Peter Scheller
Berater für Wirtschaftsprüfer, Rechtsanwälte, Steuer- und Unternehmensberater

„Wenn es knifflig wird.“

Income from capital investment

von

Traditionally Germany has had a so called synthetic tax system. That means that the total income from each and every source is amalgamated and the sum multiplied by the individual tax rate of the taxpayer. This method also means that losses from certain sources (such as trade and business or renting out real estate and property) can be credited against other positive income. Germany abolished this system with regard to income from capital investments and now this kind of income is not part of this amalgamation but is taxed at a special tax rate.

Income from capital investments are dividends, interests, profits from silent partnerships, income from investment certificates, mutual funds and other capital investments such as payments from life insurances with saving elements. Capital gains are also taxed under this regime if the shareholder does not hold more than 1% of the share capital of the company. A full listing of income categories can be seen in paragraph 20 of the German income tax code. However, these earnings do only qualify as income from capital investments if they are not part of business or trade activities.

The income tax rate is 25%. In addition to that a solidarity surplus charge of 5.5% of the income tax has to be paid which makes a total tax rate of 26.375%. Financial institutions and other debtors of capital income who are resident in Germany have to withhold the tax and transfer it to the German tax authorities. In general the tax payer is not obliged to declare this income on his or her German income tax return. There is a general yearly allowance of 801 Euros (1,602 for married couples).

Individuals who are tax resident in Germany have to pay tax on their worldwide income in Germany. This means that income from capital investments held outside Germany are subject to tax in Germany also. In some cases this income will also be taxed abroad; in most cases at source. This is for example the case for dividends from foreign companies paid to shareholders who are resident in Germany. The foreign tax can be credited against the German income tax rate up to certain maximum amounts. Germany has entered into double taxation treaties with many countries In general these treaties limit the tax rates on dividends to 15%. Maximum rates on interests will be between 0% and 10% (depending on the respective Double Taxation Treaty). Germany will only credit the foreign tax up to these maximum amounts. Excessive amounts must either be avoided through a certificate of exemption or a reimbursement claim in the source country.

Example: Person A, who is resident in Germany, receives dividends of 100 from state B. State B withholds 25% at source. The double taxation treaty between Germany and B allows a maximum tax rate of 15% for B. Germany will credit 15 against the German income tax. An amount of 10 (25 minus 15) must be reclaimed from B’s tax authorities.

If capital investments are held abroad (for example in a foreign bank) the capital income must be declared in the German income tax return.

Special rules exist in the following case:

  • Mutual Funds
  • Investment bonds (in the form of endowment insurance policies)
  • Beneficiaries of a trust

Author: Peter Scheller, Steuerberater, Master of International Taxation

Bildquelle: www.fotalia.com

Zurück

Kommentare

Kommentar von Nagappan |

Dear Sir,

I need your advice and willing you take professional help as well from your side, if you can support me.

This my Question :

Lets assume, i transfer 10000 Euro this year (this money after paying tax in Germany) from my savings i made, invest this money in India in Mutual funds, Equity  and also in other investments in India, and after 5 years i am bringing back this money from India (after paying tax in INDIA), is it allowed to bring back money back from india from investment made ? particularly in mutual funds ? And please see further questions regarding this topic as mentioned below,

Question 1 :
When i bring back this money from indian after 5 years, for example the same 10000Euro + Captial Gains, what is the information i need to provide to
finanzamt about the source of the money, and will there be any tax for the
same amount ?

Just wanted to infom you that Capital Gain earned in india is taxable at source, so
meaning, i would have already paid the necessary tax for the Capital Gains Earned.

Capital Gain what i meant here, is that, Interest from bank Deposits, Equity dividends, Gains from MutualFund, Sale of property.

Antwort von Peter Scheller

As long as you remain tax resident in Germany your capital income (dividends, interests and capital gain) will be taxed in Germany. Whether India can tax it depends on the provisions of the double taxation treaty. This also questions you next question since capital income will be taxed in Germany regardless where the money is helt.

Kommentar von Deep Dudhat |

Request for help. I am a student from india presently residing in Germany since last 6 months. I have German address proof as well as German tax identification number. Is it legal to invest in stocks for me. what are the rules of taxes and how can I pay taxes related to investment gains?

Antwort von Peter Scheller

If you invest into shares or other capital investment and you hold these investments in a German bank they will deduct the tax for you and pay it to the tax authorities (about 26%). If you hold the investements with a foreign bank you may be obliged to file a German income tax return.

Kommentar von Sidharth |

Hello!
Thanks for such a helpful article.
I am a resident of Germany and work in Germany for an American company and the company has provided me with some shares. Recently, a part of those shares got vested, and 40% tax was deducted on the amount of total vested shares, which I assume is the US taxes on capital investments. If I now, decide to sell these shares, will Germany also tax me ~26% or some double taxation treaty exist between US and Germany? Also, if there is such double taxation treaty to limit maximum tax on capital investments by US, do I have to file for a refund or I will automatically get a refund?

Antwort von Peter Scheller

This has to be analyzed carefully in order to avoid a double taxation scenario. Much more information and a professional service is required.

Kommentar von Deb Ban |

Dear Sir,

I'm from India and hold Indian passport. As I'm working in Germany since 2016, I also hold permanent residence of Germany. I pay taxes in Germany only. Iam new to stock market and recently started investing in shares. But I'm only buying US shares from s&p500. My question is , if in future I make profit, in which country I need to pay tax? In Germany or in United states or both?

Thanks in advance for your helpful answer.

Antwort von Peter Scheller

The capital income (dividends, interests, capital gains) is taxable in Germany. The US may also be able to withhold taxes (e.g. 15% on dividends). The amounts can be credited against German Tax. However, you have to make sure that you do not pay to much withholding tax in the US. See also https://scheller-international.com/blog-beitraege/income-from-capital-investment.html.

Kommentar von Ravi |

Hi,
Thanks for this great informative post.
I have a question- I am resident and tax payer in Germany. Now if my parents send me money either from their savings or get a bank loan and loan me the money to invest in stocks or cryptos, should I pay tax on the incoming funds if I get that money as a loan or gift?

Antwort von Peter Scheller

A loan has no tax impact (except interests). A gift is subject German gift tax. However, you may be well under the general allowance of 400.000 Euro per parent (in a ten years period).

Kommentar von Sanjeev Sharma |

Sehr geehrte Herr Peter Scheller,
Having read your informative post, I have couple of queries. I am a tax resident in Germany with permanent residency.

Is it permitted while reporting global income in Germany to adjust overseas saving bank interest income (in India) and capital gain from equity mutual funds (in India) against capital loss in equity shares (Indian securities) ? Or interest income is treated under different category and equity capital gain or loss under another ? In the case of equities 15 percent Tax is deducted at source in India. Thanks for your consideration.

Antwort von Peter Scheller

You assume correctly that not all gains and losses can be credited against each other. However, it needs to be carefully analyzed whteher gains from mutual funds and loss from securities can be credited against each other.

Kommentar von VZ |

Hello,
If I am german tax resident and I sell a property abrad (EU) do I have to pay capital gains tax in Germany too? The country of sale has a temporary exemption of capital gains in property transactions.
Also the property was held less around 1 year

Antwort von Peter Scheller

Whether the gains are taxable in Germany depends on the country the estate is situated. In general it will be tax-free but it will have an effect on your German tax rate. Therefore you have to file an income tax return for this year and declare the gain.

Kommentar von Matt |

Hello Peter,

Thank you for the informative and helpful blog post above! It has answered many of my questions as a US expat residing in Germany. However I have one question that remains.

If I have sold some stocks (that I was rewarded while working at a company in the US years ago) that resulted in a capital loss, as someone filing as single who had less than $1,000 in income (outside of the stock sales) as a language student this year, would my capital loss be treated the same in Germany as in the US? In other words would my capital losses be deductible and exempt from the normal 25%+solidarity tax?

Antwort von Peter Scheller

It can only be deducted against capital gains of the same kind.

Kommentar von Kay |

Hi Peter,

I have a question regarding day trading stocks. So, I day trade in the US stock market but live and work full-time in Germany. I would profit on some of my trades but lose on others. But, I am suffering from a net loss right now. My question is :-- are those profits still taxable even though I have a net loss now? Do I have to declare all of my transactions (both profits and losses)? Thank you.

Antwort von Peter Scheller

you have to declare all transactions.

Kommentar von Mani |

Hi Peter,
I have a question around the realized loss, could you please help me with it. I am living in Germany and investing in Stocks in germany. In the year 2020, i made some profit by selling the stocks, lets take it as 5000 EUR as realized profit and i paid the tax ( 25% after my Free limit of 801 EUR). i have some stocks which will end up in realized loss anyhow, If i sell these stock this year, will i get a benefit or refund on the realized loss? Lets say if i make a realized loss of 1000 selling a stock, will i get a refund on tax as my overall realized profit will get reduced.
Thanks in advance for your support

Antwort von Peter Scheller

You have to file an income tax return for 2020 and declare your profits and losses. If they are of the same kind they will be credited against each other.

Kommentar von Anubhav Jhalani |

Are taxes paid on realised gains or unrealised gains? I have made some investments in stocks, which are on profit right now(1000$ profit) but I have not sold those stocks. So 1000$ is my unrealised gains. So will i have to declare this profit as well?

Usually which exchange rate is used to convert profits from other currency into Euros?

Antwort von Peter Scheller

In Germany it depends on the kind of capital investment you have invested in. If these are "normal" investments capital gains will be tax when realized.

Kommentar von Mark |

Dear Sir,
Thanks a lot for sharing your knowledge and for the valuable information!
As a Lebanese national on a student residency in Germany, do i have to declare to the tax office in Germany and pay taxes on my realised stock sale profits and dividends gained at my US based broker? Not sure if it makes any difference, but i have no part-time job in parallel to my studies in Germany and therefore i pay no income tax.

Antwort von Peter Scheller

In principle you have pay taxes on that if certain preconditions are fulfilled. This requires a analysis of your tax situation.

Kommentar von JP |

Hi Peter,
If I gain less then 801EUR in a year, should I declare it anyway?
Thank you for your help.

Antwort von Peter Scheller

It depends which kind of income you have and what is your overall tax situation is.

Kommentar von Elizabeth |

Hi Peter,

I'm an American citizen with a German permanent residency, working for a company in Germany. I'm still required to file US taxes, even though my normal German income is excluded from taxes in the US (using the foreign earned income exclusion). I have US stocks which I purchased before moving to Germany (normal trading, not stocks in a retirement account). This year I sold some of those US stocks. When I file US taxes next year, I will apply a 0% tax rate to the sale, since I held the stocks for over a year and the capital gain is less than 40,000 (and I am able to exclude the German income, putting me in the lowest tax bracket for US income).

My question is, when I file my German taxes, do I have to apply the 25% flat tax on the stock sale? Does the tax treaty allow me to exclude the gains that I already claimed on US taxes (even if the tax bracket is 0%?). My normal German income tax bracket is 42% for the income from my job.

Thanks in advance.

Antwort von Peter Scheller

Capital gains of individuals who are tax resident in Germany will be taxed in Germany at a flat rate of 25% plus solidarity surplus charge.

Kommentar von Graham Woollcombe |

You said in answer to a question on 16.12.20 that the capital gains tax is paid on realised gains, if the investments are 'normal' investments. What constitutes normal? Thank you for the clarification.

Antwort von Peter Scheller

Normal are stock, shares, accounts. There are for example special rules for certain mutual funds.

Kommentar von Denys |

Dear Peter.
I'm an expat recently moved to Germany for work. Many thanks for the article and insightful replies. Very useful for me.
Question: how does 801 Euro of investor allowance work in terms of ETF investments? Should I cash out the amount of funds providing this income in the end of the year and re-invest a week later? What happens if I just keep funds for let's say 5-10 years and then sell them? Would I get 801x10=8010 Euro allowance? Thank you.

Antwort von Peter Scheller

Only 801 Euros per year. If you do not use it that particular year it is lost.

Kommentar von Will |

Hi Peter - Thank you very much for this post. I'm a Canadian citizen who relocated to Germany this past summer, now working for a German company. I earned some capital gains and interest income from US sources during my period of German residency (capital gains from US stock in US brokerage account and income from US bank account), and understand these are reportable and taxable in Germany.

I was talking to a fellow expat in a similar situation (though he's American) recently, and he told me that he has never reported or paid German taxes on his US capital gains income and that the German tax authorities have no way of knowing. I found the latter part hard to believe and, because he's a something of a friend, I tried to counsel him that this is not a good idea. But because he's speaking from personal experience and I have nothing to go on, I'm not having much success convincing him.

A couple questions:
1. Is it really true that the German tax authorities have no way of discovering foreign capital gains income if they're foreign stock held offshore?
2. Assuming I can convince him, is it too late for him to correct his lack of reporting of this income over the past 2 years?

Thank you in advance.

Antwort von Peter Scheller

In general German tax authorities will not "discover" these case. However, they may get information by the IRS or ask for US tax returns.

If he reports it now he has to make sure that the entire income is declared and that the tax assessed by the tax authorities are paid right away.

Kommentar von Will |

Got it. Thank you very much for the clarification. I guess the best case I can make is that he should do it so as to be able to sleep soundly at night!

Antwort von Peter Scheller

Depends how good his sleep is in general.

Kommentar von graham Woollcombe |

Thank you so much for clarifying what normal meant. Unfortunately most of my capital gains are coming from ETFs and mutual funds held by Vanguard in the UK and I am now living in Germany. Does that mean that for these, I have to calculate estimated earnings based on what they were worth at the end of the year?

Antwort von Peter Scheller

How they have to be calculated is matter of an analysis which cannot be done on a blog.

Kommentar von Vinay |

Dear Sir,

I hold an Indian passport and currently residing in Germany for the last two years.
I have some funds in my Indian Bank account which paid an interest of approx 550 euros in the year 2019.
Apart from this 550 euros, I do not have any other Interest and Dividend Income (In Germany or India).

Will this 550 euros will be counted against the EURO 801 exemption limit you have mentioned above?

If yes, am I still obliged to report this income in my German Tax Return of 2019 or can I just ignore the hassle?

Thanks in advance for your helpful answer.

Best Regards,
Vinay

Antwort von Peter Scheller

Both questions are answered wit a "yes"

Kommentar von Shane |

Dear Peter,

I am a UK National tax resident in Germany since 2018. I have a number of private pension funds in the UK which were provided to me by past employers when I worked there - both the employer and I contributed to these schemes. The pension funds are protected under UK pension legislation - I may not access these funds until I reach retirement age at which point the accumulated assets must be used to purchase an annuity. The underlying assets are invested in a mix of equity and bond funds and are all Accumulating.

Do you know whether the annual unrealised gains on these funds are taxable by the German authorities since the changes in 2018 or is there an exemption available for pension fund related assets under a dual taxation treaty or EU law (ignoring potential changes caused by Brexit)? I would dearly like to avoid paying tax upfront on assets which I cannot utilise until I retire decades from now.

Many thanks

Antwort von Peter Scheller

First of all you have to investigate whether these pension plans are

a) similar to German old-age and retirement schemes or

b) similar to a capital investment (especially to accumulating mutual funds).

If a) is applicable you should be relatively safe.

There might also be a change in characterisation before and after the Brexit. Before the Brexit the plans might have been protected by a special EU directive. This protection disappeared on the 1st of January 2021 (the latest) given that there are no special provisions in the agreement between the EU and the UK. Therefore the classification may have changed 2020.

You need to ask a specialized German tax adviser to analyse your plans and the actual legal status.

Kommentar von Syed Ammar |

Hi Peter. Thanks a lot for all the valuable information.

I have read all of the above questions and your answer which made most of my queries already clear. But I still have some queries regarding Capital gains and filling tax returns.

1) I am from Pakistan and doing masters in Germany since 2018. Is it possible to file the tax returns from 2018 till 2020 in 2021altogether or should I file one by one i.e 2018 return in 2021, 2019 return in 2022 and so on?

2) I started trading stocks in 2020 and I funded my account through german based bank credit card and using it till date. I have made good gains and ofcourse some losses in the run. I have a questions regarding the exemption order for 801€. From where can I take this exemption order and where to submit it since I will file my tax return through online platform named "Wundeftax". I have a current account in DB. Will they issue the exemption order?

3) I sold some iShares ETF's in 2020. Do I need to mention the trading volume and time of sale separately in the tax form for each trade or just mention the resulted gain on the sale? Does it applies same for the sale of stocks or is it different? Also I was involved in day trading sometimes, so do I need to mention about each trade in the tax return?

I am looking forward to hearing from you and thanks in advance.

Antwort von Peter Scheller

1) the return for 2018 and 2019 are overdue. File them as soon as possible.

2) Make sure that you report you allowance of 801 Euro/year only to one financial institute. You can also claim it in your tax returns.

3) You declare the yearly results in the different categories.

Kommentar von G Woollcombe |

I am contemplating putting my stocks and mutual funds into a tax wrapper called Novia Global based in the UK (not the channel islands). It has until now had an EU passport and my understanding is that until now capital gains tax would not be paid in Germany on my assets there until I draw down funds from the wrapper. If, after the transition period, the UK does not receive equivalent financial status from the EU, will this form of wrapper still work in the same way?

Antwort von Peter Scheller

Very good question. This has to be investigated in detail.

I have just analysed the topic in regard to a US self directed IRA: https://scheller-international.com/blog-beitraege/self-directed-individual-retirement-account.html

Probably the article gives you an idea what may happen to your wrapper.

Kommentar von Vinay |

Hello Peter,

This is Vinay again who sent one query above for 550 euro interest income in India.
Thanks a lot for your response and prompt help!

As you mentioned "Yes" for both my following queries:

Will this 550 euros will be counted against the EURO 801 exemption limit you have mentioned above?
If yes, am I still obliged to report this income in my German Tax Return of 2019 or can I just ignore the hassle?

I am a bit confused about the second "Yes", Does it mean I am obliged to report the income?

Thanks again for your time and valuable feedback!

Best Regards,
Vinay

Antwort von Peter Scheller

Yes, you have to report it.

Kommentar von Harkiran Chima |

Hi Peter,

I have German residence and have invested in US stocks through Revolut. I will, however, move to the UK in the next couple of months and maintain residence there. A few questions:
1. You mentioned 'In general the tax payer is not obliged to declare this income on his or her German income tax return' - would this also hold true for foreign investments like mine?
2. Do I need to sell the stocks that I own before moving to the UK?
3. If I dont sell the stocks now (before moving), and sell them after moving to the UK, where would I be liable to pay tax and declare the income?

Antwort von Peter Scheller

1) This does not apply for income from foreign capital investments.

2) No.

3) UK

Kommentar von G Woollcombe |

Thank you for that answer about wrappers. The wrapper in question now says it will change its location to the EU if the UK is not given equivalence, so that question is solved. But another question comes up and that is if I move some mutual funds into the wrapper six months into the year, do I have to pay capital gains tax on estimated gains during that first six months, even if I don't sell them to move them? Thank you for all your very good answers.

Antwort von Peter Scheller

Another good question. I spoke to various colleagues about this question. There were different opinions in regard to this.

1) The transfer of private capital investments into a covering tools can be seen as a fictitious selling of the property. This would result into a taxation of a fictitious capital gain.

2) The transfer of private capital investment into a covering tools cannot be seen as a fictitious selling of the property. Therefore there are no immediate tax implications. The gains will be taxed if the person withdraws money from the cover.

I personally think that the second opinion is correct.

Kommentar von B Howard |

Thank you for an extremely helpful post. I'm a dual British-German national, with tax liability in the UK. My parents still live in Germany and I am registered at their address where I spend a few days a year, but I live in the UK. This year I sold shares with a gain of c.30.000EUR in Germany that were bought a long time ago through my local German Sparkasse. 26.375% tax was withheld at source by the Finanzamt. As there's a DTA in place between Germany and the UK, I am under the understanding I need to reclaim this tax in full and declare my profit as capital gains in my self-assessment tax return in the UK. However, since I am a basic rate tax payer in the UK my capital gains tax liability is 10% - i.e. below Germany's 15% withholding limit. Is it right that under the DTA I am eligible for a full refund of the 26.375% tax that was withheld in Germany and I must then pay the 10% CGT in the UK instead? Many thanks in advance!

Antwort von Peter Scheller

I did not have a look into the DDT UK/Germany. However, it looks to me that the UK have the only right to tax the capital gains. You have to apply for a refund. For the application you should hire a German tax adviser for the job.

Kommentar von Karim |

Thank you for all of this great information
Im an international egyptian student in my first semster year full study program in germany
And i just received my german tax number
I was goin to start my stock trading account at interactive brokers to start stock trading in us market but when i started reading german tax laws i was overwhelmed

Question 1
As an international student am i obliged to pay taxes for stock trading in the usa market

Question 2

Is there any deduction on my tax rates as a non working student

Thank you for your time and advice

Antwort von Peter Scheller

1) If you are tax resident in Germany you have to declare your full income.

2) No, the tax rate on income from capital investment is overall 26,375%.

Kommentar von Mark |

Hi Peter,

Thank you for the very useful blog and for your time in answering everybody's questions.

Appreciate if you would please confirm my understanding that a person starts getting considered as a tax resident in Germany if he/she resides in the country for more that 6 months continuously. So for example someone entering germany in the 8th month of 2020 will not have to pay taxes for year 2020, correct?

Would also appreciate your clarification on the following scenario: If in year 2020 i lived in germany from the 4th month of the year till its end continuously, so 9 months in total, from the start of the 10th month of 2020 i would start be considered as tax resident in Germany. Does this mean that in 2021 i should file for my 2020 taxes (capital gains for example) that start from the 4th month of the year (when i first entered Germany) or from the 10th month (when i finished my six months of residency in Germany and supposedly became a tax resident)?

Thank you in advance.

Antwort von Peter Scheller

You become tax resident in Germany if you have a home here or the habitual abode.

Whether you have to pay taxes in Germany depends on other issues such as origin of income, place of work, applicable Double Taxation Treaty and so on.

 

 

Kommentar von Cristi |

Wow, this is the most helpful information I have gotten on investment tax system yet! Appreciate a ton!

I am a bit slow to understand everything still. I am planning to start investing in ETFs in my home country (EU). Theoretically, my understanding is that if I only buy in a year and don´t sell I have no realised capital gain - therefore I do not pay tax on these. Is that correct?

In any case, if I am a small investor my income will be less than 801 for many of the first years to come - in this case I just report how much I earned in another country (if I actually sold anything) and thats that?

Thanks again!

Antwort von Peter Scheller

Taxation only if the shares will be sold.

Kommentar von Michael |

Dear Peter,

thank you for the post, it's really informative. I have three questions:
1) Is this a good source of tax information? https://www.gesetze-im-internet.de/englisch_ao/index.html
2) I assume that by profit it is meant "realized profit", that is, if I own stocks but I haven't sold them then I have to declare them but I don't pay tax from the temporary state.
3) Do you know how are gains from cryptocurrency mining taxed?

Thank you!

P.S.: Do you yourself accept clients?

Antwort von Peter Scheller

1) Here you only find the translation of German tax law codes. This is good for specialists who know the systematics of German tax law.

2) Profits means realized (capital gains). As long as you do not sell stocks etc. you may not be taxed. There is only one exception in regard to certain mutual funds.

3) I am not a specialist. However, I have some basic knowledge about cryptocurrency mining.

I accept new clients.

Kommentar von Alex |

Hello,
I am currently living and working in Germany, in Bavaria. I invested some money in the stock market and made some profit. I know that in the beginning of the year I have to fill the form for taxes but how I'm doing with the closed trades? Attach the history of trades from last year?

Antwort von Peter Scheller

To answer your questions more information is required.

Kommentar von Zoha |

Hi,
Thank you so much for all these useful info.

Since 2018 I have been working full time in Germany and pay around 38% of my salary as tax.
I am investing on stocks via a foreign broker (UK) which does not collect taxes automatically.

Does the 801 profit limit apply to my case? Or is it only for German brokers that collect tax for each trade?

Do I have to declare all the transactions ( trading history) or is it enough to declare yearly aggregate of profit/loss ?

You said that taxation will be on realized gain. So, if I have sold shares with 20% profit and bought other shares with that profit which I am still holding, should I declare the tax for my first trade?

Antwort von Peter Scheller

Taxed will be always gains when realized mean when shares or funds are sold. There is not tax brake for reinvestment.

The allowance of 801 Euro apply for the total amount of capital income.

Kommentar von Ali |

Hello Peter,

Thank you so much for such an informative blog.

I am from Pakistan and work in Germany as an engineer (plus I have a 'Niederlassungserlaubnis' / permanent residency).

I want to invest in German / international stock exchange, and have following questions:

1. Do I need a VAT ID (Umsatzsteuer-ID) for stock trading?

2. Am I allowed to keep the realized captial gain from the sold stocks in my Pakistan's bank account or any other foreign bank?

3. And do I still have to pay the tax in Germany for the capital gains from the sold stock? Given the fact that I am registered in Pakistan as a tax payer for the captial gains I make.

Thanking you for your valuable feedback.

Best redards,
Ali

Antwort von Peter Scheller

1) VAT Number only for businesses. It doesn't apply for private investments.

2) You are liable to income tax on you world-wide income as long as you are tax resident in Germany.

3) see No. 3 Where you hold your stock is irrelevant.

Kommentar von Paul |

Hello,

If I am day trading / swing trading stocks or cryptocurrencies, when do I have to pay the taxation of the earnings? After each time I sell? Monthly? Each time I turn in my tax return?

Reason I am asking is because it is quite common to have gains one day and a loss the other day that cancels out the gain of the previous day etc.

So all in all it doesnt make much sense to pay tax for an individual until the year is over.

Paul

Antwort von Peter Scheller

You have to declare gains and losses from trading in your yearly income tax return.

Kommentar von Jay |

Hi Peter,

Thank you for all these valuable information!

I just have some tax questions about trading. Hope you can help me.

I've sold some shares using Trade Republic, initial investment let's say 1000€ + 100€ profit.

In the invoice I've noticed that Trade Republic already deducted Capital Gains and Solidarity taxes. In total I got somewhere around 1074€.

My questions are:

1.Do I declare 74€ earnings in my income tax and will it get taxed again?

2. Since my profits are already taxed the moment i got my money from Trade Republic, will I get a tax refund if my earnings doesn't reach the 801€ exemption for the year,

Thank you very much in advance!

All the best
Jay

Antwort von Peter Scheller

1) No, there is no double taxation.

2) Yes, you get a refund if you did not use the allowance.

Kommentar von Naren |

Hi. Thanks for the useful blog.
After going through it and the comments there is one question I still didn’t get an answer for.
I have bought stocks through a trading app eToro/trading 212.
I have not sold the stock which means I have not realized the profits I have made as the share prices increased.
So in this case should I declare/report it in my tax filing for the current year ?

Antwort von Peter Scheller

No gain = no taxable event = no reporting obligations

Kommentar von Naren |

Hi. Thank you very much for my previous comment’s response.
I have another scenario.
The shares which I had bought had increased in value. And now if I sell it, the profit i made is still within the trading app. And I reinvest it again by buying some other shares.
In this scenario should I declare/report profit in my tax filing.
Or I need to report only when I withdraw the money back to my bank account. ?

Antwort von Peter Scheller

The answer was already given. Taxed will be every capital gain. When you withdraw money from a bank account or a platform is irrelevant for tax purposes.

Kommentar von Grace |

Thank you for the useful information you are providing on this blog.
I moved to Germany in October 2020, and started working in Berlin in November 2020 and made 10k. I have capital income of 20k that I made in July while I was living in the USA.
1) Would the capital gain of 20k be taxed in Germany tax year of 2020? Making the taxable income total of 30k?
2) Or would I just be taxed on my German income of 10k? Since i was residence of USA most of the year.
3) Or would i just be taxed on my German income of 10k but with a rate that apply to 10k+20k?

Thank you for your help.

Antwort von Peter Scheller

10 k at a flat rate of 26.375%

Kommentar von Sidharth |

Hello!
I am from India but a tax resident of Germany and invest in US stocks regularly. My question is if I am moving back to India couple of years down line while still holding stocks bought from my German income, and decide to seek these shares long after not being a resident of Germany, would I still be obligated to pay taxes in Germany based on capital gains? I am not investing through any German bank but through independent online broker

Antwort von Peter Scheller

You have to tax all dividends and capital gains while being tax resident in Germany. Later income will not be taxed in Germany.

Kommentar von yilmaz barlas |

Dear Peter (if I may),

Thank you very much for such a post. It was very helpful for me. I have a German residence permit and work in Germany (BW). If you don't mind I have two questions: In December 2020, I started to use Degiro to invest in stock markets and bought some shares and ETF. I didn't make any sell order within the year of 2020. So, my first question: In that case, while filling my tax return in 2021, do I have to report something about that? My second question: A short time after I started using Degiro, I decided to quit investing in stock market and I sold everything I have in Degiro in February 26, 2021. Overall, I deposited 5000 euros between December 2020 and February 2021 and withdrawn 5186,39 euros in March 2021 and I won't use Degiro (or any other broker site) in the future. Long story short I gained 186 euro and 39 cents in total. In that case, while filling my tax form next year (in 2022), do I have to report this? I am asking this because in general I use online services to fill my tax return (such as Wundertax) and I cannot do that there. I would be greatful if you give me some hints on these issues. Thank you very much for your time.

Antwort von Peter Scheller

Capital gains have to be declared in the year of selling the stocks. You have to file an income tax return for that year.

Kommentar von yilmaz barlas |

Dear Peter, thank you very much for your answer. As English is my second language, I'd like to ask a clarification question: In 2021, I'll file an income tax return for earnings I made in the year of 2020 (Please let me know if I'm wrong about this. I'll do it for the first time this year). Since I sold my shares in 2021 and thus made profit from them in 2021, I'll report it in 2022. Is this what you meant in your reply?

In case, you would like to remind me the original message I'm copying it below:

In December 2020, I started to use Degiro to invest in stock markets and bought some shares and ETF. I didn't make any sell order within the year of 2020. So, my first question: In that case, while filling my tax return in 2021, do I have to report something about that?

Antwort von Peter Scheller

You will file you income tax return 2021 (with the entire income of that year including capital gains) in the year 2022.

Kommentar von Ian Smith |

Dear Peter,

Thank you very much for this helpful blog.

I've been living in Germany for the past 5 years. My question is about reporting dividends in German tax returns. I have some investments in US-based ETFs. These yield dividends less than 801 Euros per year, and I have no other capital related income. I have not been reporting these dividends in my German tax returns because I thought that it was not necessary given that they are less than the 801 Euro allowance. I'm now beginning to think I have been mistaken.

Is it necessary to file an amendment for previous years? What is likely to happen if I do not?

Antwort von Peter Scheller

Nothing if your entire capital income is less than 801 Euro/year

Kommentar von jonoave |

Hello Peter,

Thank you for the informative posts and being so helpful!

I've a question on pension funds/special mutual funds back in my home country (non-EU). The pension funds are locked till retirement, though it declares dividends annually and the capital increases. The special mutual funds are government-linked and there is a criteria on who can invest and the amount that can be invested.

In my country, the dividends from these funds are tax-exempted. Would I still need to declare the dividends as part of my German taxes?

Thanks again and have a nice day.

Antwort von Peter Scheller

This need a full analysis. You have to seek professional advice.

Kommentar von Pandit |

Dear Peter,
Your infos have been really helpful.
I have one query. I deposited some money in India many years ago, which I have sent from Germany and the money is now in Indian Rupees there. The deposits are earning some interest in Indian rupees. I am considering it as a long term investment. When do I need to pay tax on this interest amount which is in Indian rupees? Is it that I need to check this amount when i get that money back to Germany then I have see how much that interest really works out in Euros as due to depreciation of Indian currency, my base amount has also lost quite a lot of value if I calculate it in Euros.
So for example, I deposited 10000 Euros in India which got converted to 700.000 Indian rupees some years ago. So now after a few years the same base amount will fetch me only 8000 Euros. In the mean time i have got interest of around 200.000 Indian rupees which is still stored there in Indian Bank and can currently fetch me theoretically around 2000 Euros. But I leave this interest amount also there in the bank and it is getting added to the base amount.
When do I need to pay interest on my earnings? Only when I get those earnings back to German account and see how much I have really earned or do i need to keep paying tax in Euros in Germany on a theoretical amount lying in India which is depreciating in value every day?
Thanks a lot for your reply.

Antwort von Peter Scheller

If you are tax resident in Germany you have to pay taxes on dividends, interests and capital gains regardless of the fact where you hold the investments.

Kommentar von Jens M. |

Hello Peter,
my wife and I are temporarily living in Germany for 3 years. My wife is US citizen, I am dual citizen Germany/US. I have a regular job in Germany and pay income tax in Germany. My wife however, is a beneficiary of a life insurance trust in the US which stems from one of her relatives. She receives some dividend payments throughout the year and transfers parts of the funds to Germany to cover her living expenses.
Does she have to pay taxes on capital gains out of the trusts financial performance? BTW - she is only one of five beneficiaries of the trust and not the sole owner.

Thank you in advance.

Antwort von Peter Scheller

The taxation of trust beneficiaries is a highly complex issue in German tax law. You might end up with income tax and at the same time gift tax on payments to beneficiaries. You really need a very experienced tax adviser to handle this correctly.

Kommentar von Amartya |

Dear sir,

Assumptions:
1) I am a German citizen and a taxpayer
2) My friend is a German citizen and a taxpayer

I have two questions:

1) If I simply want to sell my shares, that I had acquired by way of paying paid-up capital of a company (I hold a total of 9.5% of the company) back in 2008, to my friend at the nominal price, will I have to pay capital gains tax at the fair market value of the shares or I will not have to pay any tax as I am not gaining any profit from the shares. I want to give 2% of the company to my friend at the nominal value and not the market price.

2) Are there any exemptions that I can claim?

Any help would be appreciated.

Thank you in advance.

Antwort von Peter Scheller

You may do this but you may trigger German gift tax on the difference between market price and nominal value. You should consult a German tax adviser in order to find the best solution.

Kommentar von Mark |

Hello Peter,

1) I have seen some conflicting information online, if i have a broker outside Germany and i sell a stock and make a profit, i have to declare that sale right away for each sale, or only at the beginning of the next year in the regular tax filing period i am supposed to declare all my transactions of the previous year?

2) What is considered the start of my tax residency in Germany? Is it the day i first arrived to Germany with the intent of staying for a long time? Or is it the day i received my address registration? Or the day i received my tax number? It's not clear to me how that is delimited.

Thank you in advance.

Antwort von Peter Scheller

1) You have to declare all combined gains and losses of one kind.

2) See https://scheller-international.com/blog-kategorien/category/auswanderer-expatriates.html

Kommentar von Steven |

Hello Peter, thank you for all this information - maybe I can add something new:

I am a US citizen, have lived (and will live) in Germany for many years and have a German employer. Every year I make my US tax declaration.

This year I sold my house, which I had been living in privately for many years. There was a small profit between the original purchase price and the realized sales proceeds - maybe 50,000 euros.

Question 1) This profit is tax-free in Germany - but will I have to pay tax for it in the US? And roughly what amount should I expect?

Question 2) I would like to invest the money in a life insurance policy (fund policy). In Germany, the profit is only taxable when it is withdrawn. I heard the insurance company reports the value of the policy to the US government every year. Do I have to expect a tax payment every year - if I have an increase in value of 10,000 euros in the policy?

Thank you very much for your answers
Steven

Antwort von Peter Scheller

This are all questions for a US tax adviser.

Kommentar von Tan |

I am expat in Germany. I invested some ETFs and German stock with German broker. If i sell these asset after i moved out of Germany (deregistered), are they subject to German taxes?
Will it create confusion at Finanzamt or other trouble?

Antwort von Peter Scheller

If you are not tax resident in Germany, in general foreign source income will not be taxed in Germany. However, as usual there is never a rule without exceptions (but probably not in your case).

Einen Kommentar schreiben

Was ist die Summe aus 5 und 4?