Taxes on capital gains from stocks

[Stauffenberg 4]

Hi there,

 

I am working and earning my salary in Germany but also still hold some stocks in the U.S. (I am a dual citizen so I prepare a U.S. tax return as well). I report my capital gains there, but do I also have to report them in my German tax return, or is this excluded due to the double-taxation agreements etc.? Also, what is the penalty for NOT declaring capital gains taxes to the German tax authorities for shares held abroad?

 

Many thanks!

[HEM 10,702]

Residents in Germany have to report their global income.

 

You also report the taxes deducted at source in the various countries which may be taken into account up to a certain percentage according to the appropriate dual taxation agreement.

[Straightpoop 659]

Under the German Abgeltungssteuer, capital gains on US stock positions (Aktien) that you acquired on or after 1 January 2009 are taxed at 25% plus 5.5% SolZ - unless your overall German income tax rate on all items of income would be lower. The same rate will apply to dividends and interest and gains from the sale of non-stock securities (e.g. bonds, funds, structured products, i.e. "Zertifikaten")

 

Generally speaking, gains or losses from the sale of securities (stock or otherwise) acquired prior to 1 Jan 2009 are a "non-event" for German tax purposes and do not need to be reported at all - on your German tax return.

 

Losses from sales of stocks - US or foreign - acquired o/a 1 Jan 2009 can offset only taxable gain from sales of stocks. They will not reduce positive taxable income from other sources of Kapitalerträge in a given year. Such excess stock losses can, however, be carried forward indefinitely until you have some realized stock gains. The running total of such carried forward amounts is established in a separate assessment (Bescheid) accompanying your annual income tax assessment and/or if you hold the positions in a German brokerage account (Depot) you can allow your German brokerage to track it in-house in a so-called "Aktienverlusttopf".

[Stauffenberg 4]

Okay, many thanks for the useful information. Seems I need to change my approach then. Can anyone verify what the penalties are if you get caught for failing to file such capital gains for some post-2009 years?

 

Danke!

[PandaMunich 15,924]

6% per year penalty interest on the evaded tax

+ a penal fine which will be a multiple of your total daily income from all sources (= Tagessatz), see the table here.

[Conquistador 11,152]

 

Hi there,

 

I am working and earning my salary in Germany but also still hold some stocks in the U.S. (I am a dual citizen so I prepare a U.S. tax return as well). I report my capital gains there, but do I also have to report them in my German tax return, or is this excluded due to the double-taxation agreements etc.? Also, what is the penalty for NOT declaring capital gains taxes to the German tax authorities for shares held abroad?

 

Many thanks!

 

BTW, the US and Germany also share tax information

[Tim Hortons Man 542]

I believe the actual rate is 25.375% and the rate applies to both capital gains and dividends. I believe it is also taxed from the first dollar as well.

 

Does anyone know what the rules for superficial loss selling are? In other words selling and buy the same stock back a short while later in order to create a loss to offset a gain.

 

I do find it rather ironic that Teapublicans are constantly screaming about how dangerious Obama's European socialism when a flat tax is a holy grail of the right.

[Starshollow 6,066]

I wrote some information about the new capital gains tax in 2009 for TT --- see here: http://www.toytowngermany.com/forum/index.php?showtopic=112873

 

The info is still valid as there have been no major changes in the CGT regime since then....

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.

[PandaMunich 15,924]

 

I believe the actual rate is 25.375% and the rate applies to both capital gains and dividends.

 

You have a small typo in there, it's:

25% Abgeltungsteuer

+ 1.375%, which is 5.5% Solidaritätszuschlag on those 25% Abgeltungsteuer, i.e. 0.055 x 0.25 = 0.01375

____________________________

= 26.375%

 

If you also pay church tax (yes, I know you left the church, but as information for others), it will be more than 26.375%.

 

 

I believe it is also taxed from the first dollar as well.

 

No, they are normal capital income, like interest, which means that the first 801€ (1,602€ if you're a married couple) are exempted from tax through the Sparerfreibetrag as long as you have given your bank/broker a Freistellungsauftrag.

 

 

Does anyone know what the rules for superficial loss selling are? In other words selling and buy the same stock back a short while later in order to create a loss to offset a gain.

 

That is allowed.

Though with transaction fees being what they are in Germany, I would look for a broker with flat transaction fee if you intend to do a lot of trades, e.g. Flatex (5€ flat fee + at least 1.89€ stock exchange fee): http://www.modern-banking.de/vergleich-brokerage-2.php

But Flatex does have a 5€ fee for dividends from non-German stocks.

[Stauffenberg 4]

 

6% per year penalty interest on the evaded tax

+ a penal fine which will be a multiple of your total daily income from all sources (= Tagessatz), see the table here.

 

Thanks. Funny how they exclude penalty information for Bavaria residents though (unfortunately)

[PandaMunich 15,924]

Have another look at that table:

 

• 
  München = southern Bavaria
  Nürnberg = northern Bavaria
  

 

[Tim Hortons Man 542]

@panda munich thanks! Very helpful and I must say I'm surprised at the tax free allowance that I didn't expect

[Tim Hortons Man 542]

 

No, they are normal capital income, like interest, which means that the first 801€ (1,602€ if you're a married couple) are exempted from tax through the Sparerfreibetrag as long as you have given your bank/broker a Freistellungsauftrag.

I couldn't edit my previous comment but to clarify the above exemption

 

'No income tax is charged on the basic allowance, which is EUR 7,664 for unmarried persons and EUR 15,329 for jointly assessed married couples.'

 

So assuming we earn more than 15,329 jointly per year (which we do) and I have 10,000€ in capital gains and dividend income than taxes owed would be 10,000 - 1,602 = 8398 x 26.375% which is 2214.97€. Secondly if you add in withholding tax 15% (or 1500€ ) actual tax owing would be 714.97

 

Does this sound about right?

 

Thanks

[PandaMunich 15,924]

Yes, apart from the unimportant detail that the Grundfreibetrag is 8,130€ per person in 2013 (it was 7,664€ from 2004 to 2008), everything is correct.

 

Congrats, you have mastered the chapter Abgeltungsteuer of the German tax system :)

[Tim Hortons Man 542]

Thanks, I googled tax free earnings (or something like that) and got a link from TT must have been an old one. :lol:

[Straightpoop 659]

@Tim

 

Some observations:

 

The 15% (or other rate) of taxes withheld (usually on dividends) at the source by foreign countries (e.g. USA) are creditable to you against your maximum 26.375% Abgeltungssteuer liability (ausländische Quellensteuer). The amount of the withheld foreign tax is creditable, however, only to the extent that the foreign country is allowed to tax that particular item of income under a double taxation treaty with Germany. Thus, if a country withholds a greater percentage than that allowed by treaty(e.g. Spain withholds 19%, France 20%, Italy 25% or Switzerland 35%) you can claim as a credit only that amount allowed to the particular foreign country for that particular type of income under the treaty. The difference you have to get back from the individual country using whatever refund system they offer. (Switzerland's is pretty easy, France and Spain are very difficult and Italy is for all practical purposes impossible.)

 

For US citizens resident in Germany your credit is limited to the lesser of the treaty rate allowed to the US (e.g. 15% on dividends, 0% on interest) or the amount of US tax liability you actually have on those items. Since many US citizens tax resident in Germany have little or no US tax liability, the amounts withheld by the US - if any - will not be creditable. (As a US citizen you can, of course, avoid any US withholding by filing a Form W-9 with your US financial instituions.)

 

The €801/per person Freibetrag is available whether you claim all or a portion of it in advance through one or more bank or brokerage or not. The advantage of claiming it in advance, of course, is that you have more capital available to you for investment and don't have to wait until you file your tax return the following year to claim a refund.

 

Again, it is important to remember that the 25% + SolZ Abgeltungssteuer is a MAXIMUM rate on these types of income. If you and your wife's other income puts you in a lower marginal tax bracket, then that lower rate rather than the Abgeltungssteuer rate will apply to all your taxable income until your marginal rate reaches the 25% threshold. From that point on the 25% max rate will apply to your investment income while the tax rate on your other income continues to soar toward the maximum German income tax rate.

[Tim Hortons Man 542]

Hey Straightpoop (can you say that 10 times fast with a straight face ) I spend the weekend reading up on this the withholding tax on dividends is fairly straight forward but things get really complicated once you add in an ETF to the mix. Secondly most of the information is either for UK investors or US investors living abroad. Not much for Canadians living in Germany.

 

I asked this in another Buying index funds in Germany (and by mistake credited Starshollow not you and have asked moderator to correct it) but you made the following comment.

 

 

And if after reading the above you're thinking about buying a US-based ETF you might want to consider that German tax rules applicable to owners of foreign funds not registered in Germany are just as onerous as the US PFIC rules if not more so (See: §5 Investmentsteuergesetz).

Would you mind expanding on that a bit. I'm looking at buying some US domiciled ETFs from my US trading account in Canada and my understanding was I'd only need to report the income.

 

And many "green plus button" clicks to you and PandaMunich for all your help!

[Straightpoop 659]

Tim,

 

As luck would have it I have recently looked into the problem of getting relief from Canadian 25% withholding on dividends paid to a German resident by a Canadian corporation.

 

The German resident owns his Canadian shares indirectly through a German brokerage account.

 

When the quarterly dividend is paid, it has been reduced by Canada's 25% "default" withholding rate on dividends.

 

The Germany-Canada treaty rate of dividend taxation allows Canada only 15%. Therefore, German tax law allows the German recipient of the Canadian dividend a credit against his 26.375% Abgeltungsteuer liability only in the amount of the first 15% withheld. The remaining 10% has to be obtained through a Canadian refund procedure. This procedure is so extremely time consuming and burdensome that unless the amounts involved are really high: e.g. in the thousands - it makes little practical sense to claim it.

 

Canada does offer a method that would allow the German resident's German broker to apply on his behalf for a reduced treaty rate of Canadian source withholding on the dividends but the brokerage company has said essentially: it's too big a pain in the ass for us to fool with this sort of thing relative to the few of our customers (i.e. holders of Canadian stocks) who might derive some benefit from our help. Bottom line: a German resident taxpayer who owns a dividend paying Canadian stock in a German brokerage firm which is unwilling to go to bat for him with the company and/or the CRA is SOL and will end up paying a total of 36.375% on his dividends: 25% to Canada and a (net) 11.375% to the Germans.

 

Note that this situation does appear to apply to those who hold hold their securities through US-based brokerages.

 

The rate of dividend taxation is the same 15% under the Canada-US treaty is the same as it is under the Canada-German.

 

The main difference, however, is volume. Tens of thousands of US Americans own Canadian stocks that trade on the NYSE and NASDAQ and Tens of thousands of others buy them directly on the Toronto or Vancouver exchanges. As a result, it makes practical sense for a brokerage to go through the trouble of filling out the reduced withholding forms.

[Tim Hortons Man 542]

@Straightpoop

 

Many thanks for that detailed response. The good news is that I have my trading account in Canada so the withholding tax will be only 15%. I had briefly considering keeping my address in Canada to avoid the withholding tax but I would still have to file a tax return in Canada as well as Germany which is a huge hassle and could potentially cause problems.

 

I don't currently reinvest my dividends instead allow them to grow till I get a good buying opportunity. Will add some thoughts on ETFs to the other thread

 

BTW been reading some of you're posts, do you work in the this field you're quite knowledgeable.

 

between you and PandaMunich you guys are TT superstars B)

[HEM 10,702]

 

The Germany-Canada treaty rate of dividend taxation allows Canada only 15%. Therefore, German tax law allows the German recipient of the Canadian dividend a credit against his 26.375% Abgeltungsteuer liability only in the amount of the first 15% withheld.

 

Exactly the same with investments in the UK - for example some funds have 10% UK taxation & others have 20% - the latter fall foul of this issue.

 

 

The remaining 10% has to be obtained through a Canadian refund procedure. This procedure is so extremely time consuming and burdensome that unless the amounts involved are really high: e.g. in the thousands - it makes little practical sense to claim it.

 

One can suspect its made so complex so as to deter people from claiming.