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Investment Taxation for Expats in Germany

Submitted: January 2014

Taxable income in this category includes:

  • interest from bank and building society deposits
  • interest from government and corporate stocks (bonds)
  • rental income from properties both in Germany and abroad
  • dividends, and
  • capital gains.

 

Interest

Interest income from German sources is subject to a withholding tax of 25% plus a solidarity surcharge of 5.5% (26.38% in all), which is deducted at source. If you are a resident you will also have to pay tax on interest from outside Germany and may be subject to withholding taxes in the country of origin. Taxes paid on interest income abroad can be allowed as a deduction from the German liability for tax on this income. There is a tax deduction for residents on investment income of €801 per person. Non-residents taxpayers are exempt from the 25% withholding tax on interest.

 

Rental income

For a resident, rental income is taxed as ordinary income and must be reported on your tax return. If you are a resident, rental income from a tax treaty country outside Germany, on which tax has been paid, does not need to be reported in your tax return. Foreign rental income from a non-treaty country can be reported on your tax return net of any withholding tax paid abroad.

For non-residents, rental income that is from a German source is taxed at 25% plus the solidarity surcharge.


Dividends

Dividends from German sources are subject to a 25% withholding tax (26.375% including the solidarity surcharge) which is deducted at source. For a resident, the withholding tax cannot be set off against other general taxable income. If your personal tax rate is lower than 25% you can elect to have your dividend income taxed at your personal tax rate. If this is done the 25% withholding tax can be set off against your taxable income. There is an allowance on investment income per person of €801 before tax is payable.


Capital gains

Capital gains on the disposal of private assets are generally not taxable, unless the transaction is deemed to be speculative. Generally ‘speculative’ refers to land and buildings held for less than 10 years, and other assets held for less than one year. All other capital gains are taxed at a flat rate of 25% (26.375% including the solidarity surcharge) which is deducted at source. These taxes can be offset against your final tax liability on you annual return. If your personal tax rate is lower than 25% you can elect to have your capital gains taxed at your personal tax rate. Speculative profits of less than €600 are not taxable.

 

Pensions

Since 2005, Germany has been increasing the amount of the state pension that is taxable by 2% each year. Originally only 50% was taxable, for 2014 this figure is now 68%. Other retirement pensions are taxed at a special rate depending on the age of the recipient. Pensions sourced from tax treaty countries on which tax has already been paid should not be taxable in Germany.

 

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