- What is Kapitalertragsteuer?
- When is capital gains tax due?
- How much is capital gains tax?
- How do I pay capital gains tax?
- Abgeltungsteuer vs. Kapitalertragsteuer
- How high is the tax-free amount?
- When should I file the KAP annex?
- What was the interest income tax?
- Capital gains tax & holding companies
- Want to know more about taxation?
Kapitalertragsteuer (capital gains tax) – KESt for short – is an income tax on capital income. Kapital (capital) is mainly investments in securities and company shares. Anyone who owns savings, shares or fixed-interest securities, including in the form of investment funds, or who owns shares in a company, must pay capital gains tax on the income from these assets. This applies not only to Zinsen (interest) and Dividenden (dividends) but also to Veräußerungsgewinne (capital gains) and Kursgewinne (capital appreciation).
The following table answers some basic questions about capital gains tax.
|Who pays capital gains tax?
|Natural persons (e.g., shareholders) must pay capital gains tax. The capital gains of companies and other legal entities are only subject to corporate income tax.
|When is payment made & to whom?
|The paying agent pays the capital gains tax directly to the Finanzamt (tax office) when capital income accrues. Capital income is thus taxed at source. This is why the tax type is called withholding tax.
|Who may withhold the capital gains tax?
|How can you claim back capital gains tax?
|If, for example, you have paid too much capital gains tax because your tax rate is below 25 or you have not issued an exemption order, you can claim this on your income tax return.
|How do you calculate capital gains tax?
|25 % Kapitalertragsteuer capital gains tax
+ 1.38% Solidaritätszuschlag (solidarity surcharge)
+ 2% or 2.25% with 8% or 9% Kirchensteuer (church tax)
This results in three different tax rates:
|How do you account for capital gains tax?
|You post per capital gains tax to the bank. The account for Kapitalertragsteuer (capital gains tax) has the number 2213 in SKR 03 and the number 7603 in SKR 04.
|Where can you declare the capital gains tax?
|You do this in your income tax return unless the capital gains tax has already been fully settled by the deduction at source.
|Wo in ELSTER bzw. den Steuerunterlagen müssen Sie die Kapitalertragsteuer eintragen?
|You declare capital income in the KAP annex to your tax return. If your capital gains tax has already been settled, you do not need to complete this annex. Some cases in which you still have to declare the capital gains tax are discussed below.
Capital gains tax is always due when you receive income from your investments – at the time that income is distributed.
Capital income subject to capital gains tax
- Dividends and profit distributions by corporations
- Interest and similar income paid by banks
- Interest from fixed-interest securities
- Distributions from investment companies, even if these are reinvested: So-called thesaurierende Fonds (accumulating funds)
- Profit distributions from typisch stillen Beteiligungen (typical silent partnerships)
- Certain life insurance contracts
- Gains from forward transactions
- Profits from the sale of securities or other financial products
- Accrued interest incurred on the sale of fixed-income securities
Capital income on which no capital gains tax is payable
- Income from private and business loans (loans from non-banks)
- Interest from mortgages and land charges
- Income from foreign accumulating funds (since no money flows, a tax deduction by a German credit institution is not possible)
- Income from endowment life insurance policies concluded before 1 January 2005 (so-called old policies) with a policy term of at least twelve years
Important: The above income must still be declared in the KAP annex to the income tax return. They are still components of income that must be taxed.
Other important types of tax for entrepreneurs:
Capital gains tax is levied at a flat rate of 25% on all investment income. In addition, there is a solidarity surcharge of 5.5% and, depending on the federal state, eight or 9% church tax, which is added to the amount of capital gains tax.
How to calculate capital gains tax
Assuming you have a capital gain of €300 and are subject to church tax in North Rhine-Westphalia, your bank will calculate the capital gains tax as follows:
Capital gains tax
|5.5% of 25% = 1.38
|9% of 25% = 2.25%
|Capital gains tax liability incl. surcharges
Tip: If you have found different calculations on the internet: The KESt was standardised in 2009 and its calculation was simplified. Previously, different tax rates were applied to the different types of capital income.
Capital gains tax is a Quellensteuer (withholding tax). This means that it is deducted directly by the paying agent at the time of distribution and passed on to the tax authorities. In many cases, the paying agent is a bank or insurance company. At the end of the year, they will send you a statement showing your investment income and the withholding tax paid on it.
The Kapitalertragsteuer (capital gains tax) is also referred to as the Abgeltungsteuer (final withholding tax) because the income tax on capital income is deemed to have been paid by deducting the capital gains tax at source (§ 43 para. 5 EStG). However, the two terms are not entirely synonymous. The Abgeltungsteuer (final withholding tax) was only introduced in Germany in 2009. Since then, domestic investment income no longer needs to be declared in the income tax return, as it is already settled by deducting withholding tax.
This deduction of the final withholding tax directly by the paying institution results in the so-called Abgeltungswirkung. This means that the taxpayer no longer has to pay the Kapitalertragsteuer (capital gains tax) on domestic investment income (with a few exceptions).
Capital gains are tax-free up to a certain amount. The tax-free amount on capital gains tax is also known as the Sparerpauschbetrag (savers’ lump-sum allowance). For single persons it amounts to €801 per year, for married persons it is twice that amount, i.e. €1,602 per year.
If you have not issued any exemption orders, you can reclaim the excess capital gains tax paid from the tax office by completing the KAP annex to your income tax return. You enclose the Steuerbescheinigung (tax certificate) from your bank with the return.
Freistellungsauftrag: Consider issuing an exemption order
To save or at least ease the effort of filing the KAP annex, it is best to give your bank a Freistellungsauftrag (exemption order). Your bank will provide you with a form for this purpose. You can also split the exemption order between different institutions. For example, you give an exemption order for €200 to the bank where you have savings, and in parallel give an exemption order for €500 to the bank that manages your securities account, and so on.
Nichtveranlagungsbescheinigung: When to get a non-assessment certificate
People with no or low income have another option: They can get a Nichtveranlagungsbescheinigung (non-assessment certificate) from their local Finanzamt (tax office). This is where the tax office certifies that you (as a natural or legal person) are unlikely to be liable for income tax. As capital gains tax is an income tax, if you do not pay income tax, you do not have to pay capital gains tax.
You present the non-assessment certificate to the paying agent, who will then waive the withholding of KESt.
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If the Abgeltungsteuer (final withholding tax) paid at the source is not equal to the amount you should have paid in capital gains tax, then file the KAP annex with your income tax return.
Too much or too little capital gains tax paid?
You have paid too little capital gains tax if you have:
- Have earned income from foreign investments
- Have received interest income from personal loans
- Have not paid church tax because the tax office did not know your religious affiliation
- Have not issued any or insufficient Freistellungsaufträge (exemption orders)
You have paid too much capital gains tax if:
- your marginal income tax rate is below 25%; and
- you have not submitted a Nichtveranlagungsbescheinigung (non-assessment certificate).
How to fill in the KAP annex correctly
You enter the details for your capital gains tax in the KAP annex as follows:
|Kapitalerträge mit einbehaltener Kapitalertragsteuer
Investment income with withheld capital gains tax
|Domestic investment income for which the Abgeltungssteuer (final withholding tax) was withheld
|Angaben zum Sparerpauschbetrag
Details of the saver’s lump sum
|For singles, it’s €801, and for married couples €1,602.
|Kapitalerträge ohne Steuerabzug
Capital gains without tax deduction
|Income on which no Abgeltungsteuer (final withholding tax) has been withheld, such as Zinsen (interest) on personal loans, interest & capital gains on foreign loans.
|Kapitalerträge mit persönlichem Steuersatz
Investment income with personal tax rate
|Interest income from stille Gesellschaften (silent partnerships) & partial loans as well as (if applied for) income from the participation in a corporation. These are taxed at the personal tax rate using the Teileinkünfteverfahren (partial income procedure).
|Erträge aus Beteiligungen
Income from participating interests
|Investment income as a participant in a legal group, e.g. an Erbengemeinschaft (literally translates to ‘community of heirs’ – a group of people who have joint ownership of an estate).
Taxes to be imputed
|Domestic and foreign taxes withheld by banks
The Zinsbescheinigungen (interest certificates) of the banks must be submitted together with the tax return.
Günstigerprüfung: Favourable tax treatment
If you are on a low income, the tax authorities will give you a Günstigerprüfung (favourable tax assessment). This means that the tax on capital gains is not calculated using the Abgeltungstarif (flat-rate tax), but using your individual tax rate if this is lower than the capital gains tax rate. You will know that you have received a favourable tax assessment if the capital gains are included in the calculation of taxable income in the tax assessment.
Tip: In this case, you can claim withheld Kirchensteuer (church tax) as Sonderausgaben (extraordinary expenses). Enter it in line 42 of the main form.
Before 1 January 2009, that is before the Abgeltungsteuer (final withholding tax) was introduced, investment income taxation in Germany was far more complicated. For income received before 31 December 2008, the withholding tax was between 10 and 35% plus the Solidaritätszuschlag (solidarity surcharge), depending on the type of investment income. For interest income, the so-called Zinsabschlagsteuer (interest income tax) of 30% was applied. Today, this tax is part of the final withholding tax.
Bei einem organisatorischen Unternehmensstruktur aus Mutter- und Tochtergesellschaften gelten besondere Regeln bei der Kapitalertragsteuer.
Does capital gains tax also apply to a pure holding company?
Yes, this is generally the case. However, if the Muttergesellschaft (parent owns) at least 10% of the Beteiligungsgesellschaft (investment company), a capital gains refund can be claimed on the Jahressteuererklärung (annual return), as explained below.
Does the parent company of a holding company have to pay capital gains tax on the distributions?
In the case of holding companies, 95% of distributions are tax-free. However, the distributing subsidiary must withhold 25% capital gains tax and pay it to the tax authorities. It can then claim a refund from the tax authorities in the following year’s annual tax return. The subsidiary can avoid this by applying for a Freistellungsbescheinigung (exemption certificate).
This procedure is subject to two conditions:
- The parent company (holding) must hold at least 10% of the subsidiary.
- The holding company must have the Unternehmenszweck (company purpose) of “Erwerben, Halten und Verwalten von Beteiligungen” (acquiring, holding and managing investments). If it also generates other income, it is not eligible for an exemption certificate.
How does the apportionment of KESt work for second-tier subsidiaries?
Suppose a holding company has a subsidiary A, which in turn has a subsidiary B (grandchildren), then the holding company is an indirect shareholder of B. In this case, the current legal situation is as follows: Interest on a loan from an “indirect shareholder” to a corporation may be subject to a final withholding tax of 25% if the creditor of the interest income is not a related person with a controlling influence over the company. This is the conclusion reached by the BFH (federal court of finance) in its decision of 20 October 2016.
However, if the lender holding company has a stake in B’s parent company that enables it to exercise its will at the shareholders’ meeting, then there is sufficient proximity to the sub-subsidiary to treat the capital gains tax as in the case of a direct holding company.
Does capital gains tax also have to be paid on the shareholders’ undistributed pro-rata profits?
The BMF (federal ministry of finance) explains this in a communication:
„Zu den Einkünften aus Kapitalvermögen aufgrund einer Beteiligung an einem Handelsgewerbe als stiller Gesellschafter gehört der dem stillen Gesellschafter zugewiesene Gewinn oder der unter Berücksichtigung der §§ 15a, 15b EStG zuzurechnende Verlust. Wird dem stillen Gesellschafter im Rahmen der Auseinandersetzung sein Guthaben zugewiesen, werden bei der Ermittlung des Gewinns i. S. des § 20 Absatz 4 EStG die als laufende Einkünfte berücksichtigten Gewinn- oder Verlustanteile, die das Auseinandersetzungsguthaben erhöht oder gemindert haben, vom Gewinn abgerechnet oder dem Gewinn hinzugerechnet.“
“Income from capital assets based on a participating interest in a commercial enterprise as a silent partner includes the profit allocated to the silent partner or the loss to be allocated taking into account §§ 15a, 15b EStG. If the silent partner is allocated his credit balance within the framework of the settlement, the profit or loss shares taken into account as current income, which has increased or reduced the settlement credit balance, shall be deducted from the profit or added to the profit when determining the profit within the meaning of section 20(4) EStG.”
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- Capital gains tax is a special form of income tax.
- It is levied on domestic investment income at a flat rate of 25% In addition, there is a 5.5% solidarity surcharge and, depending on the federal state, 8 or 9% church tax, both of which are based on the amount of capital gains tax.
- Since capital gains tax is a withholding tax, it is levied directly at the source. This is usually your bank. It pays the capital gains tax directly to the tax authorities. It is then settled, hence the term “final withholding tax”.
- Some investment income, such as foreign dividends or interest on private loans, is not settled in this way and must therefore be declared in the KAP annex to the income tax return.
- Low-income earners should also use the KAP schedule to pay tax on investment income at the more favourable, individual tax rate.
- You can also claim the saver’s allowance or the capital gains tax allowance in your annual tax return – or you can give your bank an exemption order so that the allowance is taken into account at the source.
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