Taxes on capital gains from stocks

119 posts in this topic

Just googled this out of curiosity and apparantly: Generally, any profit you make on the sale of a stock is taxable at either 0%, 15% or 20% if you held the shares for more than a year or at your ordinary tax rate if you held the shares for less than a year. Also, any dividends you receive from a stock are usually taxable.

 

I'm guessing you held your shares for less than a year?

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I'm not able to delete my post above, so please ignore it instead. I think that relates to US stocks. 

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On 10/15/2020, 7:11:23, Shanks008 said:

Is this true? or did I get all this all wrong? 

 

Someone has his/her wires crossed.

 

Net equity gains are subject to max 25% + SolZ Abgeltungsteuer.

 

General rule of thumb:

 

(Foreign taxpayer + Steuerberater) X foreign investment income =  enhanced possibility of wrong answer or misunderstanding or both

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On 1/2/2021, 1:09:05, Straightpoop said:

 

Someone has his/her wires crossed.

 

Net equity gains are subject to max 25% + SolZ Abgeltungsteuer.

 

General rule of thumb:

 

(Foreign taxpayer + Steuerberater) X foreign investment income =  enhanced possibility of wrong answer or misunderstanding or both

 

You are absolutely right about the misunderstanding :-). I have never found 2 steuerberater's giving me the same advice/answer. when it comes to investments made abroad.

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I also have a question actually two.

 

1-What will be the tax rate on the Capital gain if the partners are on Elternzeit for most of the year earning less than 15000Euro for that year? The capital gain might be more than 20,000USD if sold now.

 

2- How the public health insurance will be calculated as this have to be paid for by myself.

 

Thanks

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What about solidarity surcharge from 2021 on? Is it still applied to capital gains? How is that calculated?

Is it witheld upfront and then enters the overall tax declaration?

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On 02/01/2021, 14:09:05, Straightpoop said:

(Foreign taxpayer + Steuerberater) X foreign investment income =  enhanced possibility of wrong answer or misunderstanding or both

This makes me wonder whether I´m having the same problem. My German Steuerberaterin told me that she hasn´t applied for unlimited tax liability on my behalf (even though I don´t reside in Germany) to benefit from the tax-free threshold because I´d have to declare my income from dividends (which would make it moot). I seem to remember though that dividends (none of them from German companies) received by non-residents aren´t taken into account for that purpose and don´t have to be declared. She said I´m wrong and that  there was lawsuit pending to rule on that.  I´d have to wait for the outcome. Is she correct?

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20 hours ago, MikeMelga said:

What about solidarity surcharge from 2021 on? Is it still applied to capital gains? How is that calculated?

Is it witheld upfront and then enters the overall tax declaration?

 

Still applies - regardless of level of other income.

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On 1/22/2021, 2:43:28, humtumnice said:

1-What will be the tax rate on the Capital gain if the partners are on Elternzeit for most of the year earning less than 15000Euro for that year? The capital gain might be more than 20,000USD if sold now.

 

Assuming "that year" and "now" both refer to 2021, your German tax will be the lesser of the rate applicable to all items of taxable income including Kapitalerträge (after the €801 per person Freibetrag) or the (maximum) Abgeltungsteuer rate of 26.375%

 

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9 hours ago, jeba said:

My German Steuerberaterin told me that she hasn´t applied for unlimited tax liability on my behalf (even though I don´t reside in Germany) to benefit from the tax-free threshold because I´d have to declare my income from dividends (which would make it moot). I seem to remember though that dividends (none of them from German companies) received by non-residents aren´t taken into account for that purpose and don´t have to be declared. She said I´m wrong and that  there was lawsuit pending to rule on that.  I´d have to wait for the outcome. Is she correct?

 

I am not quite sure I understand your post.

 

If by "moot" you mean:  "would not result in any benefit and, quite possibly, would result in a greater tax burden" then your Steuerberaterin might well be correct.  Your unlimited tax status would give you an extra Freibetrag but would subject your worldwide income - including dividends - to German income tax which might very well obviate any advantage.

 

Your second sentence refers, however, to the taxation of foreign dividends received by non-residents being not taken into account for "that purpose".

 

It is unclear what "that purpose" refers to.

 

If, as it appears, you are now a non-resident of Germany, then dividends from a non-German source are not taken into account in computing your German taxes for any purpose.

 

If, as it appears, you want to be a tax resident of Germany and you succeed in gaining that status, then for the purpose of computing your German tax liability your foreign-source dividends will be subject to German taxes at the maximum Abgeltungsteuer rate of 26.375% with credit given for foreign taxes paid.

 

I know of no "lawsuit pending" that would alter that.

 

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1 hour ago, Straightpoop said:

If by "moot" you mean:  "would not result in any benefit and, quite possibly, would result in a greater tax burden"

Yes, that´s what I meant.

 

 

1 hour ago, Straightpoop said:

If, as it appears, you are now a non-resident of Germany, then dividends from a non-German source are not taken into account in computing your German taxes for any purpose.

That´s what I seem to remember: That capital income like dividends and interest from non-German sources aren´t to be considered when deciding on the eligibility for unlimited tax liability and that if you qualify for the latter you won´t even be taxed on it (provided you´re a non-resident). Problem is that I don´t remember where I read this and I´m also not sure whether I understood it correctly. 

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22 hours ago, jeba said:

That´s what I seem to remember: That capital income like dividends and interest from non-German sources aren´t to be considered when deciding on the eligibility for unlimited tax liability and that if you qualify for the latter you won´t even be taxed on it (provided you´re a non-resident). Problem is that I don´t remember where I read this and I´m also not sure whether I understood it correctly. 

 

I think there are two separate issues in your question that need to be examined independently from each other; or rather in sequence:

 

First:  Whether in any given calendar year (i.e.the year to which your application relates) your income ("Einkünfte") as a non-resident of Germany meets either of the two tests for allowing you to be taxed as a resident, to wit:

     a.  the German source income that is taxable to you NOW (i.e. as a non-resident) as defined in §49 EStG (and reduced by any applicable Double taxation treaty) equals or exceeds 90% of all your income or

     b.  your non German source income NOW is less than the Grundfreibetrag.

 

Note that § 49 is specifically incorporated by reference into the definition of German source income that will apply in calculating the 90% threshold or the Grundfreibetrag threshold and that income specifically includes German-source dividends, interest and gains.

 

I think the source of confusion may lie in the following language from § 1 Para. 3 Sentence 3 of the EStG:

 

3Inländische Einkünfte, die nach einem Abkommen zur Vermeidung der Doppelbesteuerung nur der Höhe nach beschränkt besteuert werden dürfen, gelten hierbei als nicht der deutschen Einkommensteuer unterliegend

 

In other words:  The German sourcing rules of §49 are subject to being overridden; both for purposes of German taxation AND for purposes of computing eligibility under § 1.

 

For example:  if you have a lot of interest that is German sourced under § 49 EStG it is likely that a double taxation treaty gives your state of current residence the exclusive right to tax it thus eliminating that item from the § 1 Abs. 3 computation of 90%.  Similarly, a typical DBA might limit Germany's right to tax German-source dividends to 15% in which case § 1 Para. 3 Sentence 3 would exclude the ENTIRETY of such dividends from the § 1 Abs. 3 90% computation.

 

Second.  Assuming after making the necessary tax treaty adjustments you meet either of these two tests and your application is accepted, you will then be treated as a German tax resident for all purposes and will thus be taxable by Germany on your worldwide income, i.e. not just the items listed in §49 EStG.  In addition, instead of enjoying the tax treaty benefits of a non-German resident you will enjoy the tax treaty benefits of a German tax resident vis-a-vis whatever other countries may have a claim to a piece of your financial hide.

 

Possibly of significance to you in this regard is the sourcing of capital gain income from the sale of securities or other assets that are not NOW deemed German-sourced under § 49.  Once you become a German resident your gains from such securities will also be taxed in Germany.

 

Please do not accept my analysis as authoritative. I am not a German Steuerberater and this is an issue with which I have little familiarity.  It might, however, help you better understand what your Steuerberaterin is telling you.

 

 

 

 

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1 hour ago, Straightpoop said:

First:  Whether in any given calendar year (i.e.the year to which your application relates) your income ("Einkünfte") as a non-resident of Germany meets either of the two tests for allowing you to be taxed as a resident, to wit:

     a.  the German source income that is taxable to you NOW (i.e. as a non-resident) as defined in §49 EStG (and reduced by any applicable Double taxation treaty) equals or exceeds 90% of all your income or

     b.  your non German source income NOW is less than the Grundfreibetrag.

 

Note that § 49 is specifically incorporated by reference into the definition of German source income that will apply in calculating the 90% threshold or the Grundfreibetrag threshold and that income specifically includes German-source dividends, interest and gains.


I do meet both criteria as none of my income from dividends / interest is from German sources (even though it´s above the Grundfreibetrag). So I could apply for unlimited tax liability.

However, because of this:

1 hour ago, Straightpoop said:

you will then be treated as a German tax resident for all purposes and will thus be taxable by Germany on your worldwide income, i.e. not just the items listed in §49 EStG. 

it would be detrimental to apply for it because my income from dividends and interest would be taxable even though it´s not from German sources.

The fact that my non-German income isn´t taxable in my country of residence (there is no income tax on dividends / interest in Cyprus, only a contribution for defence of which I´m exempt due to enjoying non-domiciled residence status) doesn´t come into it.

 

Am I understanding you correctly?

 

 

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1 hour ago, jeba said:

I do meet both criteria as none of my income from dividends / interest is from German sources (even though it´s above the Grundfreibetrag). So I could apply for unlimited tax liability.

 

This language quoted above appears to contain both a logical non sequitur: eligibility does not depend on whether you have any amount of foreign source dividends /interest but rather whether your German source income of all kinds equals 90% of your worldwide income and a factual contradiction: if as you say your foreign source dividends / interest exceeds the Grundfreibetrag then you fail to meet that qualifying criterion) so I cannot be sure you unnderstood me correctly. 

 

 

In order to qualify for tax residence status your German-source income (modified by treaty) must equal or exceed 90% of all your worldwide income from whatever source.  In other words, if you met this criterion you would ALREADY be liable for German taxes as a German nonresident on at least 90% of your worldwide income. If that were not the case then to qualify under the 2nd criterion the amount that is NOT being taxed by Germany must be LESS than the Grundfreibetrag.

 

If that either of these were the case then there would be an obvious potential benefit to you to apply for German residence status.

 

So,

1. is at least 90% of your worldwide income (characterized as such under GERMAN tax law) German sourced?

2. is the total of of your worldwide non-German source income (wages, interest, dividends, gains, rent, annuities, retirement, etc.) more or less than the Grundfreibetrag?

 

 

 

 

 

 

 

 

 

 

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Am I missing something here?  While agree your 2 questions above are the pertinent ones, an election to be treated as subject to unlimited liability on the basis of the 90% rule or the foreign income not subject to German tax does not make you tax resident, or bring your foreign-source income within scope of German taxation, other than in terms of the Progressionsvorbehalt. But in that regard I thought interest and dividends are excluded from the Progressionsvorbehalt because they are not subject to Einkommensteuer?  The election therefore a tax fiction. simply providing access to the Grundfreibetrag (and other allowances over and above the 102€ Werbungskostenpauschal).  

 

I might be wrong but I don't think making an election can lead to more tax being payable in Germany, can it? 

 

If you pass the 90% rule, then that 90% will be taxed at the rate applicable to total worldwide income (Progressionsvorbehalt, subject to the interest etc exception), from which the Grundfreibetrag etc are deducted.  Absent an election, the 90% is taxed at the rate applicable to that 90% without deduction of the Grundfrebetrag.  While the rate applicable to unlimited liability could be higher, the ~10k Grundfreibetrag will always mean the limited liability tax will be higher, won't it?  

 

If you qualify under the foreign income less than Grundfreibetrag rule, then making an election means German-source income, which by definition is less than 90% of worldwide income is therefore less than 90% of the Grundfreibetrag (because the foreign-source income itself is less than the Grundfreibetrag), is taxed after deduction of the Grundfreibetrag etc.  In many cases I would think this would result in zero tax payable on the German-source income. Not making an election means it is taxed absent those allowances, so tax will always be payable. 

 

As I say, I might have missed something but that is how I understand  

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1 hour ago, Straightpoop said:

This language quoted above appears to contain both a logical non sequitur: eligibility does not depend on whether you have any amount of foreign source dividends /interest but rather whether your German source income of all kinds equals 90% of your worldwide income and a factual contradiction: if as you say your foreign source dividends / interest exceeds the Grundfreibetrag then you fail to meet that qualifying criterion) so I cannot be sure you unnderstood me correctly.

I had understood that you said my dividends/interest from non-German sources were not to be considered when deciding on eligibility because the right to taxation rests with my country of residence (... reduced by any applicable Double taxation treaty ..."). 

 

But to answer your questions:

1 hour ago, Straightpoop said:

1. is at least 90% of your worldwide income (characterized as such under GERMAN tax law) German sourced?

2. is the total of of your worldwide non-German source income (wages, interest, dividends, gains, rent, annuities, retirement, etc.) more or less than the Grundfreibetrag?

Ad 1: No. The majority of my worldwide income is from dividends / interest from non-German sources.

Ad 2: My German-sourced income ( pension, rental income) is above the Grundfreibetrag. The same is true for my non-German sourced income (dividends/interest).

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43 minutes ago, GaryC said:

But in that regard I thought interest and dividends are excluded from the Progressionsvorbehalt because they are not subject to Einkommensteuer? 

That sounds similar to what I had seemed to remember having read.

 

43 minutes ago, GaryC said:

The election therefore a tax fiction. simply providing access to the Grundfreibetrag (and other allowances over and above the 102€ Werbungskostenpauschal).  

That´s why I thought applying for unlimited tax liability might be a good idea. But my accountant disagreed.

 

What I also found surprising is that she never asked for proof that I´m residing in Cyprus. How can the Finanzamt decide what agreement on the avoidance of double taxation is applicable, if any? Shouldn´t they be interested in that info?

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Based on your answers to Q1 and Q2 above, you cannot elect to be treated as subject to unlimited tax liability.  Your German-source income will therefore be taxed without access to the Grundfreibetrag etc.  So, it seems it's not a question of your Steuerberaterin not applying; it's simply that an application cannot be made.   

 

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55 minutes ago, GaryC said:

Based on your answers to Q1 and Q2 above, you cannot elect to be treated as subject to unlimited tax liability.  Your German-source income will therefore be taxed without access to the Grundfreibetrag etc.  So, it seems it's not a question of your Steuerberaterin not applying; it's simply that an application cannot be made.   

 

That is correct.

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1 hour ago, GaryC said:

As I say, I might have missed something but that is how I understand  

 

@GaryCwhat you and @jeba are not understanding is that once you have successfully applied to be treated as a German tax resident, you WILL be treated as a German tax resident.

 

In other words, you will be taxed on your worldwide income exactly as if you were a German citizen, born and raised in Germany and having never left the place - not even to visit the Teutonic Grill in Majorca. Whether you are a German tax resident in the eyes of any other country will be of no consequence to the Finanzamt.

 

Once you have successfully applied to be treated as a German tax resident neither the "minimum 90% German-source" or the "less than Grundfreibetrag" computations or the income to which they were applied to determine the fate of your application to be treated as a German tax resident will have the slightest bit of relevance in determining your German taxes as a German tax resident.

 

 

 

 

 

 

 

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