Foreign income from dividends

55 posts in this topic

Hello,

 

I have a question regarding foreign income from dividends. I already search

the forum in the last weeks but I didn't find something specific for my case.

 

Here is the scenario:

- I'm living in Germany for the last 3 years; I'm working as an employee; I did the tax declarations for 2012, 2013, 2014

 

- In the following months I will have no income from Germany but I will have foreign income from dividends. The foreign country

is in EU and has a double taxation agreement with Germany

 

- The dividends are taxed at source with 16%

 

My questions:

- Do I have to pay tax for dividends income in Germany also?

 

- Does it matter for the Health Insurance if I have foreign income? I want to know how much I will pay for the insurance.

From what I know so far it's around 130 eur if you have no income and a maximum of 700 eur.

 

Thank you for your time and replies.

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Hi there,

 

any chance that someone can give me a feedback.

 

Thank you.

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- Do I have to pay tax for dividends income in Germany also?

Yes. Tax difference for any capital income above 800 eur/year. That means, 800 eur is tax free, everything above that is taxed at ~25% (I dont remember exact rate).

 

You have to submit tax declaration. PandaMunich/2B or not 2B will probably come and tell which form, Anlage KAP or Anlage AUS or both.

 

 

- Does it matter for the Health Insurance if I have foreign income?

I'm not 100% sure, but AFAIK capital income is not counted for health insurance rate.

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Dear yourkeau, thank you for your message.

 

 

Yes. Tax difference for any capital income above 800 eur/year. That means, 800 eur is tax free, everything above that is taxed at ~25% (I dont remember exact rate).

If I already paid 16% tax, I will pay here the difference of 25-16=9%. Is that right?

 

Thanks.

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It's a bit more complicated.

 

Not being resident in Romania, you should have only paid the 15% tax on dividends set down in article 10 of the double taxation agreement (DTA) between Germany and Romania, and not the general Romanian flat tax rate of 16%.

 

If you then look into article 23, section 2 B) aa) in this DTA you will see that the Romanian tax that you already paid reduces the German tax burden of 25% for capital income (= Abgeltungsteuer), but only up to the limit set by the DTA, i.e. they will only recognise 15% of the 16% tax that you paid.

 

So, you will end up paying additionally to Germany:

10% income tax

+ 0.55% solidarity tax (= 5.5% of those 10% income tax)

______________________________________________

10.55% German tax in total on your Romanian dividends

 

As yourkeau already said, the first 801€ (= Sparerpauschbetrag) of your total capital income (of which dividends are a part) will remain tax free.

 

You have to declare your dividends in Anlage KAP.

 

Regarding public health insurance, since you will no longer be an employee and therefore a mandatory member of public health insurance, you will also have to declare these foreign dividends since voluntary members (which is what you are) get their contribution set according to their total worldwide income, and not just according to their employee income.

Dividends are listed as an income type on page 8 of this document by the Spitzenverband der Krankenkassen which lists all types of income that are considered income when setting your contribution.

So, yes, you will also have to pay public health insurance contributions on the gross amount (= brut = before Romanian and German tax) of your Romanian dividends.

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Dear PandaMunich,

 

thank you for the great answer, as always.

 

Cheers.

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Two things to keep in mind

 

1. Any stocks/dividends bought before 2009 remain tax free as you own them. Check with your steurbreater to see if the income earned after that day reminds tax free or not (I believe it does)

 

2. Superficial loss rule: Most countries make you wait 30-60 days before you can repurchase a stock if you want to claim a loss on it. In Germany you can buy and sell it immediately as long as the price is different. This can be useful if you wish to offset some gains/income. This rule does not apply to stocks purchased before 2009 as they remain tax free.

 

As always confirm this with your steuerbreater.

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Think again.

Though any profit from selling a share bought before 1.1.2009 is tax free, their dividends are not, details in here.

 

By the way, it's spelled Steuerberater.

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Thanks Panada that's why I always tell everyone to check with their Steuerberater first.

 

And of course any income earned before 2009 would be tax free as it is always taxed in the year you receive it (I'm sure there's some strange weird exceptions to this rule). Poor editing on my part

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BTW there's no need to be catty, I clearly said I wasn't 100% on this!

 

As the old saying goes you catch more flies with honey than vinegar

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WealthAdvisor if you'd been here more than a day you'd know that Panda (not Panada) is never catty and always the soul of patience and politeness.

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It's a bit more complicated.

 

Not being resident in Romania, you should have only paid the 15% tax on dividends set down in article 10 of the double taxation agreement (DTA) between Germany and Romania, and not the general Romanian flat tax rate of 16%.

 

If you then look into article 23, section 2 aa) in this DTA you will see that the Romanian tax that you already paid reduces the German tax burden of 25% for capital income (= Abgeltungsteuer), but only up to the limit set by the DTA, i.e. they will only recognise 15% of the 16% tax that you paid.

 

So, you will end up paying additionally to Germany:

10% income tax

+ 0.55% solidarity tax (= 5.5% of those 10% income tax)

______________________________________________

10.55% German tax in total on your Romanian dividends

 

As yourkeau already said, the first 801€ (= Sparerpauschbetrag) of your total capital income (of which dividends are a part) will remain tax free.

 

You have to declare your dividends in Anlage KAP.

 

Regarding public health insurance, since you will no longer be an employee and therefore a mandatory member of public health insurance, you will also have to declare these foreign dividends since voluntary members (which is what you are) get their contribution set according to their total worldwide income, and not just according to their employee income.

Dividends are listed as an income type on page 8 of this document by the Spitzenverband der Krankenkassen which lists all types of income that are considered income when setting your contribution.

So, yes, you will also have to pay public health insurance contributions on the gross amount (= brut = before Romanian and German tax) of your Romanian dividends.

 

There is a parallel discussion going on in another post specifically regarding US tax returns, capital gains, dividends.

 

@PandaMunich: I agree with your logic, others like Straightpoop have also commented on past posts, but my personel experience until now has been different.

 

For my 2013 German Tax return, I included all my US capital gains/dividends in KAP as well as the US tax I already paid on these under the line "Steuerabzug für ausländische Einkünfte".

The FA still calculated my German liability on the entire capital gains without considering the US taxes i already paid on these capital gains, the full ±25% + Solidaritätszuschlag.

 

I even paid a Steuerberater in Munich about this issue who contacted the FA several times. Her conclusion was i need to claim what I paid to the US back from the US, because Germany has full rights to tax on all capital gains/dividends..

 

Of course I included my entire US tax return when submitted my German tax return so they can see clearly how much I paid for capital gains/dividends to the US. But is there some extra form that needs to be filled out along with the KAP to show the FA that some foreign taxes were already paid.. so that only the difference should be taxed?

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That's very strange, the German/USA double taxation agreement (DTA) has the same Anrechnungsklausel in article 23 section 3 B) aa) as the Germany/Romania DTA has.

And Anrechnung means deducting the foreign tax from the German tax.

 

The only thing I can think of is that the Finanzamt didn't consider what you submitted proof enough.

I have no idea about US tax returns, but did you submit the US equivalent to a German Steuerbescheid plus a copy of your bank slip showing the 15% tax that you already paid to the US?

In Germany, the bank deducts the tax at the source and issues a yearly certificate called Steuerbescheinigung attesting to that deducted tax - do US banks also deduct tax at the source and issue something similar?

That piece of paper, the Steuerbescheinigung, is what a clerk at the Finanzamt is really looking for to be attached in the original to the German tax return forms - or their first impulse is to not acknowledge the already paid tax.

 

When was your German Bescheid issued?

If it was less than a month ago then you can still do an Einspruch and have this mistake rectified.

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That's very strange, the German/USA double taxation agreement (DTA) has the same Anrechnungsklausel in article 23 section 3 aa) as the Germany/Romania DTA has.

And Anrechnung means deducting the foreign tax from the German tax.

 

The only thing I can think of is that the Finanzamt didn't consider what you submitted proof enough.

I have no idea about US tax returns, but did you submit the US equivalent to a German Steuerbescheid plus a copy of your bank slip showing the 15% tax that you already paid to the US?

In Germany, the bank deducts the tax at the source and issues a yearly certificate called Steuerbescheinigung attesting to that deducted tax - do US banks also deduct tax at the source and issue something similar?

That piece of paper, the Steuerbescheinigung, is what a clerk at the Finanzamt is really looking for to be attached in the original to the German tax return forms - or their first impulse is to not acknowledge the already paid tax.

 

When was your German Bescheid issued?

If it was less than a month ago then you can still do an Einspruch and have this mistake rectified.

 

Steuerbescheid yes; Proof showing I paid the tax no. But to be honest, if this was the reason, why didn't my Steuerberaterin say something..? I could have easily submitted this. Her reasoning was just: "it’s not possible to deduct the paid us tax from the German tax. You must claim this tax from the US."

 

Now i'm really questioning some of the recommended advisors here on TT..!

 

Unfortunately, the Bescheid was issued on December 2014.

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@MadMacks and PandaMunich

 

This is not the first time I have seen this problem encountered with a local FA and/or Steuerberater.

 

The root of the problem - besides simple ignorance of the governing treaty provision - is usually one of lack of understanding of the differences in the procedureal approach to tax administration followed by the US and Germany.

 

For example: In Germany your taxes are ASSESSED by the FA in the form of a "Bescheid" after you have submitted a return together with all documents substantiating the various claims to deductions, credits, etc.

 

As in Germany, the US taxpayer files a return reporting income, deductions and credits but ordinarily does NOT submit substantiating documents - except for those showing wage and other withholdings, if any - because the US tax system requires US taxpayers to assess THEMSELVES. Thus, the US tax return itself is a "Bescheid" and in 99.99% of cases is accepted as such without ever being contradicted or even examined or audited by the IRS except through computer-matching of 3rd party reporting with what appears on the return.

 

So the Finanzamt might very well reject a copy of your self-prepared US tax return as proof of anything because it is not backed up by any affirmation from the US tax authorities that what appears on your tax return is accurate.

 

Probably, the closest you can get to something like IRS confirmation is to apply for a copy of your tax transcript (use Form 4506 or see the directions at the IRS website) after you have filed your US return. This document is essentially a "statement of account" for the particular tax year. However, here again, the data in your IRS transcript - except the list of income items reported by third party payors - comes from you and there is nothing in your transcript to substantiate any deductions, credits, etc. that you may have claimed in arriving at your tax liability and assessing yourself.

 

A second major difference in tax administrative policy between the two countries is the system of tax withholding - or lack of it - on investment income.

 

In Germany, investment income - if earned through investments held by a German financial institution - is subject to withholding at the tax rate ultimately owed. The income is NOT reported by the bank to the fiscus under the German resident's tax number for "privacy" reasons. The bank provides its customer with a tax statement (Jahressteuerbescheinigung) that the customer may use to substantiate income and taxes paid and any loss carryforwards. The underlying assumption of German tax policy here is: "so long as we get our money, we don't care where it comes from."

 

In contrast, withholding on investment income in the US is the rare exception. Unless the taxpayer has been and continues to be deliquent in some way vis-a-vis the IRS and thereby becomes subject to "backup withholding", US financial institutions do NOT withhold taxes on the investment income paid to US citizens and resident aliens. (Non-resident aliens are subject to withholding under a different section of the tax code.) Just as in Germany, US financial institutions send their customers a "Jahressteuerbescheinigung" detailing the nature of the various items paid to them during the year: the "1099" information reporting series; e.g.

 

1099-INT for interest

1099-DIV for dividends

1099-B proceeds from the sale of securities (with basis info since 2012)

1099-S proceeds from real estate sales

1099-OID original issue discount

1099-R distributions from retirement plans

 

Unlike the German practice, however, a copy of these information forms is sent to the IRS where the IRS computer compiles the data under the US citizen's tax number. When the US citizen files his return, the IRS computer will (attempt to) match what is reported on the return with what has been reported by 3d party payors. If there is a mismatch (under-reporting only) the computer will spit out a CP2000 "reminding" the taxpayer of their error and "inviting" them to correct their return.

 

With these difficulties in mind let's take a look at MadMacks' problem.

 

The first thing he and his Steuerberater need to understand is that the only item of US source income for which the Germans are required to give him credit for ANY amount of US taxes paid under Art. 23(5) of the treaty is US source dividends.

 

Germany is NOT obliged to give him any credit for his US taxes paid on US-source INTEREST or short or long-term CAPITAL GAINS (from the sale of personalty/bewegliches Eigentum).

 

The treaty gives Germany the exclusive right to tax both interest and such capital gains. (Moreover, under US domestic tax law sourcing rules, capital gains are deemed FOREIGN sourced if the recipient of the gain resides abroad and the foreign jurisdiction imposes at least a 10% tax rate on those gains.)

 

So interest (either German sourced originally or treaty "resourced") and capital gains taxed by Germany will be included on Line 1a of his US Form 1116 (passive) and that is where he must seek his relief from double taxation from the US side.

 

Dividends are DIFFERENT.

 

The treaty gives the US the right to tax US source dividends up to 15% and Germany is obligated (under Art.23(5)a ) to give a US citizen credit up to but not exceeding that 15%:

 

 

 

Article 23

 

 

 

 

Relief from Double Taxation

 

. . . .

5. Where a United States citizen is a resident of the Federal Republic of Germany:

 

a) With respect to items of income not excluded from the basis of German tax under paragraph 3 that are exempt from United States tax or that are subject to a reduced rate of United States tax when derived by a resident of the Federal Republic of Germany who is not a United States citizen, the Federal Republic of Germany shall allow as a credit against German tax, subject to the provisions of German tax law regarding credit for foreign tax, only the tax paid, if any, that the United States may impose under the provisions of this Convention, other than taxes that may be imposed solely by reason of citizenship under paragraph 4 of Article 1 (General Scope);

 

The problem with the treaty passage quoted above is this language:

 

" . . . subject to the provisions of German tax law regarding credit for foreign tax, only the tax paid, if any,"

What this means is that German rules on foreign tax credit will apply and only the "tax paid" will be eligible for the credit.

What does this mean for MadMacks?

It means that the German FA has the authority to decide whether he has paid a creditable US tax on his US source dividends.

It also (probably) means that MadMacks has the burden of proving the fact and the amount of the qualifying US tax payment.

He may, in this regard, also encounter a TIMING problem: if his US taxes on dividends received in calendar 2013 were not paid until he filed his return in calendar 2014 then the year of payment will not coincide with the year for which paid. Unless the German system allows a credit for US tax ACCRUED, he may be denied the credit even though he has met his burden of proving actual payment.

Assuming, however, that there is no TIMING issue - either because MadMacks paid US estimated taxes (Vorauszahlungen) during calendar 2013 or because the German tax code permits credit for taxes accrued - the first step for MadMacks is to determine just how much creditable US taxes he actually owed/paid on his US source dividends in 2013.

We start with his 2013 Form 1040, Line 9a. This is the total amount of taxable dividends - FROM ALL SOURCES - he received during 2013. A break-down of the individual source(s) is also shown on his Schedule B.

The figures on Schedule B, in turn, reflect the numbers reported to MadMacks by various US-based financial institutions on the forms 1099-DIV they sent him for 2013. (He should, of course, also report dividends paid him by foreign-based financial institutions whether on a 1099-DIV or an Erträgnisaufstellung or the like.)

Neither Line 9a or the total on Schedule B or even the 1099-DIV necessarily provide any information about the national SOURCE of the dividends on his return. To show that the dividends are from US sources, MadMacks will have to resort to even "deeper" documentation:

In the case of dividends paid him by US mutual funds ("RIC"), he will have to go the mutual fund management company (usually publically available at their website) and ask for their annual information sheet that shows what percentage of dividend income paid by his individual funds was from "foreign", i.e. non-US sources. If those information sheets say "0%" is foreign-sourced then 100% of the dividend was US-sourced.

A brokerage account holding individual stocks is trickier. Normally, the brokerage will provide a 1099-DIV that itemizes the dividends paid by the company that paid it. It would then be up to MadMacks to prove that IBM, for example, was a US company and not Korean. But if he got dividends from Nestle (Switzerland) or BP (UK), these would not count toward his total of US source dividends.

Once MadMacks has a provable total of the US source dividends included on Line 9a of his 2013 1040, he multiplies that number by 15%.

That 15% is the MAXIMUM credit he could possibly receive from the Germans in 2013.

The next step is to prove just how much taxes he actually paid/accrued on those US source dividends.

Here, too, the Form 1040 is inadequate to the task.

His total (regular) tax on ALL taxable income from ALL sources is shown in a single number on Line 44. (For simplicity's sake we will assume MadMacks has no "Alternative Minimum Tax" to pay in 2013.

Hidden beneath Line 44 is a breathtakingly complex - but ultimately crystal clear - tax computation worksheet.

This worksheet is readily available to MadMacks if he used tax return software to prepare his US tax return. If he used a paid preparer then they could simply print it out and send it to him.

That worksheet will reveal or at least allows the precise computation of how much, exactly, MadMacks actually paid/accrued on the US source portion of the qualified and unqualified dividends appearing on Line 9a of his return and that are included in the total tax liability number on Line 44. If the number actually paid revealed by the worksheet is smaller than the MAXIMUM 15% he computed earlier, then that SMALLER worksheet number becomes the maximum credit allowable under the treaty.

Note, however, that there is no mention on the worksheet of "source". This is where higher mathematics will come into play. MadMacks (or the FA) will have to allocate the US source portion of the various items on the worksheet using ratios, percentages, etc. to find out what tax rate(s) were actually applied to how much and what the total was on US source qualified and unqualified dividends ONLY.

Assuming that this computation on the worksheet reveals that he actually did pay/accrue any US taxes on US source dividends in 2013, his next and possibly impossible task will be to educate/convince his Steuerberater/FA that that's how it's done in America and that his computations are valid.

If he needs help in this regard, he should obtain a copy of the German language commentary to the US-GERMANY ("Beck'sche Steuerkommentare DBA Deutschland/USA" Published by Endres, Jacob, Gohr, Klein 2009) (It might be in a new edition by now.).

So, MadMacks, before we go any further:

How much coin are we fighting for here?

And, last but not least, a word of warning:

You have identified the source of your US dividends and capital gains as distributions from RICs (US mutual funds).

The probability is very high that these US mutual funds do not meet German mutual fund reporting requirements. (After all, why should they?)

That being the case, Germany can tax not only the amounts actually distributed to you but can also tax 70% of the positive change in year over year value of your mutual funds under §6 of the Investmentsteuergesetz.

See here for more info:

http://www.der-betrieb.de/content/dft,0,681476,

Here is where you may have already benefited from the ignorance and inexperience of your Steuerberater and/or FA neither of whom may have ever heard of §6 of the Invesmentsteuergesetz or tumbled to the fact that it probably applies to you.

So be careful. If you elevate your dispute within the FA to the level of someone who knows about such things, you may get your credit but still end up owing more because of Germany's punitive tax rules on foreign mutual funds. (In some respects Germany's punitive treatment of foreign mutual funds is even worse than the US tax law's punitive treatment of foreign (i.e. non-US mutual funds.)

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WealthAdvisor if you'd been here more than a day you'd know that Panda (not Panada) is never catty and always the soul of patience and politeness.

 

Correct, I shouldn't have complained, I made a mistake (as mentioned poor editing on my part) and she called me out on it. I've read more of her posts and her knowledge of the German tax system is just astounding!!! I think she knows more than my Steuerberater (this time spelt correct) does!!!

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When I enter a small amount of interest into line 15 "Ausländische Kapitalerträge" of Anlage KAP in 2014 in Elsterformular, the calculator is taxing it.  How do I claim for the Sparer-Pauschbetrag?

I looked for the field Panda mentioned in the instructions for Mantelbogen ESt 1V but I don't see it, as it has probably changed since then.  I have no German capital income, and so have not filled out any other lines in KAP.  Had the same problem in 2013 and lost some from being taxed.

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You have to tell them how much of your 801€ tax free amount for capital income (= Sparerfreibetrag) you already used up for capital income from German banks.

Anlage KAP:

line 5 Put a "Ja" next to "Ich beantrage eine Überprüfung des Steuereinbehalts für bestimmte Kapitalerträge."

line 12: you tell them how much of your Sparerfreibetrag you used up with capital income declared in this Anlage KAP. If you didn't give a bank a Freistellungsauftrag then you didn't use up any of it and put in: 0

line 13: you tell them how much of your Sparerfreibetrag you used up with capital income not declared in this Anlage KAP. If you didn't give a bank a Freistellungsauftrag then you didn't use up any of it and put in: 0

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Thanks, I tried your instructions, but then Elsterformular tells me I have to fill in:

line 47: Kapitalertragsteuer (Steuerabzugsbeträge zu Erträgen in den Zeilen 7 bis 18 und zu Beteiligungen in den Zeilen 31 bis 43)

line 53: Kapitalertragsteuer (Anzurechnende Steuern zu Erträgen in den Zeilen 21 bis 24, 45 und 46 und aus anderen Einkunftsarten)

 

If I enter 0 in either, then it tells me I have to fill in:

line 7: Kapitalerträge (Kapitalerträge, die dem inländischen Steuerabzug unterlegen haben)

 

If I fill in 0 in line 7, Then it tells me I have to fill in:

line 33, 36, 37, 38, 42.

If I fill in 0 for line 33: Kapitalerträge (Erträge aus Beteiligungen: mit inländischem Steuerabzug)

Then it asks for line 31: Beteiligung (Gemeinschaft, Finanzamt, und Steuernummer)

 

I seem to be able to get away with only filling in 0 in lines 7, 33, and 47 (either Bescheinigung or aus Beteiligungen), but I still need to type something into line 31.

If next year I get interest in a german savings account that I sumbited aFreistellungsauftrag, do I have to report that interest in KAP?  I assume in 7?  With all the other fields too?

Thanks

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