GERMANY Law and Practice Contributed by: Amos Veith, Jens Steinmüller, Ronald Buge and Stephan Schade, POELLATH
applicable. Equity capital gains of shareholdings representing an indirect interest of 1% or more are subject to German income tax levied at the marginal tax rate, but 40% of such capital gains are exempt from income tax. Non-resident retail individual investors A non-resident retail individual investor’s allo - cable share of interest (other than profit-linked), dividends from non-German portfolio compa - nies, capital gains relating to debt instruments and equity capital gains aside from sharehold - ings in German portfolio companies represent - ing an indirect interest of less than 1% are not subject to German income tax. Equity capital gains of shareholdings in German portfolio companies representing an indirect interest of 1% or more are subject to German income tax at the marginal tax rate, but 40% is exempt from income tax. Tax will be levied by way of assessment, based upon a German tax return to be filed by the non-resident retail individual investor. Such German tax-paying obligation does not apply to non-resident retail individual investors who are entitled to tax treaty benefits. A non-resident retail individual investor’s allo - cable share of dividends from German portfolio companies is subject to German withholding tax at the rate of approximately 26.4%, and inves - tors who are entitled to tax treaty benefits can file an application with the German federal tax office for a refund of the excess of the German withholding tax over the amount permitted under the applicable tax treaty. Domestic funds eligible for trading treatment Resident retail individual investors Generally, a resident retail individual investor’s allocable share of income from a domestic trad -
ing fund partnership is subject to its personal income tax rate plus solidarity surcharge there - on. However, 40% of dividends and capital gains of shareholdings are exempt from tax (so-called partial income taxation). While a trading fund partnership is subject to trade tax at its own level (see 2.6 Tax Regime ) there is no additional trade tax at the level of resident retail individual investors. Rather, resident retail individual inves - tors are entitled to a tax credit of their allocable share of the trade tax paid by the partnership. However, this mitigates but does not eliminate the trade tax burden. Non-resident retail individual investors In case of a domestic trading fund partner - ship, the taxation of a non-resident retail indi - vidual investor is identical to the taxation of a resident retail investor. Non-resident retail indi - vidual investors must file a German tax return. Treaty benefits are not available to non-resident individual investors of a domestic trading fund partnership. Non-German funds Resident retail individual investors As set forth in 2.6 Tax Regime , non-German funds are typically trading from a German tax perspective. Accordingly, a resident retail indi - vidual investor’s allocable share of a non-Ger - man fund’s taxable profits is subject to German income tax as follows: 60% of equity capital gains and dividends, and the full amount of interest is subject to German income tax at the marginal tax rate. Non-resident retail individual investors While non-German funds are typically trading from a German tax perspective, they typically do not operate a German permanent establish - ment to which their income would be attribut - able. Accordingly, a non-resident retail individual
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