Tax in Germany on ETF, government bonds, stocks

Question

I've heard Germany tax rate on ETF capital gains and dividends is Kapitalertragsteuer + Solidaritätszuschlag = 26.375% (assuming you don't want to pay church tax also)

Is this tax rate the same on:

1. government bonds capital gains and coupons (i.e. German Bunds, US Treasury, other EU govies)?
2. ETF that own government bonds only?
3. German stocks?
4. US stocks?

If not, what are the tax rates for the listed items?

Answer 1

AFAIK, the Kapitalertragsteuer doesn't distinguish different types of capital gains, so, yes, all the same.

• That being said, there may be differences with ETFs (you may have to pay withholdings on the capital gains tax if the capital gains are automaticaly reinvested)
• If your marginal tax rate is below those 26.357 %, you can ask the tax office in your income tax declaration to tax the capital gains in your normal progressive tariff.

Answer 2

The German capital gains tax is flat for all kinds of capital gains. Capital gains are just one kind of income that you might have, besides other kinds of income such as employment, trade, forestry, and so on. However, the flat capital gains tax replaces the progressive income tax. Capital gains tax is usually due when value gains are realized, e.g. by selling a security, or through dividend payments, interest payments, or when a bond matures.

But there are differences in how, when, and where the tax is due.

• If you invest into an UCITS fund (and some other fund types), you are shielded from dealing with the taxes regarding securities that you own indirectly through the fund. However, you must pay a part of the taxes on your capital gains up front (Vorabpauschale). Due to this advance taxation, accumulating funds (thesaurierend) result in similar tax payments to distributing funds (ausschüttend). The advance tax is reduced for funds that mostly hold stocks, but in the end the total tax will always add up to the same percentage.

• Various retirement plans may use an investment fund, but have significant taxation differences – mostly that you don't have to pay income tax and then invest, but that a monthly investment amount can be deducted before income tax. Instead, later income from the plan will be treated as normal income, not as capital gains. This has a number of positive effects:

  1. Your taxable income is reduced while investing.
  2. You can invest more, which means higher absolute returns.
  3. No advance capital gains tax depresses your effective returns.
  4. Your taxable income during retirement is usually lower, so you save on income tax throughout your lifetime.

  Depending on your investment goals, these tax changes can give an investment fund backed retirement plan a performance boost compared to normal funds. Relevant keywords: Rürup-Rente, Riester-Rente, betriebliche Altersvorsorge.

• If you hold foreign stock, you must pay capital gains tax in the source country according to the local rules. You must also pay the German capital gains tax, unless there is a tax agreement with that country. The foreign tax payment can often be used as a tax credit, so that you effectively end up paying the higher of either capital gains tax.

  Holding foreign stock directly is entirely possible but involves extra taxation paperwork. Different brokers assist to a different degree. For most investors, it is better to get exposure to foreign stocks by buying an appropriate UCITS fund.