UK Dividend Taxation

35 posts in this topic

My UK share dividends are generally taxed at source in the UK before I receive the cash. I presume that the German taxman will treat my UK dividend income as capital gains and tax me accordingly. However, haven't I already paid the tax in the UK and so need to claim this back (the UK tax) as I am a German residence and only subject to German taxes?

 

Has anyone already figured this one out?

 

Thanks for any advice you can offer.

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Dividends are not capital gains but income (like bank interest). A capital gain / loss would only arise on disposal of the investment.

 

This is quite a normal process that lots of Germans and immigrants do. On your German tax return (in detail on Anlage AUS which is for non-German income) you will need to record the gross investment income (converted into EUR of course) as overseas investment income, stating the nation it comes from and the type of income it is. It might be a good idea to attach a copy of the certificates just so it is clear / for avoidance of doubt but I don't think it matters that much.

 

Can only speak for me but the German authorities have never taxed me additionally on my non-German income, but that could easily just refelct my personal circumstances. The UK and German tax authorities share tax information and so your German authority will know how much tax you paid in the UK anyway.

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So what happens is that you MUST declare your dividends on Anlage AUS & KAP to the Finanzamt. They will apply taxation according to the German rates.

 

You also declare (with the evidence) the UK tax paid within the calendar year. In principle the Finanzamt will them allow your UK tax paid against your German taxation. HOWEVER, there can be a difference between theory & practice:

 



  • sometimes they sit back & say since foreign Quellensteuer is never more than 10% (despite evidence to contrary) they will only allow 10%..
  • sometimes they will say "this is part of your Sparerfreibetrag and thus you should not have paid tax on that & thus we wont count that.." (may change for 2009 onwards due to different taxation of dividends).

 

 

Been there, had that...

 

After that you can try to go through the rigmarole of reclaiming the tax from the UK IR.

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Morning!

Having lived in Germany on and off for the last few years and with a (don't tell her I said this) ageing British Mother based in Berlin for the past 20 years, my British other half and I have decided to escape the Socialist shackles, tyranny and general chaos of the UK one final time and move permanently to de B)

 

We realised that if we based ourselves, probably in NRW within about 30 mins of Muenser/Osanabrueck Flueghafen, or about half an hour of Duesseldorf airport we would have the advantages of being able to fly back to London when we need to quickly and cheaply and would be able to drive to the Eurotunnel in about 4 hours.

 

All this and we would actually be able to buy a house that is affordable and have more disposable income to use to protect our futures.

The other half's parent's live within 25 minutes of London City Airport and an hour of Stansted, so she will have a free-base to stay at on the days she starts her 2 to 3 day a week Landscape Architecture Conversion course at Greenwich Uni, and somewhere to stay during the week if she gets a job with a practice in London after qualifying - Obviously she will really be aiming to learn German and get a job with a practice in Germany.

 

Thing is, I wondered if anyone could help with a situation regarding taxation. My UK accountant can't advise me on the German side of things.

 

I am the sole Director and shareholder of a UK LTD company. My business is internet based and so can work from anywhere in the world, although the company's registered office is a rented postal address only in London.

 

The company earns its income from business done within the UK, so invoices contain only a UK address.

 

I am paid by way of salary and dividends, so by default, the bulk of my wages have been subject only to Corporation Tax against the profit the business made, and not by a further personal income tax.

 

So:

 

1. Once I am resident in Germany I will be liable for tax in Germany, so under the Double Taxation Treaty, will I receive a credit from HMRC in the UK for any of tax they say I would ordinarily be liable for were I resident in UK?

 

2. Although the monies that I receive in terms of salary would need to be declared to the Finanzamt, would they be subject to any rate of tax? They fall beneath the threshold for income tax in the UK.

 

3. The monies I receive as dividends would need to be declared to the Finanzamt, I am sure, but again, would these be subject to any rate of tax in Germany? They wouldn't be subject to income tax in the UK due to the fact that my salary is not either as it falls below the income tax threshold.

 

As an aside, am I correct in thinking that personal tax in Germany is generally lower that that in the UK? There seemed to be a lot of items you can disburse as a private individual in Germany that you can't in the UK.

 

Also, as I will not own any property in the UK, nor have any intention of returning, nor be there for anything like 90 days per year, is there any advantage to my going through the process of letting HMRC know that I am no longer domiciled in the UK, rather than just being non-resident?

 

Any help gratefully received!

 

Thanks.

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I believe that in Germany your dividends and salary will be added together to produce your income which is all taxed as one. Obviously, you will need the advice of a German tax advisor.

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I have to say, it's a bit annoying that my thread has combined with this thread - My post bears no relation to what the OP asked.

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Also, as I will not own any property in the UK, nor have any intention of returning, nor be there for anything like 90 days per year, is there any advantage to my going through the process of letting HMRC know that I am no longer domiciled in the UK, rather than just being non-resident?

 

Do you know how your domicile is defined? You don't tell the tax authority where you are "domiciled". It a strict concept that goes on some fairly strict rules. Non-resident in the UK for sure. Non-dom? I rather doubt it. And what do you think the point would be anyway?

 

I'm not sure I understand your question. You seem to be saying your net income is below tax threshold. So that must mean you don't pay tax. So where would credits for UK tax paid fit in if you aren't paying any? If you think the UK is "socialist", by the way, you are in for a rude awakening here. Germany (like many north European mainland states) is far more socialist - bigger welfare state, more interventionist in people's life / family choices etc. If the UK is so "socialist", then why on earth would an entrepeneur keep their "business" there? It might be easier not to bother. Most of us here runnnig businesses that earn well into tax-paying levels don't bother doing that. No point if you have no intention of going back, I'd say.

 

The basic rate of tax here is 15% which is a bit lower than the UK's, but you have to pay healthcare insurance (a 2k a year at least) and anything else you want like pension on top of course.

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1. Once I am resident in Germany I will be liable for tax in Germany, so under the Double Taxation Treaty, will I receive a credit from HMRC in the UK for any of tax they say I would ordinarily be liable for were I resident in UK?

Yes when resident in Germany you will be liable to pay all taxes here on your worldwide income (except those that are derived from property located in the UK - such as rental income). Why would you get a tax credit??? You just pay taxes in the UK until the day you leave, and then pay taxes in Germany when you live here. Simples.

 

 

 

 

 

2. Although the monies that I receive in terms of salary would need to be declared to the Finanzamt, would they be subject to any rate of tax? They fall beneath the threshold for income tax in the UK.

Yes declare 'em and Finanzamt will decide if there is any tax to pay. But you would need to declare them. So would the Ltd company for corporation taxes on any profits, as the work is being done and controlled from Germany.

 

 

 

 

 

3. The monies I receive as dividends would need to be declared to the Finanzamt, I am sure, but again, would these be subject to any rate of tax in Germany? They wouldn't be subject to income tax in the UK due to the fact that my salary is not either as it falls below the income tax threshold.

Same as above.

 

 

 

 

As an aside, am I correct in thinking that personal tax in Germany is generally lower that that in the UK? There seemed to be a lot of items you can disburse as a private individual in Germany that you can't in the UK.

Depends on whether you are married, with kids etc. Most people reckon income tax is higher in Germany.

 

 

 

 

Also, as I will not own any property in the UK, nor have any intention of returning, nor be there for anything like 90 days per year, is there any advantage to my going through the process of letting HMRC know that I am no longer domiciled in the UK, rather than just being non-resident?

Don't get into "domicile" status discussions!! You just need to tell 'em you are in Germany. Gets all very technical about "domicile" and "resident" etc. But yours is dead simple - like every other UK ex-pat over here. You will probably end up doing 2 tax returns in the same year - one completing the UK and one for Germany. I still do both EVERY year for example.

 

p.s. Don't assume that 'cos you have a UK Ltd Company with UK clients that the company can continue to pay UK corporation taxes. As Director and Shareholder living over here, the Company pays taxes over here as well. The company clearly does NOT have a "permanent establishment" in the UK.

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Do you know how your domicile is defined? You don't tell the tax authority where you are "domiciled". It a strict concept that goes on some fairly strict rules. Non-resident in the UK for sure. Non-dom? I rather doubt it.

Direct quote from HMRC's website: "Broadly speaking, you are domiciled in the country where you have your permanent home. Domicile is distinct from nationality or residence. You can only have one domicile at any given time."

The rules are as HMRC state "general" and there is no "strict" interpretation at the moment as that's how HMRC want it. If you set clear legislation down, we will all work around it. Hence there are a number of cases heading there way through the HM Courts' Service that show discrepancies in the way HMRC have dealt with the matter - They have agreed to one person being Non-Dom, whilst another who has a carbon-copy identical set of circumstances, they've either said no to from the outset, or agreed at the beginning and changed their minds 5 or 10 years later leading to huge bills for back-taxes.

 

But this is all irrelevant to my point because:

 

 

And what do you think the point would be anyway?

Indeed - I asked in my OP if anyone knew of any advantage - I don't know the answer, hence the question.

 

 

I'm not sure I understand your question. You seem to be saying your net income is below tax threshold. So that must mean you don't pay tax. So where would credits for UK tax paid fit in if you aren't paying any?

The basic salary I receive from my company, naturally I keep below the tax threshold. The bulk of my income is dividends. However, this was asked as a general question in case I do at some point become liable for any tax in the UK. Certainly the way others have read it anyhoo.

 

 

If you think the UK is "socialist", by the way, you are in for a rude awakening here. Germany (like many north European mainland states) is far more socialist - bigger welfare state, more interventionist in people's life / family choices etc.

There speaks someone who possibly hasn't lived full time in the UK for a while. In the last probably 5 to 7 years, thanks in part I suppose to us most recently having an unelected (and widely hated) leader, Britain has become a surveillance State, and only a small part of that comment is directed at CCTV. Ironically, the Liebor government has made British people even more watched than those from the former East....In fact the UK people are officially the most spied upon and interfered with people by their own government in the world.

As a child I lived in an age that saw the then British government fight against this breach of liberty in other countries around the world - I object to it and reject the UK because of it.

 

I have lived in Germany on and off since 1998 and have paid taxes there with the same frequency. I have family and friends living and working there who are all on the whole, happier, more solvent, more free, less stressed and feel they have a better future than they would have in the UK.

 

I have no problem in paying my taxes to the German government and making a contribution to its society without leeching what I haven't paid for. Compared to the UK, Germany has a reputation for fair-play with the people who elected it rather than the UK government which sees every man, woman and child (whether dead or alive going on recent news) as a cashcow to squeeze, and squeeze some more whilst delivering less and less back.

 

Sure, some may argue the German government is going that way too, but go and live in the UK right now with things as they are for a year, earn your money there and then tell me you think you're getting a good deal. The UK is finished.

 

Further, as we don't have children, don't intend to have children, have private health insurance and, don't borrow money, don't require a mortgage and have plans for an almost self-sufficient home, we would feel the touch of any intrusive government far less than most.

 

 

If the UK is so "socialist", then why on earth would an entrepeneur keep their "business" there? It might be easier not to bother.

It's about appearance and perception. Most of customers are UK based, or choose to deal with my company because it is. Often they pay relatively large sums of money without having first seen or received the goods, and they would feel a lot less comfortable dealing with a firm based offshore.

 

 

Most of us here running businesses that earn well into tax-paying levels don't bother doing that. No point if you have no intention of going back, I'd say.

If you're suggesting a German Gmbh as an option (which I accept you may not be) you must be joking. Way too er...taxing in terms of time just to administer the thing and therefore far more costly

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Cheers Johnny.

Actually ignore the post above; You said something really interesting about Corporation Tax.

 

I thought this might be the case as the same rule applies in the UK for Directors of non-UK companies.

 

So it sounds like a way to deal with this would probably be to add my Father for example, who is based in the UK, as another Director?

 

Do you know if the Finanzamt combine my salary and dividends, call it "income" and tax me as per the thresholds, or do they give me the same relief on dividends as I get in the UK?

 

Cheers again.

 

(PS: I agree re the Domicile thing - I really just wanted to find out if there were an advantage but no-one seems to know)

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And thanks too to Rainking - That's exactly the kind of thread I was looking for! Didn't come up in the search when I originally posted though

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No, The Finanzamt give no relief on dividends.

 

You are better off to not take any dividends because they do not decrease a Ltd. Company's profit, so the company pays corporation tax on that money and you also pay income tax on it.

 

If you take everything as salary then the company's profits are reduced by this amount and no corporation tax is due. You still pay income tax on it but that is better than paying income tax and corporation tax.

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Yep - Thanks Lazybum. Just saw your post to the same effect in the other thread. Very helpful but a bit disappointing...Bugger :(

 

OK - Here's another one for you - If I were running a UK LTD company that did not need to register for VAT in the UK as it's turnover falls below the threshold, as I would be the sole shareholder and resident in Germany, would I need the business need to be registered for VAT in Germany? - In the same way as Corporation tax would be due in Germany.

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Now you're really straying into territory where you'll need both a UK accountant to take care of the company, and a German one to take care of you. Remember, you may move, but the company, a separate entity, may well remain in the UK. If your turnover is really so low as to be under the VAT limit, is all this worth it?

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I have 4 separate LTD companies which all do very different things, which fortunately also helps me keep each of them below the VAT threshold. The sum of all the parts combined makes it worth it. Was hoping to draw on the experiences of others first but of course, ultimately I need a decent German tax advisor.

 

Thanks to everyone for your comments and suggestions.

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So it sounds like a way to deal with this would probably be to add my Father for example, who is based in the UK, as another Director?

No. It's about where the business operates from, and who runs it. Easier when you think of a big company like....Lidl for example. For the sales and profits they make in the UK they pay UK company tax, and for the stuff over here in Germany they pay Germn tax. It's split of course. Otherwise they would have 1 office in The Seychelles and run all the taxes through there.

 

In your case, as described, with respect, fuck all is actually happening in the UK. If your "Dad" made some sales etc then that portion of the income would be UK taxable.

 

But it's all bollox 'cos corporation taxes for small business are basically pretty much the same anyways!! Germany or UK - makes no difference - so you might as well play straight.

 

 

OK - Here's another one for you - If I were running a UK LTD company that did not need to register for VAT in the UK as it's turnover falls below the threshold, as I would be the sole shareholder and resident in Germany, would I need the business need to be registered for VAT in Germany? - In the same way as Corporation tax would be due in Germany.

Phew. Vat registration depends on turnover. If you hit the turnover threshold for sales to the UK - you must be VAT registered in the UK. If you hit the level in Germany you must be registered here. Depends where you are making the sales. No reason by default that you need to be registered here, although the limit here is lower. Also depends if you are shipping goods and where they are located etc. You need to give real world examples to get a proper answer.

 

But as someone else pointed out - this is beginning to all sound a bit pointless. You are talking about a tiny company that must makes tiny profits - so no point in pissing around trying to dodge stuff. Just get on with making money, and pay taxes wherever and whenever they are due. At these levels there really is fuck all difference between UK and Germany. No point in trying to "tax plan" this baby.

 

Edit: I see you are running 4 companies. Be careful there is no crossover. Each one needs to be addressed differently of course with regards to VAT implications.

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I have 4 separate LTD companies which all do very different things,

Phew... with the risk of multiple audits, 4 annual returns.. and the chance that the HM revenue commissioners and the Finanzamt may decide to view the whole structure differently, i.e. 4 VAT-separate operations in the UK, but one aggregated turnover with Mwst liability in Germany. Life's too short...

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Yeah - they generally don't like that kinda stuff, with 1 person heading it up, 'cos of course strangely they think the structure may have been organised to split the business and avoid VAT.

 

Not that you would be doing that....

 

Just sayin.

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The question was simply, if the company is:

 

1. A UK LTD company, not required to register for VAT as its turnover is under the threshold

2. its only Director is a UK passport holder who is resident in Germany

 

Would the UK company be required to register for VAT in Germany where I believe registration is compulsory at any level of turnover?

 

As I said, consider points 1 and 2 above, plus all purchases and sales are carried out solely in the UK. No export sales, no import purchases.

 

What triggered the question is the fact that Corporation tax is apparently due to Germany from a UK LTD company when the British passport holding sole Director is resident in Germany.

 

The rest of what has been said since is all pretty much as as you said, "Bollox".

 

Regarding the 4 businesses, we are working within the anti-avoidance laws in the UK. The businesses are unrelated in their purpose or even industry for that matter but are not at the same addresses.

 

Regarding the necessity to manage my tax, the margins achieved make it well worth managing rather than blindly putting my hand in my pocket.

 

Regarding VAT itself, one of my businesses is in an industry which, if we reached the threshold, we would have to pay VAT on every sale by way of the VAT margin scheme. So we stop trading for the year before we reach threshold as getting involved with the margin scheme would destroy our anywhere between 95% and 400% margins.

 

A blind capitalist might thing I am mad, but I am not trying to expand my businesses, otherwise naturally it would make sense given the margins attainable to re-invest and stuff the VAT problem - Just trade through, register and pay it.

 

I make what I consider to be a very comfortable living without having to work my bits off (hence I can sit here clacking away in the afternoon) and don't want to live-to-work thanks all the same. As you say, life's too short.

 

I do though like to, in some people's eyes, waste my time, controlling my expenditure to protect my income. We all have to pay taxes, but we also all have the right to avoid what we can within the law, and what's wrong with that?

 

I think there is an assumption that I am trying to avoid paying taxes that I SHOULD be paying - I am actually just trying to get an idea from anyone here who actually knows, as to what I need to do and pay in Germany. It's interesting to know before I go and see a German tax advisor.

 

For the responses to my actual questions as they were written, thanks, very much appreciated. For the rest of them, I suppose I should have known better really...

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