UK Dividend Taxation

35 posts in this topic

 

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

 

How do you know?

 

People have taken the time the give you some good responses, and you should not flip them off so lightly. JE, in particular, runs a UK Ltd and is always worth listening to. The point we tried to make in the last couple of posts is this: when you come to reside in Germany, the Finanzamt will consider your affairs according to their rules. Your passport is irrelevant. The rules of HM Revenue may be irrelevant. The fact that your affairs are properly regulated according to a British accountant's interpretation of the UK rules may also be found to be irrelevant. Whether VAT is or is not good for your business is completely irrelevant. It is completely possible for the Finanzamt to decide to view your companies in aggregate. It is also possible that they will not. As your companies appear to conduct their business wholly in the UK, it may be decided that only UK law and Corporation tax apply.

 

None of us can give you definitive answers to these sort of questions. All we have done is provide possible scenarios and opinions. If these don't fit with the way you personally would like the world to be, too bad.

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Bumping an old thread rather than starting a new one. Would like some 2018 feedback. 

 

My UK Ltd pays me a salary which is taxable in Germany.  I also want my UK Ltd to pay me a dividend before the PAYE year ends (next week). 

 

Can someone please remind me how my UK dividend income is treated in Germany?  

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Thanks Panda! Interesting but complicated. 

 

Can I ask for a simplified answer to a simplified scenario? 

 

Assume - 

- a salaried income of 12,000 EUR per year.  

- a dividend of 15,000 EUR that has been taxed in the UK. Call it 1300 EUR in tax paid to UK's HMRC on that dividend. 

- no other income from investments

 

How much tax is payable in Germany, on that 15,000 EUR dividend?  

 

 

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1,300€ sounds very low as a UK source tax on dividends paid to somebody who is not resident in the UK, I would have expected 15%, see here:

You haven't yet told me what your wife's gross salary is, I need that to do the calculation.

 

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Hi Panda,

 

Lets call my wife's salary 60,000 EUR. 

 

Re: the at source dividend tax. I didn't realise its different for a non resident. I'm not sure where I got the initial figure from! Lets ignore it for now. If I base it on a £13,000 dividend -  the first £5000 being tax free, and the next £8000 being taxed at 7.5%, I get a tax payment owing of £600. 

 

If its a flat 15% for a UK citizen who is non resident for tax purposes, then I guess it'd be £1950 tax on that dividend that I'd have to pay to HMRC. 

 

 

 

 

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1 hour ago, CustomX said:

Re: the at source dividend tax. I didn't realise its different for a non resident. I'm not sure where I got the initial figure from! Lets ignore it for now. If I base it on the first £5000 being tax free, and the next £8000 being taxed at 7.5%, I get a tax payment owing of £600. 

 

Yes, that's for residents in the UK.

 

You're not resident in the UK, so yes, you're looking at 15% UK source tax, i.e. 0.15 * 15,000€ = 2,250€ (not £):

1 hour ago, CustomX said:

If its 15% for a non resident, then I guess it'd be £2250 tax on that dividend that I'd have to pay to HMRC. 

 

Let's assume 2,250€ UK source tax on those dividends and do a calculation for the both alternative ways dividends that are held as part of your private assets can be taxed in your 2018 tax return, since you own at least 1% of the company and also work for it.

 

With a yearly gross income of 27,000€ (= 12,000€ salary + 15,000€ dividends), your public health&nursing contribution to is 404.23€ a month, i.e. 4,850.76€ a year.

Just enter 2,250€ (= 27,000€/12) into the Techniker Krankenkasse contribution calculator: https://www.tk.de/service/app/2004108/beitragsrechner/selbststaendigeRechner.app

 

___________________________________________________

 

Alternative 1:  tax dividend with a flat 25% income tax rate, plus Solidaritätszuschlag, which comes to 26.375% (25% flat rate because §32d (1) EStG)

 

a.) taxes on salaries

 

Your taxable income resulting from salary:

12,000€ salary

- 4,850.76€ public health&nursing contribution

_____________________

7,149.24€ your 2018 taxable income

 

Your wife's taxable income, just enter 60000 into the Parmentier wage tax calculator and change the drop-down menu to "Wage paid: Yearly" (the tax class is irrelevant for calculating the taxable income, but let's assume she chose tax class III): http://www.parmentier.de/steuer/index.php?site=tax-wage

remains as taxable income per year (lump sums deducted and rounded) : 49.888,00   Euro

So her 2018 taxable income is 49,888€.

 

And she prepaid on her salary:

  • 7,672€ in income tax through the Lohnsteuer that her employer deducted every month, and 
  • 421.96€ in solidarity tax

 

--> Your total family taxable income is:

7,149.24€ your taxable income

+ 49,888€ wife's taxable income

_________

57,037.24

 

--> enter 57037 into the Parmentier income tax calculator: http://www.parmentier.de/steuer/index.php?site=tax-income

and look at the column "for Couples" to see what you really how much income&solidarity you really should have pre-paid on your salaries:

  • 9,786€ income tax --> will have to pay an extra 2,114€ (= 9,786€ - 7,672€) in income tax because of your salary 
  • 538.23€ solidarity tax  --> will have to pay an extra 116,27€ (= 538.23€ - 421.96€) in solidarity tax because of your salary 

 

b.) taxes on dividend

Let's assume that these 15,000€ are your family's only capital income, i.e. that you haven't used up anything of the 1,602€ tax-free amount for capital income for any other capital income like interest or profit from selling shares/funds/bonds.

 

3,349.50€ = 25% * (15,000€ - 1,602€) = 0.25 * 13,398€    flat German Abgeltungsteuer tax = income tax on capital income

- 2,009.70€ = (13,398€/15,000) * 2,250€ is the tax credit for the 2,250€ UK source tax (you only get a tax credit on the part of the dividends that ended up being taxed by Germany!)

___________

1,339.80€ income tax on the dividends

+ 73.69€ = 5.5% * 1,339.80€ solidarity tax on the dividends

 

So in total you will have to pay on:

  • 72,000€ family gross salary
  • 15,000€ dividend income

 

in taxes:

            9,786€ income tax on salaries

            + 538.23€ solidarity tax on salaries

            + 1,339.80€ income tax on the dividends

            + 73.69€ solidarity tax on the dividends

            ______________________
            11,737.72€ tax

 

 

Note regarding the Günstigerprüfung (= line 4 in Anlage KAP):

I also checked whether the sub-option of alternative 1, of simply taxing your total taxable income of 70,435.24€ (= 7,149.24€ your taxable income + 49,888€ your wife's taxable income + 13,398€ taxable part of dividends) with your personal variable income tax rate would be more advantageous, in accordance with a further option that exists as laid down in §32d (6) EStG.

It isn't, if you input 70435 into the Parmentier income tax calculator, you get 14,824.86€ in tax, which is higher than the 11,737.72€ above when the dividends simply get taxed with the 25% flat income tax rate.

 

___________________________________________________

 

Alternative 2:   60% of the dividend income taxed at your personal income tax rate plus Solidaritätszuschlag (personal income tax rate because of §32d (2) Nr. 3 EStG and 60% because of the §3 Nr. 40 EStG = Teileinkünfteverfahren )

 

For calculations of taxable incomes from your salaries, see alternative 1.

 

Your total family taxable income is:

7,149.24€ your taxable income 

+ 49,888€ your wife's taxable income 

+ 9,000€ = 60%*15,000€ taxable part of the dividend (Teileinkünfteverfahren)

_________

66,037.24€

 

--> enter 66037 into the Parmentier income tax calculator: http://www.parmentier.de/steuer/index.php?site=tax-income

and look at the column "for Couples":

 

12,608€ income tax on total income

- 1,350€ = 60% * 2,250€ is the tax credit for the 2,250€ UK source tax (you only get a tax credit on the 60% of the dividend that ended up being taxed by Germany!)

____________________

11,258€  remaining income tax on total income

+ 619.19€ = 5,5% * 11,258€ solidarity tax on total income

____________________

11,877.19€ tax

 

 

--> alternative 1, i.e. just declaring the dividends in Anlage KAP, is more advantageous, since that's only 11,737.72€ in tax, as opposed to 11,877.19€ in tax in alternative 2.

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Hi Panda,

 

Thanks so much for that very detailed response. I appreciate it. 

 

So long story short, in addition to the £2250 source tax I pay in the UK, I can expect to pay circa 1300-1400 EUR additional tax to the German authorities. 

 

Without doing the whole calculation again (I really want only a very rough number), if I increased the dividend upward by 33% to £20,000, would the amount of extra tax payable in Germany increase by roughly 33% too? 

 

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42 minutes ago, CustomX said:

Without doing the whole calculation again (I really want only a very rough number), if I increased the dividend upward by 33% to £20,000, would the amount of extra tax payable in Germany increase by roughly 33% too? 

 

I think you mean 20,000, not £20,000 ;)

 

My feeling says alternative 1 is still the better solution, and yes, since alternative 1 has the flat tax, the roughly 33% more in tax on the dividend (not exactly 33%, but a bit more, since the 1,602€ you deduct for the Sparerfreibetrag messes up things), would hold true.

Taxation in alternative 2 isn't flat but progressive (= the higher the income, the higher the tax rate), so alternative 2 will become more and more unfavourable, the higher the dividend is. In other words, the spread (difference between tax to be paid in alternative 2 and alternative 1) will become higher and higher.

 

So let's check my feeling:

___________________________________________________

 

 

Alternative 1:  tax dividend with a flat 25% income tax rate, plus Solidaritätszuschlag, which comes to 26.375% (25% flat rate because §32d (1) EStG)

in taxes:

            9,786€ income tax on salaries

            + 538.23€ solidarity tax on salaries

            + 1,839.80€ =  25% * (20,000€ - 1,602€) -  (18,398€/20,000) * 20,000€*15%   income tax on the dividends

            + 101.19€ = 5.5% * 1,839.80€  is solidarity tax on the dividends

            ______________________
          12.265.22€ tax

 

 

___________________________________________________

 

Alternative 2:   60% of the dividend income taxed at your personal income tax rate plus Solidaritätszuschlag

 

Your total family taxable income is:

7,149.24€ your taxable income 

+ 49,888€ your wife's taxable income 

+ 12,000€ = 60%*20,000€ taxable part of the dividend (Teileinkünfteverfahren)

_________

69,037.24€

 

--> enter 69037 into the Parmentier income tax calculator: http://www.parmentier.de/steuer/index.php?site=tax-income

and look at the column "for Couples":

 

13,588€ income tax on total income

- 1,800€ = 60% * (15%*20,000) is the tax credit for the 2,250€ UK source tax (you only get a tax credit on the 60% of the dividend that ended up being taxed by Germany!)

____________________

11,788€  remaining income tax on total income

+ 648.34€ = 5,5% * 11,788€ solidarity tax on total income

____________________

12.436.34€ tax

 

--> Yup, I was right, alternative 1 gets more and more advantageous the higher you go with the dividend, and the tax increases by roughly 33% (actually, it's by 37.31%, that pesky Sparerfreibetrag has less and less effect the higher your capital income) if you raise the dividend amount by 33%.

But you're overthinking this: just assume the dividend gets taxed with a 26.375% flat tax rate, no matter how high the dividend is.

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Ahh ok cool. thanks Panda!! 

 

This now gets me thinking though; why am I paying myself this money as a dividend if I have to pay 26% tax on it?! Sounds a bit cray cray! 

 

Since the German tax rate is 14.77% for earnings between 8 and 53k (all numbers rough obviously), I'm surely better off if my Uk Ltd pays me the extra £20k as salary. I'll pay only 14.77% income tax on it and it'll also reduce the Uk Ltd's net profit, meaning less corporate tax to pay. 

 

Am I right? 

 

I assume that the way it'll work is I'll have to pay the PAYE tax in the UK (which is 20%), and then also pay the 14.77%  in DE, and then lodge a claim with HMRC to recover the amount I ended up paying in DE to make sure I'm not double taxed on the income. 

 

 

 

 

 

 

 

 

 

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42 minutes ago, CustomX said:

Since the German tax rate is 14.77% for earnings between 8 and 53k (all numbers rough obviously), I'm surely better off if my Uk Ltd pays me the extra £20k as salary. I'll pay only 14.77% income tax on it and it'll also reduce the Uk Ltd's net profit, meaning less corporate tax to pay. 

 

Am I right? 

 

No.

Remember that I calculated before (in alternative 1) how much your family taxable income is, if you have 12k€ gross salary and your wife 60k€ gross?

 

2 hours ago, PandaMunich said:

--> Your total family taxable income is:

7,149.24€ your taxable income

+ 49,888€ wife's taxable income

_________

57,037.24

 

So your family already has around 57k€ in taxable income with the present salaries, which means that you're already at a marginal tax rate (= the tax rate at which the last euro, i.e. the euro between 57,036 and 57,037€ gets taxed) of 42%

Source: input 57037 into the Abgabenrechner, mark "verheiratet" = married), see the blue line in the following graph (the x axis is your family taxable income, the y axis the tax rate):

 

5ab959f743290_ekstDiagram(5).gif.6b45954

 

If you add any more salary, this salary would get taxed at 42%.

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Hi Custom X and Panda Munich,

 

I am in a similar situation and was wondering if you could help with this.

 

If I run a UK Ltd, how can I pay myself a salary here in Germany? How does it work exactly?

 

Many thanks for all your help.

 

Mat

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On 3/26/2018, 10:38:13, PandaMunich said:

 

No.

Remember that I calculated before (in alternative 1) how much your family taxable income is, if you have 12k€ gross salary and your wife 60k€ gross?

 

 

So your family already has around 57k€ in taxable income with the present salaries, which means that you're already at a marginal tax rate (= the tax rate at which the last euro, i.e. the euro between 57,036 and 57,037€ gets taxed) of 42%

Source: input 57037 into the Abgabenrechner, mark "verheiratet" = married), see the blue line in the following graph (the x axis is your family taxable income, the y axis the tax rate):

 

5ab959f743290_ekstDiagram(5).gif.6b45954

 

If you add any more salary, this salary would get taxed at 42%.

 

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Hi Panda Munich,

 

I was wondering if you could explain how I can get paid a salary in Germany from a UK Ltd.

 

Thank you!

 

Mat

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