Taxes on capital gains from stocks

119 posts in this topic

I am not sure you are correct.  I have tried hard to get my head round this on this forum, which I understand as I sought to describe above and by reading the FA Neubrandenburg website as my wife is directly impacted by the issue.  The FA website states:

 

"Allerdings müssen im Gegensatz zur beschränkten Steuerpflicht bei der unbeschränkten Steuerpflicht auch die ausländischen Einkünfte erklärt werden. Diese werden zwar nicht besteuert, aber zur Berechnung des Steuersatzes für die inländischen Einkünfte einbezogen (sogenannter Progressionsvorbehalt, § 32b Absatz 1 Nummer 5 EStG"

 

So, the non-German source income is returned in any tax return but used only for the purpose of determining the rate at which tax is payable by reference to § 32b.  This is what I attempted to explain above - clearly not very well...  Otherwise there would be real double taxation (UK and Germany in my case) and the DTA would have no application as there is, as a matter of fact, no cross-border tax position - I would be a UK resident with UK income, over which no other state has rights to tax, only a fiction imposed by domestic legislation to give access to the Grundfreibetrag for those non-German income does not meet the Existenzminimum...

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6 hours ago, Straightpoop said:

 

@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.

That´s not exactly what I´d have liked your answer to be :lol: - but I´m still thankful that you took your time.

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7 hours ago, GaryC said:

I am not sure you are correct. 

 

I share your doubt.

 

 

7 hours ago, GaryC said:

 

"Allerdings müssen im Gegensatz zur beschränkten Steuerpflicht bei der unbeschränkten Steuerpflicht auch die ausländischen Einkünfte erklärt werden. Diese werden zwar nicht besteuert, aber zur Berechnung des Steuersatzes für die inländischen Einkünfte einbezogen (sogenannter Progressionsvorbehalt, § 32b Absatz 1 Nummer 5 EStG"

 

So, the non-German source income is returned in any tax return but used only for the purpose of determining the rate at which tax is payable by reference to § 32b.  This is what I attempted to explain above - clearly not very well...  Otherwise there would be real double taxation (UK and Germany in my case) and the DTA would have no application as there is, as a matter of fact, no cross-border tax position - I would be a UK resident with UK income, over which no other state has rights to tax, only a fiction imposed by domestic legislation to give access to the Grundfreibetrag for those non-German income does not meet the Existenzminimum...

 

You are correct and I was wrong.

 

§32 Abs. 1 Nummer 5 EStG is indeed the relevant authority for the proposition that income excluded from German taxation by virtue of a DBA is considered only for the purposes of Progressionsvorbehalt.

 

@GaryC and @jeba  - and anyone else reading my posts on this subject - please accept my apologies.

 

A little knowledge is a dangerous thing . . .

 

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14 minutes ago, Straightpoop said:

§32 Abs. 1 Nummer 5 EStG is indeed the relevant authority for the proposition that income excluded from German taxation by virtue of a DBA is considered only for the purposes of Progressionsvorbehalt.

 

And furthermore . . .

 

If the foreign income exempt from German taxation by a DBA would have been Kapitalerträge subject to the maximum Abgeltungsteuer tax rate in the hands of a German tax resident, then there is a 2016 German tax court decision that has held that such income cannot be included in the Progressionsvorbehalt computation either.  Appeal to the BFH in that case was allowed in that case but I don't know if an appeal was subsequently taken or is pending.

 

 

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2 hours ago, Straightpoop said:

 

And furthermore . . .

 

If the foreign income exempt from German taxation by a DBA would have been Kapitalerträge subject to the maximum Abgeltungsteuer tax rate in the hands of a German tax resident, then there is a 2016 German tax court decision that has held that such income cannot be included in the Progressionsvorbehalt computation either.  Appeal to the BFH in that case was allowed in that case but I don't know if an appeal was subsequently taken or is pending.

 

Now I´m confused. Why would a taxpayer appeal a ruling which is in their favour?

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4 hours ago, Straightpoop said:

 

And furthermore . . .

 

If the foreign income exempt from German taxation by a DBA would have been Kapitalerträge subject to the maximum Abgeltungsteuer tax rate in the hands of a German tax resident, then there is a 2016 German tax court decision that has held that such income cannot be included in the Progressionsvorbehalt computation either.  Appeal to the BFH in that case was allowed in that case but I don't know if an appeal was subsequently taken or is pending.

 

 

No problem and thanks for clarifying.  As you say, "a little knowledge" and that certainly describes me in relation to German tax law.  I perhaps should not use that as an excuse for the UK given my career path, lol.

 

I am not sure that this non-German-source income is exempt by virtue of a DTA.  As I understand it, "als unbeschränkt einkommensteuerpflichtig behandelt" means "treating" a person as subject to unlimited liability, not actually changing their residence status giving rights to tax worldwide income, subject to DTAs. It is simply that Germany has no domestic taxing rights over the income of a non-resident that arises in the country of residence of that person.  If such income were exempted by the DTA it would surely fall within §32 Abs. 1 Nummer 3 EStG. As it does not, §32 Abs. 1 Nummer 5 EStG  is needed to bring such income within the Progressionsvorbehalt for policy reasons when a person makes the election to be treated as...

 

Or am I still exposing that "little knowledge"?  

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19 minutes ago, jeba said:

Now I´m confused. Why would a taxpayer appeal a ruling which is in their favour?

I am not sure if this is the case I have been reading but if it is, the appeal was not related to making the election to be treated as subject to unlimited liability but how the Progressionsvorbehalt applies in that case.  The FA tried to include the foreign-source bank interest in the §32b calculation - something not allowed for domestic bank interest - and the taxpayer appealed.  The court agreed with the appellant.  

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47 minutes ago, jeba said:

Now I´m confused. Why would a taxpayer appeal a ruling which is in their favour?

 

They wouldn't and didn't.  The court allowed the Finanzamt (the loser) to appeal.

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On 1/24/2021, 3:18:40, Straightpoop said:

 

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%

 

Thanks for the reply. If I understood correctly then the maximum Abgeltungsteuer rate is 26,375%. Is there any lower limit?

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I am an American and I moved from US to German end of December 2019 to join my family and still maintain my US brokerage accounts. My question is-since I have capital gains and interest from my US account 2020:

- does it matter which tax I file first - US tax first then German?

- better to file as married or separate in Germany? ( wife is working in Germany)

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Hi - I hope someone here can help me...

I moved to Germany from UK in November 2020. I have 3 stock-oriented GBP accounts that remain in UK - a pension (self-invested - SIPP), an ISA (tax-free wrapper for UK purposes) and a standard nominee share dealing account. The funds in the pension have been subject to UK tax relief for 30+ years so the income I draw from it (or so I understand according to DTT rules) should be taxed only by UK.

 

Q1. In UK I am taxed at source on the cash withdrawals from my pension, but the gains and losses within, be they capital gains or dividends, are not subject to taxation. Would this be true also in Germany?

 

Q2. Despite being tax-free in UK, Germany will tax any gains within my ISA as well as those within the nominee trading account. In simple terms, when I come to sell an asset (share) I need to know when I bought it and how much I paid. For most of my holdings this will not be a problem, but in the UK, when you amass a "pot" of shares with multiple transactions at different prices, they are agglomerated into something called a Section 104 Holding, effectively a pot of shares at the average cost/value. When you sell a portion of the pot, the loss or gain is calculated against the average cost and taxed accordingly. Where this is the case - where I have migrated to Germany a position in a share that is already partly sold-off, can I adopt the UK "assumed value" as the cost or do I have to somehow reverse engineer the previous sales and determine the original cost of the shares I am now selling.

 

Q3. I have seen references to zero capital gains on assets purchased "before 2009" or "before 2007/2008". Is there a fixed point in time or does it relate to a holding period? I.e. can CGT be effectively avoided by holding shares for a long period before selling?

 

Apologies for asking multiple questions but I thought that better than explaining my situation in multiple posts.

 

PS. All of my investments are in "normal" stocks, i.e. no Funds, ETFs, etc. and purchased no more than 6-7 years ago

 

Many thanks in advance

 

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Hi all,

 

I wanted to ask a question directly related to what type of stocks we are allowed to hold while living in Germany.

 

I was told after 6 months of living here, which is now 8, that we are "German residents", which means that you are supposed to tell your bank/brokerage that you are living abroad which limits the type of Stocks, rather ETFS (SP500 for example), that we are able to buy. 

 

I am new to Germany and was attempting to search through the forums for more information as well as online but came to a loss and couldn't find anything. I spoke to a tax consultant here in Germany who did not know, as well as someone from Charles Schwab who did not know exactly. What I did find out from Charles Schwab, which may or may not be true, is that if we already have ETFS then we can keep them, but we are not allowed to by new ones due to an American law. 

 

My question is:

 

1. Does anyone have experience with moving to Germany from the USA while holding a considerate amount of money in American stocks, as well as what did you have to do with your ETFS and what are the laws for what we are allowed to hold while living in Germany, do we need to report a new address in Germany? or are we allowed to keep the American address. Are there penalties for not reporting German address. 

 

2. I read that the tax rate is a straight 25% here in Germany for all stocks. I found out from someone that we would pay the capital gain fees in the states (15%) and then pay the 10% difference here in Germany. Is this true and how do we pay this exactly?

 

3. The tax consultant (Steurberater) told me that inheritance is only charged when it is >400,000 euro from a parent and >200,000 form a grandparent, I believe this to be true but did not find any information on this. 

 

Any info is greatly appreciated as this is not easy to find and is very new to me, although I have searched for hours on end and spoken to many people. 

 

 

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On 18/09/2021, 14:17:55, frankmuller said:

What I did find out from Charles Schwab, which may or may not be true, is that if we already have ETFS then we can keep them, but we are not allowed to by new ones due to an American law. 

 

My question is:

1. Does anyone have experience with moving to Germany from the USA while holding a considerate amount of money in American stocks, as well as what did you have to do with your ETFS and what are the laws for what we are allowed to hold while living in Germany, do we need to report a new address in Germany? or are we allowed to keep the American address. Are there penalties for not reporting German address. 

 

Most US citizens never tell their US bank/broker their German address and instead give them a US address of a relative.

They do this because the European Commission makes anyone who wants to sell financial assets to EU residents follow the MiFID II rules, e.g. publish special flyers that list the risks of these funds, this is meant to protect EU consumers.

--> US brokers avoid having to comply with these requirements by simply not selling any to EU residents.

 

So as soon as you tell your US broker your German address, that US broker will no longer allow you to buy new funds, just stocks (e.g. Apple, Microsoft, Walmart, ...).

Please note that despite many US brokers labelling ETF as "stocks", they are "exchange-traded funds" (that's where the acronym ETF comes from), so they wouldn't sell any more of these to you either.

 

And please do not think that you can instead open a German brokerage account and buy maybe European ETF in that account, first off, most German providers will not accept US citizens because of the harsh reporting requirements the US government then forces them to do and secondly, as US citizens, you should stick with US funds, or you will make your US tax return a big headache, since a non-US fund would be a PFIC (passive foreign investment company).

 

For details, please read:

 

On 18/09/2021, 14:17:55, frankmuller said:

2. I read that the tax rate is a straight 25% here in Germany for all stocks. I found out from someone that we would pay the capital gain fees in the states (15%) and then pay the 10% difference here in Germany. Is this true and how do we pay this exactly?

 

No, the 15% US source tax is only allowed for US-sourced dividends, see article 10 no. 2 b.) of the double taxation agreement between Germany and the US: http://pinkernell.de/dbausa.htm#Art10

 

Please note that since 2018, Germany also has a tax on funds that you didn't sell, you have to tax an amount called Vorabpauschale, which is basically a prepayment on the tax that you will have to pay should you ever sell that fund: 

https://www.toytowngermany.com/forum/topic/375653-fund-taxation-in-2018-and-fiktive-veräußerung/?do=findComment&comment=3635807

 

Your Steuerberater will have to do the Vorabpauschale calculation for every fund you owned on 31. December of the previous year, in every German tax return.

For most US funds, since they distribute a lot, the Vorabpauschale will be 0€, but in some cases it isn't

--> these calculations have to be done every year

--> a lot of work for your Steuerberater, without much effect. But it still has to be done.

 

On 18/09/2021, 14:17:55, frankmuller said:

3. The tax consultant (Steurberater) told me that inheritance is only charged when it is >400,000 euro from a parent and >200,000 form a grandparent, I believe this to be true but did not find any information on this. 

 

See §16 ErbStG: https://www-gesetze--im--internet-de.translate.goog/erbstg_1974/__16.html?_x_tr_sl=auto&_x_tr_tl=en&_x_tr_hl=en-GB&_x_tr_pto=nui,elem

 

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Hello all,

 

say I buy ETF, many small purchases throughout the year.

Do I need to inform the FA in my Steuererklärung?

My guess (and I'm pretty sure I'm wrong) is that unless/until I sell them I don't need to report because the broker/bank already takes care of paying my taxes directly...

Thanks,

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6 hours ago, Gambatte said:

My guess (and I'm pretty sure I'm wrong) is that unless/until I sell them I don't need to report because the broker/bank already takes care of paying my taxes directly...

If you´re using a German broker/bank your guess is correct (even if you sell them).

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On 25.1.2021, 23:39:39, Straightpoop said:

@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

That´s not what my accountant told me. She said if I qualified for unbeschränkte Steuerpflicht (which I don´t) income from dividends and interest wouldn´t have to be declared (which I assume means it wouldn´t be taxed either).

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8 hours ago, Gambatte said:

Hello all,

 

say I buy ETF, many small purchases throughout the year.

Do I need to inform the FA in my Steuererklärung?

My guess (and I'm pretty sure I'm wrong) is that unless/until I sell them I don't need to report because the broker/bank already takes care of paying my taxes directly...

Thanks,


In principle you don’t need to do anything as your (German) broker takes care of it for you. Every year (in fact, with every purchase)  you receive documentation from the bank emitted for tax purposes and for your information. 

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16 hours ago, Gambatte said:

Hello all,

 

say I buy ETF, many small purchases throughout the year.

Do I need to inform the FA in my Steuererklärung?

My guess (and I'm pretty sure I'm wrong) is that unless/until I sell them I don't need to report because the broker/bank already takes care of paying my taxes directly...

Thanks,

It only gets more hasstle if you buy ETF's shares outside Germany, then the bank will not take care of it for you 

 

You and or your accountant will have to work it out from the forms telling you how much you made from buying and selling 

 

I just did this, its a lot of hassle 

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