Capital Gains Tax (Kapitalertragsteuer)
To ensure the tax claim, it is withheld as a source tax directly at the point where the capital gains are paid out (for example a bank, insurance company or corporation) for the creditor’s calculation of capital gains (shareholder, partner, investor) and paid to the tax office.
Basis for taxation
Tax is applied to gross profit from capital investments such as interests but also to dividends from share corporations as well as open and hidden distributions of profit from GmbHs.
Rate of tax
Generally, capital gains tax is 25 percent. Only in a few exceptional cases is a different capital gains tax rate applied. The solidarity surcharge is applied in addition to the capital gains tax.
Reporting and payment to the tax office
Unlike “normal“ income tax, capital gains tax exists from the point in time when the capital gains are paid, and not only at the end of the calendar year.
The entity paying out the capital gains withholds the tax for the recipient of the capital gains and pays this to the tax office.
If the capital gains are covered by regulations regarding definitive flat-rate tax on capital gains (Abgeltungssteuer), which is a source tax on capital gains, then the recipient of the capital gains generally need not submit a return as part of his income tax assessment.
However, there is the option to apply for a special assessment. This makes sense primarily if exempted amounts have not fully been made use of or if it is possible to deduct foreign source tax or, if the personal tax rate is less than 25 percent.
Capital gains not covered by the definitive flat-rate tax, as well as capital gains for which the above-mentioned special assessment has been requested, will be considered as income along with the normal income tax or corporate tax assessment. Previously withheld capital gains tax will be calculated against the payable income tax or corporate tax.
Special handling in cases of double taxation agreements and EU cases
In cases of payments of capital gains or distributions from German companies to persons and companies based in other countries, there are various special issues. For example, a signed double taxation agreement or the EU Parent/Subsidiary Regulation may limit the withholding of German capital gains tax.
To do this, a company located in another country must however apply for an exemption from the Central Federal Tax Office (Bundeszentralamt für Steuern), so that the German company may distance itself from the deduction of capital gains tax when capital gains are paid out. Only when there is an exemption certificate, may the German company omit the withholding of capital gains tax.
However, in cases with double taxation agreements or which are subject to the EU Parent/Subsidiary Regulation, where capital gains tax has already been withheld in Germany, the foreign recipient of the capital gains may make an application to the Central Federal Tax Office (Bundeszentralamt für Steuern) for the German source taxes to be refunded.