Abgeltungsteuer
The Abgeltungsteuer is a flat tax on private income from capital. It is used in Germany, Austria, and Luxembourg.
Germany
In Germany, the Abgeltungsteuer was introduced through the that passed the German Parliament on 14 August 2007. The Abgeltungsteuer became effective on 1 January 2009.Earlier tax law
In 2009 the Abgeltungsteuer replaced the that had been effective since 2001.The had a procedure whereby taxable income was halved for purposes of dividend taxation. Fifty percent of income, as defined in article 3 number 40 of the Tax Act as amended in 2008, was exempt from income tax.
Dividends and taxable capital gains from the sale of investments were taxed at only half the rate of income tax and. Profits from the sale of equity investments were not taxable if they were held for over a year.
The half revenue procedure was moot as of 1 January 2009 with the passage of the new Abgeltungsteuer.
Who is liable
The taxation at the level of a shareholder depends on whether the shareholder is an individual or a corporation:Amount of withholding tax
The Abgeltungsteuer 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. This makes a total of Abgeltungsteuer 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. However actually there are several decisions in court to rule on that restricted deduction possibility.
What is taxable
Taxable current income
Among the investment income are :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 :Exemptions from the tax deduction
The rules for the Abgeltungsteuer do not apply for the following:Alternatives
Investment income upon which flat rate tax was withheld do not have to be declared in the annual income tax return. Only if church tax has not been withheld or the personal income tax rate is below 25%. A tax refund on the difference between the tax rates is possible. 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:Foreign investment income
Investment income that was generated abroad also falls under the Abgeltungsteuer. 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 Abgeltungsteuer 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. 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.Advantages and disadvantages
- Taxpayers with middle and higher income who mainly receive income from capital gains have usually an advantage from this new method of taxation. The reason is the low flat rate of 25% instead of being taxed with the personal income tax rate. In Germany the highest personal income tax rate is 45%. Taxpayers with a small income have no disadvantage because of the alternative of being taxed with their personal income tax rate. The lowest income tax rate starts at 14%.
- Another advantage or disadvantage depending on the view is the taxation of the sale of capital gains. Equity and investments funds are getting more unattractive through this kind of taxation. That only counts for new investments that were bought from 1 January 2009 on. All shares that were bought before that date do not fall under the new Abgeltungsteuer and are tax free when they were held more than 12 months.
- The flat rate tax rate of 25% is significantly lower than the highest income tax rate. Advantages only apply for investors whose marginal tax rate on the remaining income is equal or higher than the flat tax rate. There might be a breach of the principle of taxation based upon the competitiveness of the taxpayers. Before 2009 gains from capital income were taxed with 45% and from 2009 on are taxed with 25% plus 5.5% solidarity surcharge and church tax. That is the same for taxpayers with a personal income tax rate of 27%.
- The Abgeltungsteuer on capital gains leads to different taxation in comparison to the other income taxes that are based upon the personal tax rate.