Taxes on non-German accumulating ETF

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Hello everybody,

 

Posting for the first time.

 

I would like to invest in an accumulating ETF which is operated by Deutsche Bank and is domiciled in Luxembourg. The fund is "transparent", i.e. it reports to the German tax authorities.

 

As far as I understand, the taxing process is extremely complex.

The German authorities behave as if they aren't aware of the dividend/interest gains and you're obliged to declare and pay them every year. However, upon selling, they suddenly become aware of these gains and tax you again. Then, in order not to be double-taxed, you must prove that you correctly declared all gains and paid the taxes lawfully, and only then will you get your taxes back.

 

Is this really the case? Is investing in transparent, German-operated funds in the EU really that complex?

 

Thanks in advance!

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I thought transparent funds would automatically deduct taxes at the source? I'm not sure what you are referring to here exactly, can you provide a source where you received this information?

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I thought transparent funds would automatically deduct taxes at the source? I'm not sure what you are referring to here exactly, can you provide a source where you received this information?

 there are many warnings all around:

 

https://www.justetf.com/de/news/etf/steuereinfach-in-etfs-investieren.html

 

http://www.finanztip.de/indexfonds-etf/thesaurierende-fonds/

 

https://www.comdirect.de/forum/fdo/ThreadDetailRH.do?categoryID=6&forumID=15&threadID=85997

 

It could be that I don't understand them well (or I wouldn't be asking this in an English speaking forum). But what I get us that it's a major issue of which many aren't aware. 

What I get is that in all foreign funds you must declare dividends or interest and pay the due tax. Then, upon selling, you automatically pay the tax again. Then, you can add this to your next Steuererklärung and get it back. As far as I understand, non-transparent funds are just penalised harder upon selling (i.e. before you prove you were acting legally).

 

I'd be very happy to learn that this does not apply to transparent funds. Do you have any source that confirms that they are, for tax issues, equivalent to German-domiciled funds?

 

 

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 there are many warnings all around:

 

From your second post I'm not quite sure I understand what you mean by "transparent" funds, as you could potentially mean two different things.

 

All holdings in Luxembourg will be visible (one meaning of the word 'transparent') to German tax authorities from January 1, 2015. No more hiding money in Luxembourg tax-free (for EU residents, anyway). Holdings in a Luxembourg-domiciled fund will be available to German tax authorities on request.

 

A second issue at play is the "pauschalbesteuerung" of "intransparent" foreign funds which is what is referred to in the posts you cited. To my knowledge, "transparent" funds in this sense deduct capital gains tax at the source. If the fund is collecting Abgeltungsteuer at the source for you then the taxation is taken care of and you shouldn't face any kind of double taxation. If the fund is somehow "transparent" but doesn't collect Abgeltungsteuer at the source than I suppose you would have a lot of paperwork. The pauschalbesteuerung is kind of a mess, for more info see these links:

 

 

 

I am not providing financial advice and I am not a financial expert.

This thread should probably be merged with one of those, come to think of it.

 

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Thanks for the reply. I'm afraid that the picture that I get from most discussions is different, to the worse.

 

For example, see the discussion in: http://www.wertpapier-forum.de/topic/44100-kurze-anleitung-steuereinfache-fondsetf-selbst-finden/

 

"Transparent" funds are those which report to the German tax authorities (Bundesanzeiger). They cannot be coerced to pay due capital-gains taxes by the German government. Thus, you still have to report dividends or interest payments and pay taxes on them. 

 

As far as I understand, you have to declare gains and pay taxes. Then, when selling the fund, you are taxed again. Only then can you request reimbursement for the double taxation. 

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Maybe I can try to summarize shortly what I learned during the preparation for my financial advisory exam. The problem is even not so straightforward even for experts. Basically, you will have to pay tax ("Abgeltungsteuer") on all your capital gains and dividends from your investments (tax-free up to gains of 801 € per person per year). 

 

1) The taxation of all the investment fonds including ETFs that are domiciled in Germany is handled automatically by your bank/broker. You don't have to make any tax declaration in most of the cases.

 

2) The taxation of all the investment fonds including ETFs that are domiciled outside of Germany and paying dividends ("ausschüttend") is handled automatically by your bank/broker. You don't have to make any tax declaration in most of the cases.

 

3) The taxation of all the investment fonds including ETFs that are domiciled outside of Germany and accumulating ("thesaurierend") is what creates the real problem. The bank/broker is not aware of the dividends, so they can not tax you automatically. You will have to include this in your tax declaration. You can get this information from the Bundesanzeiger as mentioned above. In some cases your bank sends you this information, but you still need to include it in your tax declaration yourself. There is a risk of double-taxation as mentioned above, when you sell your funds. So you need to mention this in your tax declaration again to reimburse your money.

 

In my opinion, the third situation creates a lot of work and confusion. As an investment advisor, I do not recommend them to my customers. 

 

I hope I could help a bit. The recommendation is of course using a tax advisor for complicated tax cases.

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Thanks a lot for the thorough response. It's good to finally read it in English.

 

With regards to funds that are domiciled outside of Germany and are paying dividends (2):

I understand that there are complications there as well, because many funds are partly accumulating ("Teilthesaurierung"). I saw somewhere that they are still tax-simple if the accumulating parts are significantly smaller than the distributed sums, and if the fund is transparent, the depot bank can tax the accumulating part when taxing the distributed part.

Is that correct?

 

Additionally, there's an issue of a mismatch between the fund's tax-year and your tax-year. If I understand correctly, if a fund receives a dividend in December and distributes it in January, you pay your due taxes at the wrong year. 

Is this really a problem?

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2) The taxation of all the investment fonds including ETFs that are domiciled outside of Germany and paying dividends ("ausschüttend") is handled automatically by your bank/broker. You don't have to make any tax declaration in most of the cases.

Since you have been helpful, can I pick your brains further?

 

I was just wondering how are the taxation of Irish domicile funds handled. I have read about problems buying Vanguard funds for German residents. Some of the brokers do not allow buying them and something about a 10% withholding tax.

 

I was thinking of buying them, but the complexity in taxations just made me give up looking further.

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I understand that there are complications there as well, because many funds are partly accumulating ("Teilthesaurierung"). I saw somewhere that they are still tax-simple if the accumulating parts are significantly smaller than the distributed sums, and if the fund is transparent, the depot bank can tax the accumulating part when taxing the distributed part.

Is that correct?

 

As far as I know, the "Teilthesaurierung" still brings a small problem that you will need to declare this part in the income. "Bundesanzeiger" is the correct resource to find this out. I have accounts in "Ing Diba" and "Comdirect", which inform me about the "Teilthesaurierung". The good part is that the double taxation will be insignificant amounts.

 

Additionally, there's an issue of a mismatch between the fund's tax-year and your tax-year. If I understand correctly, if a fund receives a dividend in December and distributes it in January, you pay your due taxes at the wrong year. 

Is this really a problem?

The funds receive dividends from its individual assets in different months. But they pay you dividends monthly, quarterly, yearly, etc.. You will be taxed on the month you receive the dividends. So, they are keeping the dividends inside the fund for a while. 

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Since you have been helpful, can I pick your brains further?

 

I was just wondering how are the taxation of Irish domicile funds handled. I have read about problems buying Vanguard funds for German residents. Some of the brokers do not allow buying them and something about a 10% withholding tax.

 

I was thinking of buying them, but the complexity in taxations just made me give up looking further.

Irish domicile funds are very common and they belong to the category "domiciled outside of Germany". I am not aware of an Ireland-specific problem.

 

I also heard about the problems regarding Vanguard funds. You were able to buy them directly from the stock market in the past. Now they are delisted, so a regular investor can not buy them anymore. Your broker/bank can do this, but they can ask for additional fees as you are mentioning. What about investing in ETFs (iShares, ComStage, DX x-trackers, Lyxor) that are replicating an index?

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The funds receive dividends from its individual assets in different months. But they pay you dividends monthly, quarterly, yearly, etc.. You will be taxed on the month you receive the dividends. So, they are keeping the dividends inside the fund for a while. 

Thanks again for the thorough reply.

 

So according to your experience, distributions from last year's gains ("in der Ausschüttung enthaltene ausschüttungsgleiche Erträge der Vorjahre") does not create a tax problem?

 

I think that when a fund decides to distribute gains in the next tax-year, it in effect accumulates the gains and therefore they should be treated like accumulating gains. That is, I would have to declare the gains, pay the tax, get the dividend, pay the tax again, and then ask to get my money back.

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Thanks again for the thorough reply.

 

So according to your experience, distributions from last year's gains ("in der Ausschüttung enthaltene ausschüttungsgleiche Erträge der Vorjahre") does not create a tax problem?

 

I think that when a fund decides to distribute gains in the next tax-year, it in effect accumulates the gains and therefore they should be treated like accumulating gains. That is, I would have to declare the gains, pay the tax, get the dividend, pay the tax again, and then ask to get my money back.

I'm not sure that you need to go that much into detail for the tax declaration. Did you receive something like this from your bank? The document helps you exactly what to include in the KAP section of the tax declaration.

 

steuer.png

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Thanks again.

 

I have a feeling that I don't get the information from my bank (Ing-Diba). 

At least sometimes, I do get informed in real-time when accumulated gains are being reinvested.

But my end-of-year report clearly says that they do not have the information regarding these sums and that I should get them myself.

 

Anyway, thanks for the help. It is much clearer now and I guess I'll have to live with registering these sums, declaring them and getting my money back after the double-taxation takes place.

 

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First of all thank you very much for this topic, I was completely unaware of the issue and only stumbled upon this thread by chance. There might even have been other threads on the topic, I haven't searched. Anyway, I guess I messed up the due diligence when I educated myself on investing in ETFs.

 

I failed to take this into account, and declare it properly, so I will have to look into the consequences of this. Fortunately, it's not like I'm rich so even if I get double-taxed for the last couple of years that I've been owning these funds, the amounts aren't likely to be material. I'm glad that I caught this now though, and that I am at least aware of the issue.

 

Also I wanted to bump the topic up as it seems the legislation is changing and a new taxation system will come into effect starting 2018 that does affect foreign domiciled accumulating funds. Read about it here:

https://www.test.de/Investmentfonds-und-Steuern-Neue-Regeln-ab-2018-5015614-0/

and here (which is a link out of a message from Sesquiterpene above, only it's been updated in November 2016)

http://www.finanztip.de/indexfonds-etf/thesaurierende-fonds/

 

In principle the changes will apply to all investment funds regardless of their exact type and domiciliation. I'm not sure what this exactly means overall, I need to read this more thoroughly and my crappy German is not helping, but for ETFs it should make things easier for retail investors and avoid the extra work related to the tax declaration. As far as I understand, the bank that holds your securities account will decide on a lump sum at the end of the year that represents the growth of the fund (capital gains), and on which tax is applied and retained by the bank. At the time of sale of the fund, the taxes already paid are considered. For funds that distribute the dividends paid reduce the lump sum; for funds that accumulate the dividends are considered in the lump sum and there will be no need to declare those in the income tax return anymore, and there will be no double taxation at the end.

Am I understanding this right?

 

When I read this thread initially I thought I'd have to change my funds, but considering the new tax treatment coming in I don't really see a reason to do so anymore. At the end of the day with this in place, receiving the dividends or not shouldn't make a difference anymore in terms of tax burden.

Of course now I realize there was never any advantage from a capital gains tax perspective, so of course now it is a question of cash flow: I'd probably prefer receiving dividends to replace my day job income as I come closer to retirement, rather than having to sell shares.

I've got some thinking to do...

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We have two related topics on this.

 

For details please read (this includes an examples with numbers for the change in taxation starting with 2018):

 and:

 

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18 hours ago, TroyMcClure said:

First of all thank you very much for this topic, I was completely unaware of the issue and only stumbled upon this thread by chance. There might even have been other threads on the topic, I haven't searched. Anyway, I guess I messed up the due diligence when I educated myself on investing in ETFs.

 

I failed to take this into account, and declare it properly, so I will have to look into the consequences of this. Fortunately, it's not like I'm rich so even if I get double-taxed for the last couple of years that I've been owning these funds, the amounts aren't likely to be material. I'm glad that I caught this now though, and that I am at least aware of the issue.

 

Also I wanted to bump the topic up as it seems the legislation is changing and a new taxation system will come into effect starting 2018 that does affect foreign domiciled accumulating funds. Read about it here:

https://www.test.de/Investmentfonds-und-Steuern-Neue-Regeln-ab-2018-5015614-0/

and here (which is a link out of a message from Sesquiterpene above, only it's been updated in November 2016)

http://www.finanztip.de/indexfonds-etf/thesaurierende-fonds/

 

In principle the changes will apply to all investment funds regardless of their exact type and domiciliation. I'm not sure what this exactly means overall, I need to read this more thoroughly and my crappy German is not helping, but for ETFs it should make things easier for retail investors and avoid the extra work related to the tax declaration. As far as I understand, the bank that holds your securities account will decide on a lump sum at the end of the year that represents the growth of the fund (capital gains), and on which tax is applied and retained by the bank. At the time of sale of the fund, the taxes already paid are considered. For funds that distribute the dividends paid reduce the lump sum; for funds that accumulate the dividends are considered in the lump sum and there will be no need to declare those in the income tax return anymore, and there will be no double taxation at the end.

Am I understanding this right?

 

When I read this thread initially I thought I'd have to change my funds, but considering the new tax treatment coming in I don't really see a reason to do so anymore. At the end of the day with this in place, receiving the dividends or not shouldn't make a difference anymore in terms of tax burden.

Of course now I realize there was never any advantage from a capital gains tax perspective, so of course now it is a question of cash flow: I'd probably prefer receiving dividends to replace my day job income as I come closer to retirement, rather than having to sell shares.

I've got some thinking to do...

 

If you enter the numbers from the Jahressteuerbescheinigung(en) you receive from the bank(s) into your tax return every year (see this post for what it looks like), you'll be fine.

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Hello,

 

I'm having a really hard time figuring out how to declare taxes for dividends from ETFs in a way that I'll not have issues later on with the government and I'll also not loose money.

 

So my idea is to buy "db x-trackers MSCI World Index UCITS ETF (DR) 1C" which is physical, accumulative and non-German.

I'm aware that in 2018 the taxation law was changed but unfortunately I'm still not getting a full picture.

 

Could someone please explain how should I declare taxes for that ETF? As a person who invests in ETF am I required to do anything else for the government apart from declaring taxes?

Will the Sparerfreibetrag be automatically taken into consideration, or should I additionaly do something for it?

Also will it make sense for me, or is it even necessary, to apply for Freistellungsauftrag?

 

And if possible, I'd like to ask another question which is a bit of topic: is MaxBlue a decent broker? I'm thinking to open a Depot there because they offer a good conditions: free sparplan with lots of free ETFs.

 

Thanks in advance!

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As long you keep them in a German bank, you can give that bank a Freistellungsauftrag exempting first 801€ (1,602€ if you're married) of the capital income from Abgeltungsteuer.

The German bank will take care of everything, i.e. deduct the tax that will be due and will send you an overview at the end of the year telling you what to fill into Anlage KAP.

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So, if I try to keep it simple and only invest in ETFs that are domiciled in Germany, what are my options? Are there, for example, ETFs that track the S&P500? I found this one which is traded in Frankfurt but domiciled in Luxemburg - "db x-trackers S&P 500 2x Leveraged Daily UCITS ETF", so I guess it's not what I'm looking for (?)

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