Paying Taxes in Germany

[Arthur 32]

@Christof+ @urfiend @mustafaoe @Marco and others

Hallo zusammen

In this topic I would like to discuss the peculiarities of paying taxes in Germany.

The German tax system is different from the US as in GER only the realized gains are taxed – and there is no Wash-Sale Rule, as far as I know. Gain from options trading are taxed at 26.375% (plus "church tax"). Gain from stocks are also taxed at 26.375%, but are treated separately from options, so it's not possible to offset gains from options with losses from stocks. I haven't traded stocks in my account, however I still have stocks gains due to an assignment.

Forex gains are taxed at the personal tax rate, if I am not mistaken.

I currently use IB, but I am thinking about switching over to Tradier. So here are some thoughts/questions I have:

1) IB offers a "realized gains" report which shows the gains grouped into 3 categories: stocks / options / forex. Do you use this report for your tax declaration?

2) What is your experience with forex gains? My base currency in IB is EUR, but I trade options in USD. Apparently, every time I buy or sell an options, I realize forex gains/ losses. So, in my case IB shows realized forex gains (over EUR 1000 in 2018), even though I haven't actively traded EUR/USD. The forex gains will be taxed at my personal tax rate, correct?

3) Does Tradier offer a similar "realized gains" report?

You can also answer in German, if others don't mind

[Christof+ 274]

@Arthur, you like tough topics it seems.

 

1) Take this with a grain of salt,  I am not an expert in this area (and correct me if you find out I am wrong). This is the essence of my own research and of several talks with my tax advisor: The problem with the realized gains report is that it first determines the USD P/L from the round turn (opening and closing) and then translates this gain into EUR using the FX rate of the closing trade date. This is not what you need for your German tax return. This is EUR cash flow based, i.e., you need to translate each USD trade into EUR on the day of the trade with the respective exchange rate, and then determine your P/L from the resulting EUR amounts (for that it does not matter based on what exact section of §20 EStG makes your particular trade qualify as Einkünfte aus Kapitalvermögen). The realized gains report is of no help with that.

 

Unfortunately, there is no standard reporting in IB which will give out the figures you need (Cap Trader, IB's introducing broker in Germany, is not a bit  different). You have to do that yourself. This is how I do it:  set up a flex report in your Account Management, with only the 'Trades' section activated, and set csv as output format. Import csv into excel (set your regional settings to US for the import to avoid dot and comma confusion) The resulting file will have everything you need: security type, quantity, price, multiplier and commissions. You just add a new column with the actual Cash Flow (=Ausmachende Betrag, i.e., the product of quantity x price x multiplier x FX rate, minus commissions as 'Direkte Kosten' are deductible even under Abgeltungsteuer), and sum up that column over the entire year. The resuting number is your P/L for tax purposes (at least for options. For stocks and Zertfikate you will need to add the opening trades in case they were in a previous year, for futures you only consider the closing cash settlement as there is no cash flow during opening).

 

2) accordingly, imh no need to deal with forex gains separately as they are included in 1). Only if you trade currencies directly (which would then fall under Private Veräußerungsgeschäfte, §23 EStG)

 

Some interesting resources in German:

https://www.private-banking-magazin.de/besteuerung-von-optionsgeschaefte-teil-1-so-versteuern-anleger-call-put-und-verfall-von-optionen/

https://www.private-banking-magazin.de/besteuerung-von-optionsgeschaeften-teil-2-wie-verkaeufer-versteuern-wenn-die-option-erlischt/

https://www.private-banking-magazin.de/update-besteuerung-von-optionsgeschaeften-barausgleich-ist-als-verlust-steuerlich-abzugsfaehig/

https://www.wertpapier-forum.de/topic/50122-steuererklärung-mit-interactive-brokers/#comment-1051196 (not all contributions are HQ)

Edited January 12, 2019 by Christof+

[mustafaoe 10]

22 hours ago, Arthur said:

@Christof+ @urfiend @mustafaoe @Marco and others

Hallo zusammen

In this topic I would like to discuss the peculiarities of paying taxes in Germany.

The German tax system is different from the US as in GER only the realized gains are taxed – and there is no Wash-Sale Rule, as far as I know. Gain from options trading are taxed at 26.375% (plus "church tax"). Gain from stocks are also taxed at 26.375%, but are treated separately from options, so it's not possible to offset gains from options with losses from stocks. I haven't traded stocks in my account, however I still have stocks gains due to an assignment.

Forex gains are taxed at the personal tax rate, if I am not mistaken.

I currently use IB, but I am thinking about switching over to Tradier. So here are some thoughts/questions I have:

1) IB offers a "realized gains" report which shows the gains grouped into 3 categories: stocks / options / forex. Do you use this report for your tax declaration?

2) What is your experience with forex gains? My base currency in IB is EUR, but I trade options in USD. Apparently, every time I buy or sell an options, I realize forex gains/ losses. So, in my case IB shows realized forex gains (over EUR 1000 in 2018), even though I haven't actively traded EUR/USD. The forex gains will be taxed at my personal tax rate, correct?

3) Does Tradier offer a similar "realized gains" report?

You can also answer in German, if others don't mind

I have set the base account in my IB as USD. At the beginning of the tax year you have your investment value in USD. You trade your account and at the end of the trade year you have gains or loss on your account from different trades (in USD). For the tax report I am currently using the standard IB activity report with the focus on the "realized gains" area. The USD amount of the entire gain is simply translated into EUR using the end of the year FX USD/EUR rate. I had no issues with "Finantzamt" on this issue the last years. One drawback is obviously you are exposed on USD FX risk. 

[Arthur 32]

On 1/12/2019 at 11:48 PM, Christof+ said:

@Arthur, you like tough topics it seems.

 

1) Take this with a grain of salt,  I am not an expert in this area (and correct me if you find out I am wrong). This is the essence of my own research and of several talks with my tax advisor: The problem with the realized gains report is that it first determines the USD P/L from the round turn (opening and closing) and then translates this gain into EUR using the FX rate of the closing trade date. This is not what you need for your German tax return. This is EUR cash flow based, i.e., you need to translate each USD trade into EUR on the day of the trade with the respective exchange rate, and then determine your P/L from the resulting EUR amounts (for that it does not matter based on what exact section of §20 EStG makes your particular trade qualify as Einkünfte aus Kapitalvermögen). The realized gains report is of no help with that.

 

Unfortunately, there is no standard reporting in IB which will give out the figures you need (Cap Trader, IB's introducing broker in Germany, is not a bit  different). You have to do that yourself. This is how I do it:  set up a flex report in your Account Management, with only the 'Trades' section activated, and set csv as output format. Import csv into excel (set your regional settings to US for the import to avoid dot and comma confusion) The resulting file will have everything you need: security type, quantity, price, multiplier and commissions. You just add a new column with the actual Cash Flow (=Ausmachende Betrag, i.e., the product of quantity x price x multiplier x FX rate, minus commissions as 'Direkte Kosten' are deductible even under Abgeltungsteuer), and sum up that column over the entire year. The resuting number is your P/L for tax purposes (at least for options. For stocks and Zertfikate you will need to add the opening trades in case they were in a previous year, for futures you only consider the closing cash settlement as there is no cash flow during opening).

 

2) accordingly, imh no need to deal with forex gains separately as they are included in 1). Only if you trade currencies directly (which would then fall under Private Veräußerungsgeschäfte, §23 EStG)

 

Some interesting resources in German:

https://www.private-banking-magazin.de/besteuerung-von-optionsgeschaefte-teil-1-so-versteuern-anleger-call-put-und-verfall-von-optionen/

https://www.private-banking-magazin.de/besteuerung-von-optionsgeschaeften-teil-2-wie-verkaeufer-versteuern-wenn-die-option-erlischt/

https://www.private-banking-magazin.de/update-besteuerung-von-optionsgeschaeften-barausgleich-ist-als-verlust-steuerlich-abzugsfaehig/

https://www.wertpapier-forum.de/topic/50122-steuererklärung-mit-interactive-brokers/#comment-1051196 (not all contributions are HQ)

@Christof+ If you don't mind, can you attach an excel spreadsheet with an example? I am not sure if I got the correct IB flex report and if my calculations in the last column are correct...

[Christof+ 274]

@Arthur This is how I calculate it using the flex report for an options writing trade as an example (opening and closing).   

IB German Tax.xlsx

[Arthur 32]

@Christof+ Thanks a lot, much appreciated.

Just one more question: in my flex report I don't have the columns "Open/Close" and "FX rate" (I think IB doesn't know if a trade is opened or closed anyway, right?).

So, do you add those two columns manually? It should be doable to manually add the EUR/USD exchange rate for each day, but deciding for each trade whether it's an "open" or "close" sounds like an impossible task - my 2018 table has thousands of rows...

[Christof+ 274]

@Arthur You can to configure the columns of the flex report to carry 'O'/'C' and 'Buy'/'Sell', as well as to include the exchange rate of the trade date. This is what I get delivered:

 

"Uxx","OPT","ADBE  180119C00185000","ADBE 19JAN18 185.0 C","ADBE","2018-01-19","185","C","100","2017-12-15","10:27:28","PHLX","O","SELL","-1","1.7","-0.797427","P","USD","0.85077","0","0","0"

 

 

[Arthur 32]

Dear German option traders, we have to talk about 2021.

Changes to the German income tax law, which go into effect in January 2021, make options trading basically unprofitable/pointless (at least for private traders).

The main change is that, while gains are still fully taxed, losses can be deducted only up to 10,000 EUR per year in total (!).

Example: you've made a calendar trade which ended up with 0% profit (one leg gained 30,000 EUR and the other lost 30,000 EUR). Since losses are deductible only up to 10,000, you will have to pay taxes on a 30,000-10,000=20,000 EUR gain! Oh, and you've already used all your annual “loss pool”, so with your next spread trade you won't be able to deduct any loss...

What are the solutions?

a) Founding a trading company (GmbH or UG)?

b) Founding a family foundation (Familienstiftung)?

c) Emigration?

Any thoughts/suggestions? I am lost...

https://boerse.ard.de/anlagestrategie/steuern/verlustverrechnung-fuer-termingeschaefte-wird-erschwert100.html

[Yowster 9,180]

2 hours ago, Arthur said:

Dear German option traders, we have to talk about 2021.

Changes to the German income tax law, which go into effect in January 2021, make options trading basically unprofitable/pointless (at least for private traders).

The main change is that, while gains are still fully taxed, losses can be deducted only up to 10,000 EUR per year in total (!).

Example: you've made a calendar trade which ended up with 0% profit (one leg gained 30,000 EUR and the other lost 30,000 EUR). Since losses are deductible only up to 10,000, you will have to pay taxes on a 30,000-10,000=20,000 EUR gain! Oh, and you've already used all your annual “loss pool”, so with your next spread trade you won't be able to deduct any loss...

What are the solutions?

a) Founding a trading company (GmbH or UG)?

b) Founding a family foundation (Familienstiftung)?

c) Emigration?

Any thoughts/suggestions? I am lost...

https://boerse.ard.de/anlagestrategie/steuern/verlustverrechnung-fuer-termingeschaefte-wird-erschwert100.html

I'm not a German tax law expert.... but we have a similar captial gain loss limit in USA.    But, unlike the example you citied, it's not on a individual trade-by-trade basis - it's based on end of year totals.    So, for example, in a given year if your stock & options trade result in a overall profit then those gains are taxed as ordinary income.   However, if your stock & options trades show an overall loss you are only able to use a certain amout to offset other income with any additional losses carried forward to use in future years.   So, I'd get some clarification to see if those loss limits apply to only the end of year totals or if they would apply to individual trades.

[Javier 99]

 

On 1/12/2019 at 8:21 PM, Arthur said:

@Christof+ @urfiend @mustafaoe @Marco and others

Hallo zusammen

In this topic I would like to discuss the peculiarities of paying taxes in Germany.

The German tax system is different from the US as in GER only the realized gains are taxed – and there is no Wash-Sale Rule, as far as I know. Gain from options trading are taxed at 26.375% (plus "church tax"). Gain from stocks are also taxed at 26.375%, but are treated separately from options, so it's not possible to offset gains from options with losses from stocks. I haven't traded stocks in my account, however I still have stocks gains due to an assignment.

Forex gains are taxed at the personal tax rate, if I am not mistaken.

I currently use IB, but I am thinking about switching over to Tradier. So here are some thoughts/questions I have:

1) IB offers a "realized gains" report which shows the gains grouped into 3 categories: stocks / options / forex. Do you use this report for your tax declaration?

2) What is your experience with forex gains? My base currency in IB is EUR, but I trade options in USD. Apparently, every time I buy or sell an options, I realize forex gains/ losses. So, in my case IB shows realized forex gains (over EUR 1000 in 2018), even though I haven't actively traded EUR/USD. The forex gains will be taxed at my personal tax rate, correct?

3) Does Tradier offer a similar "realized gains" report?

You can also answer in German, if others don't mind

 

What you mention is a common trouble for many Europeans Countries. Our tax Systems are possibly copied from each other.

As I understand how IB works, my view of your questions is:

1) Yes, I take the bottom line from the realized P/L detail report for tax purposes.

2) When You set up a new account in IB transferring Euros, they show up part of the transferred amount in US dollars at the exchange rate of the moment and show the rest in Euros (but actually they converted in USD).
When You settle your account in EUR (after one day) in the management section, any transaction is converted to US dollars at the exchange conversion of the trade moment, buy and sell separately (beg to differ with Christoph), so no forex gains are generated for this concept. 
Forex gains/losses come of the part of your account initially set up in Euros. They actually show this part in Euros but actually keep your money in USD.

3) Not at all, You only get raw data from Tradier (through Apex Clearing) and you have to parse them yourself.

If you think I am wrong, please let me know.

 

[Arthur 32]

On 3/30/2020 at 12:22 AM, Arthur said:

Dear German option traders, we have to talk about 2021.

Changes to the German income tax law, which go into effect in January 2021, make options trading basically unprofitable/pointless (at least for private traders).

The main change is that, while gains are still fully taxed, losses can be deducted only up to 10,000 EUR per year in total (!).

Example: you've made a calendar trade which ended up with 0% profit (one leg gained 30,000 EUR and the other lost 30,000 EUR). Since losses are deductible only up to 10,000, you will have to pay taxes on a 30,000-10,000=20,000 EUR gain! Oh, and you've already used all your annual “loss pool”, so with your next spread trade you won't be able to deduct any loss...

What are the solutions?

a) Founding a trading company (GmbH or UG)?

b) Founding a family foundation (Familienstiftung)?

c) Emigration?

Any thoughts/suggestions? I am lost...

https://boerse.ard.de/anlagestrategie/steuern/verlustverrechnung-fuer-termingeschaefte-wird-erschwert100.html

 

@Christof+ @urfiend @mustafaoe @equus @rigulator @Bernie @Daniel S @nitsuj Any thoughts?

[urfiend 8]

My tax consultant already is setting up a real estate holding and a family foundation.

The latter has several advantages in deferring taxes and holding wealth within the family.

Some of those topics are discussed in "Reicher als die Geissens" by Alex Fischer which you will find as a free videocast on youtube

https://www.youtube.com/playlist?list=PL0n72FNtnkfSzjTz6h4hVOvrBcPGEzPZC

Emigration to e.g. Dubai or the Caimans is always an alternative if you have enough ressources ;-).

Edited April 2, 2020 by urfiend
typo

[Daniel S 17]

I asked a friend of mine who is a partner at a tax firm. They have already sent a written inquiry to the ministry of finance asking for clarification. His position is that this rule is unfair and he is not even sure it it will uphold since it violates some basic principles (in his view, I should say). This change has stirred up quite a lot of commotion. For example some brokers are afraid they have to close their German branches.

It does not have to be said that due to Covid 19 there is little chance to receive any update on this front. I would not even estimate anything to be done within this year. 

Ways out of it: 

1) Start trading professionally in a separate corporate entity. The problem is that you will end up paying more taxes compared to know as far as I understand it. You pay corporate tax on your earnings and then pay capital gains tax if you pay those earnings out (to yourself) or you pay yourself an income and the money gets taxed with income tax. Both have higher tax loads than the regular capital gains tax you pay now.

2) Create an offshore entity. One of the easiest ways seem to create an LLC, for example in Florida. As long as it is considered tax transparent the earnings will be reported by the owners and they are being taxed. It is key that the German tax authorities consider this entity also as a partnership („Personengesellschaft“) and not as a corporation („Kapitalgesellschaft“). Otherwise you are being taxed twice.

3) Wait and see. Maybe they will change something, maybe it gets sacked by the courts. 

[mimi 41]

@Christof+ @urfiend @mustafaoe @equus @rigulator @Bernie @Daniel S @nitsuj @Arthur

Now that 2021 with the new taxation law (ok, changed to 20kEUR, as if that would change things ...) is a little bit older: How do you take care of that situation?

[Christof+ 274]

@mimi after accepting the deeply annoying fact that all hoping did not help and we actually will have to live with this imho least thought through tax law with the most ridiculous explanatory statement ever done in Germany, and being aware of the high likelilhood that we will see more of that kind of 'small investor bashing' in the future, since the prime father of this glorious regulation will most probably be moving over to the chancellor's office soon, I decided to try future proofing all my trading and investment activity with establishing a dedicated GmbH for it.
That decision got another push by the indiction that the 25% flat tax on investment returns will be disestablished in favor of taxing capital gains with your personal income tax rate.

Though times for people who accept personal responsibility for their old age provision instead of relying sheep-like on a shabby state run system and Riester-stuff. 

[mimi 41]

@Christof+ I still want to be optimistic, that this law will be corrected at some point in time. But neither does this help now nor will this prevent further attempts to get "little peoples money". And the flat tax for investment returns is surely the next attempt. The dedicated GmbH is perhaps the most consequent step. I'd still like to avoid the effort and costs of it. On the other hand, the low taxation of money within the company has its benefits 🙂

[rigulator 32]

On 9/21/2021 at 4:39 PM, mimi said:

@Christof+ @urfiend @mustafaoe @equus @rigulator @Bernie @Daniel S @nitsuj @Arthur

Now that 2021 with the new taxation law (ok, changed to 20kEUR, as if that would change things ...) is a little bit older: How do you take care of that situation?

I'm going abroad, not only because of taxation but also because of a clear political shift to intolerant socialism in Germany. You' ll propably have noticed;-). I don't want to get to political here, as it's a forum here that should kept free from political division, although I believe that probably most SO users agree polically.

We're heading to Romania in the text months. 10% flat tax and quite good awareness of the suffering from socialism...