Germany occupies second (!) place in the world in terms of taxes and social contributionswithdrawn from the working population, after Belgium. On average, about 40% of the salary of an unmarried childless working German automatically goes to various tax and social authorities. You can read more about taxes in Germany in the following article: GERMANY INCOME TAX
Not spared the tax authorities and the investment sector. Since 2009, a law has come into force in Germany that obliges all German investors to regularly pay taxes on income from their investments: Abgeltungssteuer – Gesetz und gesetzliche Grundlagen zu den Änderungen seit dem 01.01.2009 (www.abgeltungssteuer-dachfonds.de)
And since the German the Finanzamt - the organization is very serious, and here everything should be extremely transparent, and taxes are a rather tricky topic, it is not at all surprising that many novice investors are often puzzled by questions: how, where and how much taxes they pay?
Let's dispel all your questions and doubts about this thorny topic and analyze all the nuances of investor taxation.
So, let's go.
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Investors in Germany pay the following taxes:
- Abgeltungssteuer (tax on income from capital investments) – fixed 25%;
- Solidaritatszuschlag (solidarity surcharge) - 5,5% of the Abgeltungssteuer, i.e. 1,375%;
- church tax (church tax) - 8-9% of the Abgeltungssteuer, i.e. 2-2,25%.
Thus, if you are not officially a member of a “paying” church (we will further assume that this is the case), then your standard investment tax is 26,375%.
This tax applies to the following income classes:
- Bank deposits (Girokonto, Tagesgeldkonto, Sparbuch),
- Securities (shares, bonds, investment funds of any kind, certificates),
- Derivatives (derivative securities such as options and futures),
- Currency transactions.
Tax is calculated at the time of recording income, those. when you sell an asset that has grown in price, or receive dividends. Dividends come already “cleared” from taxes. They do not need to be declared separately.
The tax is written off automatically from the brokerage/bank account and you do not need to separately report your investment income on your tax return. The broker himself will forward all the information further to Finanzamt.
All this applies to persons who are tax residents of Germany. At the beginning of each year, a Jahressteuerbescheinigung document will usually appear in the broker's personal online account with a list of all your tax deductions for the previous year. This document is always available for download.
Maintaining a brokerage account with foreign broker. For example, interactive Brokers, eToro, Freedom Finance. Therefore, when choosing a broker, you should pay attention to the country in which the broker is registered.
Spare pauschbetrag
There is a tax break Spare pauschbetrag for a profit of 1000 EUR per year for one person, or 2.000 EUR per year for two (married couple). This limit is valid from 01.01.2023
Example
The investor received a profit of 1500 EUR per year. Most of his profit of 1000 EUR will not be taxed.
You will only need to pay taxes on the remainder of:
Tax = 26,375%*(1500-1000) = 26,375%*500 = 131,88 EUR.
If a brokerage account is opened with only one adult family member, for example, with a husband, then the husband can use the benefit for two, i.e. his income up to 2.000 euros per year will not be taxed.
How to get a tax credit Spare pauschbetrag?
To do this, fill out online Freistellungsauftrag in the personal account of the broker/bank, by depositing there the amount for which you would like to use the tax benefit from this broker (maximum 1.000 EUR).
The fact is that if you have several accounts with different brokers, you can divide the entire benefit into parts between accounts. Freistellungsauftrag operates at the bank level, which means that it must be completed at each bank (at each broker) where you want to use the benefit.
IMPORTANT: every investor should fix profits up to 1.000 EUR annually (if any), i.e. sell and immediately buy the same assets, even if he does not intend to sell them, for the sole purpose of "expending" the required annual tax credit Sparerpauschbetrag 1.000 EUR.
Let's look at what benefits an investor can get from this operation, using an example.
Example:
1. Investor Anna with an investment horizon of 20 years, annually receives an investment income of 1500 euros.
Anna annually fixes part of the income 1000 euro (in the amount of a tax benefit), and immediately re-buys the sold assets for the same 1000 euros.
Thus, Anya’s tax base each year is (1500 – 1000) = 500 euro, and in total for all 20 years will be:
The tax base = (500 * 20) = 10.000 euros.
How much taxes will Anna pay for everything 20 years?
Ani tax = 26,375% * 10.000 = 3.637,50 euro.
*Here, however, it should be noted that Anya will lose at least 40 euros on brokerage commissions for purchase and sale transactions over 20 years (if the cost of 1 transaction = 1 euro), but this is only a penny compared to the amount that she can save on taxes.
2. Investor Vania with an investment horizon of 20 years, annually receives an investment income of 1500 euros.
Vania does not fix annually part of the income 1000 euros (in the amount of tax relief).
In this way, Vanya's taxable base in fact, each year is 1500 euros, and after 20 years it will be:
The tax base = 1500 * 19 + (1500 – 1000) * 1 = 29.000 euro. In this case, the tax benefit of 1000 euros will be taken into account only for the last year.
What amount of taxes will Vanya pay for everything 20 years?
Vanya tax = 26,375% * 29.000 = 10.548,754 euro.
Conclusion: Vanya will pay tax almost 3 (!) times higher than Anya.
This example clearly signals that the tax break should be used annually!
Verlustbescheinigung
If you recorded losses from investments in some year, this can also be used to reduce the tax base in subsequent years or on another investment account. To confirm losses should be obtained from the bank Verlustbescheinigung (loss statement). This certificate is valid for 7 years.
How does work Verlustbescheinigung?
Example:
- In 2020, you recorded a loss of 1000 EUR and issued a Verlustbescheinigung (loss report) for this amount.
- In the subsequent 2021, you recorded a profit of 2000 EUR and attached your 2020 loss statement to your tax return (Steuererklärung, Anlage KAP) at the end of the year.
- Yours tax base for 2021 the year will be (2000-1000) = 1000 USD, and taking into account Sparepauschbetrag 801 EUR: (1000-801) = 199 EUR -> only on this amount you will be charged 26,375% tax. (801 euros – was until 2023)
Сaldiation of losses
Another useful trick on how to reduce taxes for investors is the operation of balancing losses, i.e. sale and immediate subsequent purchase of assets. This is usually done at the end of the year when investors rebalance their portfolios.
Why do this? In order to reduce the taxable base by the time you intend to withdraw funds from your brokerage account.
If you now understand the train of thought, you can easily "run away" from the lion's share of taxes. Therefore, we read the following example VERY thoughtfully.
Example:
In 2021, part of your assets increased in value by +1000 euros, and the other part was in the red -500 Euro.
1. If you take profit, i.e. sell only that part of the assets that has increased in value, then you will pay tax on 1000 euro arrived. Including the tax credit, your tax will be (1000-801)*26,375% = 52,49 euro.
2. If you spend netting of losses, i.e. in addition to fixing profits, sell, and then immediately buy that part of the assets that was unprofitable, then at the time of the sale you will fix -500 euro loss. This loss will be deducted from the profit of 1000 EUR. Your actual profit be 500 euro. Thus, you will only have to pay tax on these 500 euros. Taking into account the tax relief, you will not have to pay tax for these 500 euros at all, because this amount is less than the Sparerpauschbetrag 801 EUR tax relief itself.
Conclusion: when balancing, you will lose a couple of euros in brokerage commissions for transactions (for sales and purchases), but save 52 euros (according to this example) in taxes.
Form W8Ben
Each country imposes its own tax on dividend payments on securities that were issued in that country to foreign investors. Thus, investors who buy shares of foreign companies and receive dividends from them will automatically pay income tax on these dividends to the issuing country.
This tax is called Withholding tax.
We are primarily interested in the shares of American companies. The tax on dividends of shares of American companies by the United States is 30%.
Too much, right?
But there is good news: there is an agreement between Germany and the United States for the avoidance of double taxation (Doppelbesteuerungsabkommen). According to this agreement, German investors have the right to halve their taxes on dividends from shares of US companies from 30% to 15%.
Thus, in order to avoid double taxation of dividends, all investors holding individual shares of US companies that pay dividends, you should actively fill out the so-called W8Ben form and send it to your broker.
- This applies directly to stocks, not funds.
- The form can be found online on the broker/bank page.
Cryptocurrency taxation in Germany
Cryptocurrencies in Germany are considered a separate asset class and are not subject to capital income taxation laws (Kapitalertragssteuer/Abgeltungssteuer). The topic of cryptocurrency taxation in Germany is described in detail in this article.
On this, perhaps, everything. If, after reading this tax story, questions still have not left you, write them out and send them to me in direct to my insta profile @mafin.de.
