Things to know about capital gains tax

As a general rule, a tax return must be filed after one year in Germany. Depending on whether this results in a surplus or an additional payment, the person receives a tax credit or has to pay back taxes. However, that does not apply to capital gains. Because the capital gains tax is withheld immediately when the capital amount is credited to the source, which is usually the bank, and from there it goes directly to the tax office.

Part of the income tax law

Capital gains tax is one of the types of income covered by the Income Tax Act. It must be made in principle for all income arising from capital. These include:

  • Dividends from shares
  • Interest
  • Exchange Gains
  • Income from life insurance policies

The amount of this tax is 25 percent of the capital gains that exceed the statutory exemption amounts. In addition, the solidarity surcharge and, if applicable, church tax must be paid. If the income exceeds the exemption limit, the capital gains must be declared in the income tax return.

Who doesn't have to pay capital gains tax?

Those who have low incomes or are retirees or. Is a student, can apply for a so-called non-assessment certificate at his competent tax office. This exempts those concerned from the capital gains tax liability for up to three years. In addition, no capital gains tax is payable if the income from the capital is within the exemption amounts of 801 euros for single persons or. 1602 euros for married couples lie.

The tax is paid directly by the bank

Normally, the bank directly accounts for capital gains tax when the capital, interest or dividend income from securities and time deposit investments assessed there yields. The client will receive an appropriate notice from the bank, which must be included with income tax returns. Only then can the amounts already paid be taken into account. It may happen that the tax payment already made will be refunded as well. This occurs when appropriate supporting documentation is provided and a request is made for what is known as a favorable test.

Capital gains tax is withholding tax

Basically, every profit from a capital gain must be taxed accordingly. Capital gains tax is a so-called withholding tax, which means that it is paid by the paying agent, i.e. the bank or. the insurance company, must be withheld directly and forwarded to the tax authorities. There are also different percentage deductions for the different capital yields. In principle, the tax rate is 20 percent for dividends, 30 percent for interest and a whopping 35 percent for anonymous table transactions. In addition, the solidarity surcharge of 5.5 percent and church tax of eight or nine percent must be added in each case. Incidentally, the latter is only withheld if the investor has submitted a corresponding application for the deduction of church tax to his tax office in advance. This is regulated in the Income Tax Act, more precisely in § 43 (a) as follows. With this deduction, the tax on the capital gains is subsequently reduced to a minimal extent. Who receives income from:

  • private loans
  • Interest from mortgages or land charges
  • in the case of pensioners, pensions from pension debts
  • endowment life insurance policies or sales of a silent partnership
  • Foreign currency transactions

refers, must lead also these naturally accordingly to a tax. Although they are not subject to capital gains tax, they are also not completely tax-free and must be declared in any case in the annual tax return to the tax office.

The difference between capital gains tax and final withholding tax is simple

The terms capital gains tax and final withholding tax are often used synonymously. But this is not quite right, because the capital gains tax is a pure form of the final withholding tax. This has been available in Germany since 01. The flat tax was introduced on January 1, 2009, and has since replaced the previous taxation of income from capital gains. Previously, these were taxed either as capital gains tax or interest withholding tax, and were reported on the tax return at the normal income tax rate. Since 2009 it is no longer necessary to declare capital gains annually, as they are already taken care of with the final withholding tax.

Simple fictitious example for illustration

Who has a savings book with 5000 euro credit balance, receives for it annually 80 euro interest credited. Before the 01.01.In 2009, the interest withholding tax of 30 percent had to be paid from it. This results in 24 Euro capital gains tax. Since 01.01.In 2009, the final withholding tax applies, which means that only 25 percent tax is due on the interest, i.e. on a credit balance of 5,000 euros, only 20 euros must be paid to the tax office.

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