Taxes on stocks in Germany for Expats – 2022 – all you need to know

Paying your taxes on time, is one of the most important part of being in Germany. As we know that Germany is well known for its taxes. If you’re planning to or have already invested in stocks it necessary to also have an insight on the taxes which are to be levied on them.  

The gains you receive from investing in Germany will be subject to tax if you are an expat. Read on to find out all your questions answered. 

Contents

What are the taxes to be paid? 

One must pay a flat tax rate on all the profits earned through private investments which is;  25% Flat Tax including the Solidarity Surcharge of 5.5% which is a total of 26.375%  if you are a member of church then you need to also include the Kirchensteuer (Church Tax)to it which ranges from 8% – 9%.

When do you pay tax? 

Taxes are generally only paid on realized profits. The realized profits could be earned through dividends, interest from the Sparanlage or capital gains from the sale of securities, etc.   

For an easier understanding of Term Realized Profit. Imagine purchasing a share of stock for 1000 Euros and selling it for 1200 Euros. 200 Euros is the profit realized. There will be no taxes on the total 1200 Euros, only on the Profit. As of January 1, 2009, private investment income is subject to the Abgeltungssteuer or withholding Tax. In my opinion, it’s a positive development.  

This will lead to everyone paying a flat tax on profits earned, which will be 25% Abgeltungssteuer plus Solidaritätzuschlag, giving a tax of 26.375%. If you are a member of the church, you will have to pay Kirchensteuer to it. Before 2009, it was called Kapitalerträgssteuer, and it had variable Tax rates, and one had to register every detail of the trading in the tax declaration. I’m thankful the new law simplified matters for us. 

Who has to pay taxes? 

Investors who invest in bank deposits, stocks, bonds, funds or certificates are subject to the Withholding Tax (Abgeltungssteuer).  

Tax Free Limit? 

Yes, there is a way to save some profits from the tax to be levied. Private investors will benefit from the Sparerpauschbetrag, which will help them save taxes on the profits earned through the above investment methods. Individuals can earn up to EUR 801 and married people can earn up to EUR 1,602 Tax-free.  

This benefit can be obtained by applying for the Freistellungsauftrag – this can be done directly at the bank where you hold your shares, or where you have invested. If necessary, you can mention the tax-free limit. In the event of profit, banks automatically transfer the Abgeltungssteuer to the tax office. Taxes are collected at the source and transferred to the Finanzamt in a similar manner to Quellensteuer.  

As an example, when the company transfers the salary at the end of the month, you only receive the Netto, and the tax is automatically paid to the Finanzamt. In the same way, the Bank holds the Tax and transfers it to the Finanzamt.

Commerzbank Girokonto

Note Abgeltungssteuer is only available in the German Broker Trading Platforms. Your profits will be taxed if you have not informed your bank about this Freistellungsauftrag. However, you do not have to worry because you can claim back your taxes by filing the ANLAGE KAP along with your Tax Declaration at the end of the year, which is going to be an additional paper work. Since they are not German Trading Brokers, other Trading Platforms like Degiro and Trading 212 do not offer this feature. It would be a bit tedious to file the Anlage KAP on your own at the end of the year”

It is also possible to divide the Freistellungsauftrag amount between Multiple Banks for people who have Depot accounts in different banks. 

Suppose you are Single and have an option of 801 Euros.  There are 200 Euros in Bank-A , 300 Euros in Bank B, and 301 Euros in Bank C. Profits earned by these banks up to the above mentioned limits are tax free. The value can be changed as many times as necessary depending on your circumstances.  An Easy Tip is to try to place this amount in the bank, where you will be getting more profits. 

How does tax declaration work? 

This procedure starts off with you filling out the Anlage KAP and this option is available only for German banks where the bank will automatically transfer the tax to the Finanzamt(Tax Office). This option is not available at Non German banks.  

You do not have to worry about manually filing taxes after selling a position / stock since taxes are already withheld and transferred to the respective Finanzamt! The bank also provides you with a ‘Steuerbescheinigung’ every year, with which you can present specific transactions to the Finanzamt.  

If your profits exceed the limit you stated in the bank, the tax will be deducted at source and transferred to the Finanzamt. This is called Quellensteuer which means tax deducted at source.  As an example, when the company transfers your salary at the end of the month, you receive only the Netto and the tax is paid automatically to the Finanzamt. In the same way, the bank takes on the responsibility of holding the tax and transfers it to finance.   

Who are not required to pay Taxes? 

People whose income is low have the opportunity to exempt from the final withholding Tax on capital gains. Its called Nichtveranlagungsbescheinigung

Prerequisite to apply: Your Income including Capital Gains does not exceed the Basic Allowance (Grundfreibetrag). The Bescheinigung can be applied for at the nearest Finanzamt so that you do not have to pay tax on your profits. It is more useful for students and people with low incomes. 

Vorabpauschale  

Regarding Taxes on the ETF investment, since 2019, a new Taxation concept has been introduced, which is called Vorabpauschale. It is a bit different when it comes to taxation. We can discuss this in the next blog! I hope you understand the Taxes on the Investment now and will enjoy your time investing in German Stockmarkets. 

You can open your completely free depot at Scalable Capital by using the link below:

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