The flat rate withholding tax (Abgeltungsteuer) is a German flat tax on private income from capital and capital gains. It was introduced through the Unternehmensteuerreformgesetz 2008 that passed the German Parliament on 14 August 2007. The flat rate withholding tax came effective on 1 January 2009.
Contents
History
In 2009 the flat rate withholding tax replaced the half revenue procedure (Halbeinkünfteverfahren) that was effective since 2001. The German Income Tax Act had a procedure whereby taxable income is halved for purposes of dividend taxation. 50% of income defined in the section of Art. 3 No. 40 German Income Tax Act as amended of 2008 were exempt from income tax. Dividends and taxable capital gains from sale of investments have been taxed (if a certain exemption limit exceeded) only half the amount of income tax and solidarity surcharge (Solidaritätszuschlag). Profits from sale of equity investments were not taxable if between acquisition and sale of the shares the period of one year was exceeded. The time of acquisition of the shares has to be before 2008 because from 1 January 2009 on the flat rate withholding tax (Art. 32 d German Income Tax Act) applies.
Scope of taxation
The taxation at the level of a shareholder (shareholders or partners) depends on whether the shareholder is an individual or a corporation:
Amount of withholding tax
The flat rate withholding tax is levied as a withholding tax. Private investor’s tax liability is settled. The already taxed capital gains are no longer recorded in the annual income tax return. Instead of taxing with the personal tax rate of taxpayers, their income regardless of their height is taxed with the flat tax rate of 25%. The legal basis for this was amended in the Unternehmensteuerreformgesetz of 2008 in Art. 32 d of the German Income Tax Act. The withholding tax rate according to Art. 43 a Para. 1 German Income Tax Act is 25% plus solidarity surcharge of 5.5% on the final withholding tax and possible church tax (8 or 9% of the flat tax). This makes a total of flat rate withholding tax of 26.375% church tax excluded. The surplus income from capital assets cannot be shortened by the overall deductions through lump sum or actual expenses. In their place, the saver's allowance in the amount of 801 € will be used as deduction (Art. 20 Para. 9 German Income Tax Act). However actually there are several decisions in court to rule on that restricted deduction possibility.
Taxable current income
Among the investment income are (Art. 20 Para. 1 German Income Tax Act):
This means, profits which have been recorded and taxed only in the context of speculation are now already taxable for a holding period of more than one year.
Taxable private capital gains
Taxable private capital gains are (Art. 20 Para. 2 German Income Tax Act):
Exemptions from the tax deduction
The rules for the flat rate withholding tax do not apply for the following:
Alternatives
Investment income upon which flat rate tax was withhold, do not have to be declared in the annual income tax return. Only if church tax has not been withhold or the personal income tax rate is below 25%. A tax refund on the difference between the tax rates is possible (Art. 32 Para. 6 German Income Tax Act). This makes sense when the personal tax rate of the income is below 25%. The intention was that the income on investment income will not be taxed higher than their other income. A withdrawal of actual costs associated with private capital gains is however no longer permitted, the saver's allowance in the amount of 801 € will be used as deduction.
Losses
Losses are considered as follows:
At first, positive and negative income will be charged. (e.g. dividends, interests income from investment funds and certificates). Losses from sale of shares can only be charged against gains from selling shares. Any remaining loss is carried forward by the bank on either next year or, at request of the customer be certified and may be used by other banks where the individual has positive investment income. Losses that occurred before 2009 can be charged up to 2013 with capital income.Foreign investment income
Investment income that was generated abroad also falls under the flat rate withholding tax. The Federal Republic of Germany concluded with many countries double taxation agreements so that the regulations differ from each country to country. The aim is to avoid that one taxpayer is charged with similar taxes more than once on the same income for the same period. Though the flat rate withholding tax is not applicable in foreign countries, the taxpayer has the responsibility to declare the income for taxation at the local tax office. Foreign taxes on capital gains are only chargeable up to a height of 25% according to German Income Tax Act (Art. 43 a Para. 3). Nevertheless, there can be possibility that losses from other securities transactions are added to the original loss. That leads to a paid tax on capital gains of more than 25% seen over the entire calendar year. Such a negative surplus will not been refunded by the tax authorities and is also not transferable to the following years.