Tax on foreign income

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Where does foreign income need to be declared if it is a salary payment, or a directors' fee?

(not capital earning - dividend / interest etc., which is already well covered by  @PandaMunich  in this thread)

 

That is, when I file my taxes as employee. I don't suppose there needs to be a separate filing for self-employed/freelancing?

 

 

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9 hours ago, nannorcha said:

Where does foreign income need to be declared if it is a salary payment

 

In Anlage N-AUS:

 

 

 

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HI,

I relocated to Germany from nonEU/EEA country and still have there self-employment. During few months, physically being in Germany, I did some job for my previous employer by existed contract. To declare this income in Germany (since it was paid on my bank account outside of Germany)  I should probably fill the steuerkleidung and maybe some Anlage (probably Anlage N-AUS), but the main question is - how I can actually pay the taxes here? how much? The income was about 6000$ during few months.  Another question is about double taxation, but to return it, probably it should be paid first :)

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Dear Experts,

I have a few questions for 2017:

1. Could you please tell me what currency conversion rate can be used for converting the INR interest income into EUR for filing returns for 2017? Is there some guidance on taking the rate of a particular date in 2017 or I can just take an average value between 1st of Jan 2017 and 31 Dec 2017 or freely any rate that existed in 2017? 

2. How to take care of the amounts from different financial years between India and Germany? The FY 2017 in India is from Apr 2017 to Mar 2018 and in Germany it is the same as calendar year 2017. How should I pull out numbers from FY 2016 and FY 2017 for the taxes (interest amounts I can look in the bank statements for calendar year 2017).

3. Is an excel sheet enough to explain the calculations (I have house rent income and interest income from India that I need to explain).

4. What supporting documents do I need to submit while filing the returns in Germany - both for domestic as well as foreign income? e.g. do I need to submit any receipts/the tax statement from employer/insurance documents for domestic and bank statements for India? Or these documents are needed only when asked for by the Finanzamt.

 

Thanks!

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Hi, 
I have read through this post and haven't found an answer to my question. Further the links take me to the forum screen and not to the posts (maybe they no longer exist due to being so old, not sure)

I am a South African with a property. I do not make a profit on this property, I make a small loss. (About 17€ loss each month)
 

This is the only thing I have in South Africa. Everything else is German.

I did have a South African income in the first 4 months of 2018, but as I understand it, South Africa doesn't get double taxed.

 

Please advise if I need to do a tax return.

Will be looking for a lawyer for help, just wanted some advise in the meanwhile.

 

Marilee.

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Hi. I have a couple of questions about reporting my US investment income and also want to confirm a few things. Would be great if someone could help, maybe @PandaMunich?

I am a US citizen and purchased a few mutual funds in the US with American brokerage companies (Fidelity and Vanguard) before 2009 which I still own. The brokerage sent me a 1099 form saying how much I received in dividends and capital gains in 2018 (around 4000 dollars). My plan is to submit the 1099 forms as a PDF, plus an excel spreadsheet listing the amounts of dividends and capital gains for each mutual fund and the currency change to euros, and then add up the totals and put it in line 15 of Anlage KAP.

My questions:
1 - Is that the correct way to do things?
2 - What exchange rate from USD to Euros do I need to use? So far I have only found monthly rates to use but no rate for the whole year.
3 - Even though I bought the mutual funds before 2009, do I still have to pay taxes capital gains and dividends?
4 - I know that there was a kind of "reset" on the value of mutual funds bought before 2009 on January 1, 2017. Do I need to somehow report the value of the funds on that date, or do I just need to calculate and do that when I eventually sell them?

Thanks for any help!

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  1. No.
  2. Those monthly rates.
  3. You always have to declare and tax the dividends.
    The capital gain, i.e. the profit you get from selling it will have to be declared, as well as starting with 31.12.2018, imaginary gains (= Vorabpauschalen) on those funds that didn't sell. But there's a 100,000€ tax-free amount for these profits if they pertain to pre-2009 funds, so you won't end up paying any income tax. But you still have to declare these profits!
  4. https://www.toytowngermany.com/forum/topic/375653-fund-taxation-in-2018-and-fiktive-veräußerung/?do=findComment&comment=3747488
    but in your case, since these are pre-2009 funds, it's line 39, which copies to either line 10, 13, 16, 19 or 22 in Anlage KAP-INV.
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Thanks for the answers @PandaMunich but I am still confused about something.

 

I understand that I put the total dividend amount in line 4 of KAP-INV and will pay taxes on that amount. And that this doesn't depend on if I sold the mutual funds or not. 

 

I don't understand why I put the capital gain amount in line 39 (and therefore also line 10). I did not sell any mutual funds and the explanation of that line talks about Verausserung. Can you help clarify this for me, please?

Then, starting with my 2019 return, I will have to deal with the Vorabpauschale (including stuff that happened in the year 2018), but not on my 2018 tax return.

 

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1 hour ago, NikoNiko said:

I don't understand why I put the capital gain amount in line 39 (and therefore also line 10).  I did not sell any mutual funds

 

On 4/22/2019, 3:27:46, NikoNiko said:

 The brokerage sent me a 1099 form saying how much I received in dividends and capital gains in 2018 (around 4000 dollars).

 

How did you have capital gains if you didn't sell?

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I believe these are when the mutual fund manager sells individual stocks in the mutual fund during the year and those had a profit on them -- they then take that money and reinvest it in more stocks. Basically something that is happening internally in the mutual fund. 
I didn't actively sell any part of the mutual fund or receive any distributions from the fund.

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Reading more about this on a variety of German websites, it seems to me like these "capital gain distributions" listed on the American 1099-DIV form don't really exist in German mutual funds. Of course the concept exists since the mutual fund manageres are buying and selling stocks as part of the mutual fund, but this activity isn't tracked in any way that is relevant to the normal person who owns the mutual fund. What I read are people talking about dividends that are either paid out in cash or that are reinvested (and for tax purposes, the reinvested dividends have to be reported every year and tax is paid). And the only other thing is the profit that comes from the value of the mutual fund going up and up (hopefully!), with no difference about whether that happened with a lot of buying and selling of stocks by the mutual fund manager or just buying and holding. As I understand it, this increase in value used to only be reported and taxed when you sold it, but starting Jan 1, 2018 that gain should be reported and taxed every year (but weirdly one year late, in a certain sense). 

So my plan now is to put the dividend number in line 4 of KAP-INV and that's it for this year. Then next year it will get more complicated.

Does that make sense to you?

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Hi everyone,

 

I have a question on reporting income from US Treasury bill, would very much appreciate your help.

 

I have bought a US Treasury bill in 2018 for $, I did not sell anything nor received interest and the bill appreciated in value. In a broker’s report for US authorities the reported income is zero. Do I need to report the change in value of a bill as my income in Germany? Or I only report it once the bill matures in 2019?

 

 

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43 minutes ago, Hulie said:

 In a broker’s report for US authorities the reported income is zero.

@Hulie

 

I am not sure what a "broker's report for US authorities" is. Since you had no coupon interest - T-Bills are a type of "zero-coupon bond", i.e. they do not pay coupon interest - and no proceeds from a sale, I can only assume the "report" you are referring to is a brokerage transaction confirmation for your records - not the "authorities".

 

When the Bill matures in 2019 you - and the US authorities - will receive a 1099-INT reporting as (US) taxable interest (in 2019) the difference between your purchase price and the redemption proceeds.

 

 

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@PandaMunich  @NikoNiko

 

Perhaps I can clarify the confusion about US income tax reporting to holders of US mutual funds.

 

Whether or not passively (e.g. ETF) or actively managed, the vast majority of such funds qualify as "Regulated Investment Companies".  This is an important qualification because otherwise the fund would be subject to US taxation at the corporate level and if/when "distributions" were made to shareholders such distributions would be taxed again to the individual shareholders.

 

"RIC" status allows the fund to escape taxation at the corporate/fund level and "pass through" its earnings to its shareholders.

 

However, in order to qualify for this "pass-through" treatment a US mutual fund must distribute (Ausschütten) at least 90% of its income annually.  "Income" includes net gains and losses realized from the sale of securities held inside the fund.

 

This is the main reason why foreign mutual funds that have not qualified as RICs are given such unfavorable tax treatment in the US. Most countries do not have the requirement to distribute 90% of income, i.e. they allow "Thesaurierung" or internal reinvestment of income.  Germany's recent reform of fund taxation is designed to place some limits on the tax deferral opportunities offered by such "Thesaurierende Fonds".  

 

Since the income realized inside a US RIC is "passed through" in the distribution to shareholders, that income retains its "character" in the hands of the shareholder recipient.  This is very important to the US shareholder because that distribution can be taxed very differently depending on the "character" of its components.

 

Consequently, when a shareholder receives a distribution during the year, the fund will issue a 1099-DIV in which the distribution is broken down into the various character components, e.g. ordinary dividends, qualified dividends, net short-term gains (included in "ordinary dividends"), long-term "capital gains" (AKA as "capital gain distributions"). Additional information on the 1099-DIV will include such exotica as "unrecaptured section1250 gain", Section 1202 gain, 28% gains (from sale of "collectibles"), foreign taxes paid, cash and non-cash liquidation distributions (i.e. non-taxable return of capital), etc.

 

 

How all this gets reported on the German return is not always clear.

 

The brutally simple approach is to treat the entire value of the US fund "distribution" as a foreign Kapitalertrag that was not subjected to 25% Abgeltungssteuer withholding.  In most cases that will produce the correct result.  However, what if the fund distribution includes a non-taxable "return of capital"?  Return of capital (e.g. this year's distribution from Deutsche Telekom) is not taxable but - just like in the US - results in a reduction of the shareholder's cost basis for determining gain/loss on a future sale.

 

And what about the foreign tax credit for US taxes paid on that distribution?

 

And the foreign (i.e. non US) taxes reportedly withheld on that distribution?

 

The credit (up to 15% by treaty) is allowed only on US source "dividends" ACTUALLY PAID.  Is the interest component of the RIC distribution (e.g. from a bond fund) a "dividend" or "interest" for purposes of computing the German foreign tax credit?  Is any amount of US taxes actually paid on the "capital gain" or "interest" portion of the distribution eligible for the German foreign tax credit? Under the treaty Germany has the exclusive right to tax interest and gains so there should be no German foreign tax credit allowable for this portion - but only if you are required to break out the various components of the US RIC distribution on the German tax return. And what about the non-US foreign taxes withheld on the foreign dividends your US "international fund" paid you?

 

Are you required to break all this out on your German return?  Can you do so voluntarily? I just don't know.

 

And then there is the problem of proving to the Finanzamt exactly how much US taxes you really ACTUALLY paid on the dividend portion of those distributions.  Assuming you ACTUALLY PAID anything this proof will involve sharing the worksheet for your US return entitled "Qualified Dividends and Capital Gains Worksheet".

 

Nasty, huh?

 

PS

 

Fund distributions (US and foreign) that are "automatically reinvested" by using the distribution to purchase additional fund shares must not be confused with internal fund income that is reinvested within the fund (i.e. thesauriert). I cannot tell you how often I have had to explain to US fund shareholders that just because they automatically reinvested their distributions does not mean they had no taxable income.

 

 

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2 hours ago, Straightpoop said:

@Hulie

 

I am not sure what a "broker's report for US authorities" is. Since you had no coupon interest - T-Bills are a type of "zero-coupon bond", i.e. they do not pay coupon interest - and no proceeds from a sale, I can only assume the "report" you are referring to is a brokerage transaction confirmation for your records - not the "authorities".

 

When the Bill matures in 2019 you - and the US authorities - will receive a 1099-INT reporting as (US) taxable interest (in 2019) the difference between your purchase price and the redemption proceeds.

 

 

@Straightpoop Thank you for your answer. By report I meant form 1042-S Foreign Person's U.S. Source Income Subject to Withholding that is generated by broker automatically - I use a US broker but I am a tax payer in Germany. Do I understand it correcttly that I do not need to report anything at this point? And then report the difference between redemption proceeds and purchase price to Germany for 2019 when T-bill matures?

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@Hulie

 

A 1042-S is an informational return issued to a non-resident alien (NRA) of the United States.

 

It is issued because the withholding agent (your broker) a) has received a W-8BEN from you certifying your NRA status or b ) because you ignored requests to provide a withholding certificate of any kind (e.g. W-8BEN or W-9) and the withholding agent has no information indicating you are a US citizen or LPR and is using your foreign address as the default indicator that you are an NRA.

 

It is issued only when there is income to report.  Unlike the 1099 information return series which are used to report income of US citizens or lawful permanent residents ("green card holders") and come in a wide variety depending on the type of income being reported (e.g. 1099-INT, 1099-OID, 1099-B, 1099-DIV, 1099-MISC, 1099-S, 1099-R etc, etc. ad nauseum), the 1042-S is used to report a vast array of different types of income, whether it is exempt from US taxes - and if so, why - the amount of US taxes withheld, etc. etc.

 

A different 1042-S will be issued for each different type of income (identified in Block 1 of the form).

 

So, the first question raised is:  is you or is you not a US Citizen or LPR?

 

The second question is:  You mention only buying a T-bill in 2018. This by itself would not have triggered the issuance of a 1042-S (or 1099 for that matter) for 2018 income, so what other income might you have had in 2018 to warrant issue to you of a 1042-S?

 

I have not the faintest idea at this point what you do or do not have to report to whom in what amount and for what time frame.

 

 

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11 hours ago, Straightpoop said:

@Hulie

 

 

So, the first question raised is:  is you or is you not a US Citizen or LPR?

 

The second question is:  You mention only buying a T-bill in 2018. This by itself would not have triggered the issuance of a 1042-S (or 1099 for that matter) for 2018 income, so what other income might you have had in 2018 to warrant issue to you of a 1042-S?

 

I have not the faintest idea at this point what you do or do not have to report to whom in what amount and for what time frame.

 

 

 

@Straightpoop 1) I am not a US citizen nor LPR, I live and pay taxes in Germany. 2) I do not have anything else, just this T-bill.

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@Hulie

 

OK.  That is odd.

 

What income code number appears in block 1 of the 1042-S? 

Is it by any chance 30 (Original Issue Discount = OID) or 31 (short-term OID)?

 

What exemption code number appears in block 3a?

 

Any taxes withheld per block 7a?

 

Ordinarily because of their short-term nature T-bills are not subject to OID computation and reporting for US citizens.  However, there might be a different rule under Chapter 3 of the IRC (Non-resident Alien reporting and withholding) of which I am not aware.

 

Please do let us know what's on the 1042-S.

 

In any event, if no taxes were withheld then for US tax purposes, if you have nothing else to report, you can ignore the thing for US tax purposes. No return, no nothing. Nada.

 

As far as German taxes are concerned I am no expert but the last time I looked Germany had yet to develop anything as sophisticated as the US rules on OID for so-called "zero coupon bonds".  The Finanzamt will likely be happy to wait until your 2019 tax return shows up reporting your gain realized when the T-bill matures in 2019.

 

FWIW here is what Wikipedia says about the German tax rules:

 

Bei im Privatvermögen befindlichen Anlagen ist nach dem Steuerrecht der Bundesrepublik Deutschland eine Versteuerung der Erträge erst bei Fälligkeit oder vorherigem Verkauf der Wertpapiere vorzunehmen, so dass die implizite Wiederanlage der rechnerischen Bruttozinserträge erfolgt. Im Betriebsvermögen besteht diese Möglichkeit nicht, soweit der Steuerpflichtige bilanziert.

Andere Rechtsordnungen, wie die USA, besteuern bei Nullkuponanlagen jährlich einen fiktiven Zins.

 

 

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On 4/28/2019, 1:18:49, Straightpoop said:

@PandaMunich  @NikoNiko

 

Perhaps I can clarify the confusion about US income tax reporting to holders of US mutual funds.

 

Whether or not passively (e.g. ETF) or actively managed, the vast majority of such funds qualify as "Regulated Investment Companies".  This is an important qualification because otherwise the fund would be subject to US taxation at the corporate level and if/when "distributions" were made to shareholders such distributions would be taxed again to the individual shareholders.

 

"RIC" status allows the fund to escape taxation at the corporate/fund level and "pass through" its earnings to its shareholders.

 

However, in order to qualify for this "pass-through" treatment a US mutual fund must distribute (Ausschütten) at least 90% of its income annually.  "Income" includes net gains and losses realized from the sale of securities held inside the fund.

 

This is the main reason why foreign mutual funds that have not qualified as RICs are given such unfavorable tax treatment in the US. Most countries do not have the requirement to distribute 90% of income, i.e. they allow "Thesaurierung" or internal reinvestment of income.  Germany's recent reform of fund taxation is designed to place some limits on the tax deferral opportunities offered by such "Thesaurierende Fonds".  

 

Thank you very much for your answer!

 

Not on topic, but now I know where the Germans got the idea for the minimum 90% income distribution for REITs, see §13 (1) REITG ;)

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On 4/30/2019, 10:22:00, Straightpoop said:

@Hulie

 

OK.  That is odd.

 

What income code number appears in block 1 of the 1042-S? 

Is it by any chance 30 (Original Issue Discount = OID) or 31 (short-term OID)?

 

What exemption code number appears in block 3a?

 

Any taxes withheld per block 7a?

 

Ordinarily because of their short-term nature T-bills are not subject to OID computation and reporting for US citizens.  However, there might be a different rule under Chapter 3 of the IRC (Non-resident Alien reporting and withholding) of which I am not aware.

 

Please do let us know what's on the 1042-S.

 

 

 

@Straightpoop the income code in block 1 is 01; 3a exemption code 05, there is nothing in 7a. The only thing I have there is gross income in block 2. I am planning to ignore it this year then. In any case the income is less than 850eur. Thank you very much for your help!

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