The taxation of income from private capital investments was reformed by the "Unternehmensteuergesetz 2008". Since 1 January 2009, a withholding tax (Abgeltungsteuer) of 25.0% plus solidarity surcharge and, where applicable, church tax has been levied. Private investment income is therefore subject to a total tax burden of approximately 28.0%. If your personal income tax rate is below 25%, the investment income may be taxed at that rate.
Church tax is only levied if you are a member of a religious denomination. If this is the case, you may choose whether church tax is collected upon submission of your tax return (certificate from the credit institution), or you may submit an application (on an official form) to your credit institution to have it withheld together with the withholding tax. In the case of direct tax deduction, account is taken of the fact that church tax is deductible as a special expense.
The following types of private investment income are subject to taxation:
- Dividends
- Income from profit participation certificates
- Accumulation of ordinary income from investment funds
- Income from typical silent partnerships
- Income from endowment life insurance policies
- Interest from savings deposits, fixed-term deposits and bonds
- Capital gains from the sale of shares, GmbH interests, futures contracts, typical silent partnerships, life insurance policies and other capital receivables (e.g. savings bonds, fixed-interest securities and bonds).
Income that is attributable to a different income category - other than income from capital assets and income from private disposal transactions - is not subject to withholding tax. It is also important that the deduction of income-related expenses is no longer permitted. From 2009, the saver's allowance (Sparerfreibetrag) is €801.00 for single persons and €1,602.00 for married couples.
Previously, a one-year speculation period applied to private disposal transactions (in particular securities). This no longer applies from 2009.
Furthermore, the half-income procedure (Halbeinkünfteverfahren) for natural persons is being completely abolished, meaning that dividends, GmbH profit distributions and realised capital gains from share sales will be taxed in full. However, in the case of share sales this only applies where the shares were acquired after 31 December 2008.
New is the partial income procedure (Teileinkünfteverfahren) for dividend income flowing from business assets. This includes, for example, distributions from a capital company to a partnership. In contrast to the previously applicable half-income procedure, not 50% but only 40% remains tax-free.
Where losses arise from capital assets, these may no longer be offset against other income. Loss carry-back is not possible, so losses can only be carried forward. For this purpose, each credit institution is required to maintain a loss offset pool. Where in-year losses and positive investment income arise, the bank may offset these against each other. A separate loss offset pool must be maintained for share losses (for shares acquired after 31 December 2008), because loss offsetting may only be carried out against gains from other share sales. If, after offsetting losses and gains from share sales, a negative loss offset pool remains, the credit institution will generally carry this forward to offset it against positive income in the following year. However, if you hold several portfolios at different banks and have "gains" at one bank and "losses" at another, you can have the losses certified by your bank. These will then be offset against the gains at the other bank as part of your income tax return.
Exceptions to Withholding Tax
- Investment income not subject to direct tax deduction includes in particular:
- The disposal of capital life insurance policies
- The disposal of a GmbH interest where the holding is not substantial (below 1%)
- Interest income from loan agreements between private individuals (not closely related)
- Tax refund interest
- Income earned through foreign accounts/portfolios.
Where investment income is generated from these transactions, it must be declared with your income tax return. This income will then also be taxed at 25.0% withholding tax.
- Capital gains tax deduction is - as before - waived in certain cases where
- A non-assessment certificate (NV-Bescheinigung) is presented,
- The income remains below the exemption order (Freistellungsauftrag) granted, or
- Negative investment income is to be offset via the new loss offset pool.
- Certain investment income (which, whilst attributable to the private sphere) is not subject to the flat withholding tax rate. This includes
- Income from capital life insurance policies that is only 50% taxable (new contracts only)
- Tax-free interest income from capital life insurance policies taken out before 2005 (existing contracts) and
- Interest from loans between closely related persons, including from silent partnerships.
- Investment income subject to the individual, progressive tax rate, e.g.:
- In the case of participations or capital loan agreements between closely related persons.
- In the case of capital lending to companies in which the taxpayer holds at least a 10% interest, as well as by persons closely related to the holder.
- So-called back-to-back financing arrangements