Risk of Ruin by taxation - check your destination country's tax rules for options

equus · March 27, 2023

A little cautionary tale to those who might at some point be considering to move to another country and continue trading options - be sure to check the tax rules for options trading before you make the move, even if the country is well regarded.

Last year I made the move to Germany and became officially resident, only to find out that the tax laws had been changed a couple of years earlier to make options trading ruinously expensive. When it came time this January to file my taxes here, I discovered that I'm facing a tax bill of some several hundred percent on my trading profits from 2022, which fortunately were only modest. If it had been a good year this could have been ruinous but even so the tax is bill is still going to hurt quite a lot.

My tax advisor here (Steuerberater in German) advised me to leave the country. Another possibility apparently is to consider setting up a limited liability company (GmbH) as a vehicle through which to trade, since these regressive tax laws only apply to individuals and not companies. There is a Steadyoptions thread where these tax laws were discussed here. Here is a link to the accountants KPMG on the subject.

Edited March 27, 2023 by equus

equus · October 31, 2024

Update: it looks like the three ruling coalition parties have agreed to change the above tax law retrospectively. It seems quite a number of traders in Germany were landed with six figure capital gains tax bills on negative net profits trading options.

Best blog I found covering the issue:

As reported by the Germany Editorial Network (RND), citing coalition groups, the traffic light parties have agreed to lift the loss offsetting limit for forward transactions, retrospectively until their introduction in 2020. The abolition of the screwed-up loss offsetting should be included in the new annual tax law, which regularly regulates a large number of detailed questions and about which the loss offsetting limit had only come into tax law at the time.
https://stock3.com/news/neue-steuerregeln-ab-2021-fuer-derivate-kommt-alles-ganz-anders-8478516