exceed the equivalent US federal tax on the same income. While the Foreign Earned Income Exclusion can offer some relief to Americans working abroad, those with substantial passive income or with salary income exceeding this threshold ($126k in 2024) will not benefit from relocating to a low-tax jurisdiction, due to the principles of citizenship-based taxation.