The German tax system is considered one of Europe’s most stable and predictable tax systems. In this material, we will detail what taxes exist in Germany. First of all, it is worth separating the payment of taxes for businesses and individuals.
German capital gains tax (Kapitalertragsteuer). Interest, dividends on deposits, and proceeds from the sale of securities are subject to capital gains tax. Capital gains tax is withheld directly when the capital gain is credited to the source—usually a bank—and passed on to the tax authorities. The tax rate is 25%, with an additional increase for solidarity of 5.5%.
In Germany, capital gains are treated as subject to company tax and are subject to income tax. However, the income of German holdings from the purchase and sale of shares is not subject to tax if the following conditions are met:
| 1 | the holding has a 10% participation in the company |
| 2 | the shares are in the possession of the holding for at least 12 months |
The subsidiary of the holding company whose shares are transferred is an “active” company; that is, it receives income from real economic activity (as opposed to “passive” income, such as a bank loan).
After the German economy was destroyed after the war, it had to be revived. Ludwig Erhard, the German Minister of Economy, carried out a range of reforms to achieve this goal. The provisions he developed formed the basis and remain basic for the taxation system in Germany:
Following these principles allows the country to maintain a sustainable economy. And although the level of payments here is high, it is precisely this approach that helps maintain decent social security for residents.
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Abgeltungssteuer is a tax on profits from capital investments, that is, on capital gains. The word Abgeltungssteuer can be translated into Russian as “withholding tax.” How does this tax differ from the Kapitalertragsteuer?
The difference between Kapitalertragsteuer and Abgeltungssteuer lies in the type of payment. The tax rate does not change.
In Germany, the Abgeltungssteuer is automatically paid to the tax authority (Finanzamt), thereby covering the corresponding tax burden. Hence the name “withholding tax.”
Germany capital gains tax occurs as soon as taxes are no longer automatically deducted (Kapitalertragsteuer). In this case, investors are required to declare the tax themselves.
If the investment was made abroad, capital gains tax Germany (Kapitalertragsteuer) is payable and must be declared. If the income is received in Germany and is automatically paid to the tax authority (withheld by banks or financial service providers), this is Abgeltungssteuer. Typically, investors do not need to do anything additional.
German capital gains tax, known as Kapitalertragsteuer, applies to profits earned from interest, dividends, and the sale of securities. This tax is withheld by banks or financial institutions at a rate of 25%, plus an additional solidarity surcharge of 5.5%. It ensures that taxes are paid directly to the tax authorities when the capital gain is realized, simplifying the tax process for investors.
Income from interest, dividends, and proceeds from the sale of securities are subject to capital gains tax in Germany. This includes earnings from stocks, bonds, mutual funds, and savings accounts. The tax is deducted at source by banks or financial intermediaries before the proceeds are credited to the investor.
Yes, capital gains from the sale of shares are exempt from tax if certain conditions are met. The holding must have at least a 10% stake in the company and hold the shares for a minimum of 12 months. Additionally, the company whose shares are sold must derive its income primarily from active business activities rather than passive income like dividends or interest.
Abgeltungssteuer is another term for the withholding tax on capital gains in Germany. It is automatically deducted by banks or financial institutions at a fixed rate of 25%, plus a solidarity surcharge of 5.5%, and paid directly to the tax authorities. This system simplifies tax compliance for investors by ensuring taxes are settled at the source.
The key difference lies in the method of payment and administration. Kapitalertragsteuer refers to capital gains tax withheld by banks, while Abgeltungssteuer specifically denotes the withholding tax on investment income. Both taxes apply the same rate but differ in how they are collected and paid to the tax authorities.
For income earned within Germany and subject to Abgeltungssteuer, the tax is automatically deducted and paid by financial institutions. Investors typically do not need to take additional steps unless they need to declare other income sources or claim deductions. If investing abroad or under certain circumstances, investors may need to declare and pay Kapitalertragsteuer themselves.
The German tax system emphasizes fairness, minimal interference with competition, taxpayer confidentiality, and the prevention of double taxation. These principles ensure a stable and predictable environment for business and personal taxation, supporting economic growth and social security.
By applying a standardized rate for capital gains tax (25% plus 5.5% solidarity surcharge), Germany ensures equity and transparency in the taxation of investment income. This approach aims to maintain investor confidence while contributing to public revenues used for social welfare and infrastructure development.
Investors in Germany should be aware of their tax obligations regarding capital gains. While Abgeltungssteuer is automatically deducted for most domestic investments, investors must declare and pay Kapitalertragsteuer for investments abroad or under specific conditions where automatic deduction does not apply.
Germany’s capital gains tax system provides clarity and predictability, essential for investors planning their financial strategies. By understanding the tax implications of their investments, investors can make informed decisions while ensuring compliance with German tax laws.
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