Taxation of ETF Shares
Zitat von firenow am 7. November 2020, 17:56 UhrSo I have been reading on the recent investment taxation law of 2018 and I still don't understand how it will work. Can anyone explain to me like I'm five years old. I feel really dumb.
I have around $$372,000 worth of stocks in Ireland Domiciled ETFs. Only one of them distributes dividends. Total dividends distributed are around $$1900
I was reading this link https://indexfundinvestor.eu/2020/05/08/a-guide-to-investing-in-etfs-while-living-in-germany/ and it seems very complicated?
I own thee three funds and their value in start of year is in below table
EIMI (Ireland) 69,882.00 ISDW (Ireland, Dividends) 108,309.60 IWDA (Ireland) 175,625.98 Do I have to pay anything even if I don't sell these shares? I don't understand the concept of Vorabpauschale.
So I have been reading on the recent investment taxation law of 2018 and I still don't understand how it will work. Can anyone explain to me like I'm five years old. I feel really dumb.
I have around $$372,000 worth of stocks in Ireland Domiciled ETFs. Only one of them distributes dividends. Total dividends distributed are around $$1900
I was reading this link https://indexfundinvestor.eu/2020/05/08/a-guide-to-investing-in-etfs-while-living-in-germany/ and it seems very complicated?
I own thee three funds and their value in start of year is in below table
| EIMI (Ireland) | 69,882.00 |
| ISDW (Ireland, Dividends) | 108,309.60 |
| IWDA (Ireland) | 175,625.98 |
Do I have to pay anything even if I don't sell these shares? I don't understand the concept of Vorabpauschale.
Zitat von Semifrugalist am 7. November 2020, 19:13 UhrThe general concept is:
- If you own distributing funds, you have to pay taxes ("Abgeltungssteuer" + "Solidaritätszuschlag") on the dividends you get. The tax is 26.375% (25% Abgeltungssteuer plus Solidaritätszuschlag) and will be automatically deducted by your broker*. If it's below your exemption order for capital gains, it will be covered by the tax-free allowance (maximum 801 EUR per year for singles, 1,602 EUR for married couples).
- If you own accumulating funds, since 2018 you have to pay taxes on the pre-determined flat rate ("Vorabpauschale"). The calculation is a bit more difficult as it's based on a base interested rate which is set by the Federal Ministry of Finance at the beginning of each year and the value of your funds.
The calculation for the Vorabpauschale is: value of your funds x base interest rate x 0.7. The base interest rate for 2020 is for example 0.07% (in 2018 it was 0.87% and in 2019 it was 0.52%). If your accumulating fonds are worth 100,000 EUR at the beginning of the year, the Vorabpauschale would be 100,000 EUR x 0.0007 x 0.7 = 49 EUR. The Vorabpauschale is then taxed with the usual Abgeltungssteuer (plus Solidaritätszuschlag) of 26.375% and you get a partial exemption of 30% ("Teilfreistellung", which means you only pay taxes on 70% of the Vorabpauschale). In our example it would be 49 EUR * 0.7 * 0.26375 = 9.05 EUR. It will also be automatically deducted by your broker* and can be covered by the tax-free allowance.*I am not sure how it works for foreign brokers, I assume they will not automatically deduct the German taxes and you will have to add this to your yearly tax declaration.
I would advise to use some of the calculators available on the Web to calculate your taxes on the Vorabpauschale, e.g. https://www.finanzfluss.de/geldanlage/vorabpauschale-berechnen/ or https://www.justetf.com/de/etf-steuerrechner.html
Not sure if a 5 year old will understand it, but German tax laws are a bit complicated, unfortunately.
The general concept is:
- If you own distributing funds, you have to pay taxes ("Abgeltungssteuer" + "Solidaritätszuschlag") on the dividends you get. The tax is 26.375% (25% Abgeltungssteuer plus Solidaritätszuschlag) and will be automatically deducted by your broker*. If it's below your exemption order for capital gains, it will be covered by the tax-free allowance (maximum 801 EUR per year for singles, 1,602 EUR for married couples).
- If you own accumulating funds, since 2018 you have to pay taxes on the pre-determined flat rate ("Vorabpauschale"). The calculation is a bit more difficult as it's based on a base interested rate which is set by the Federal Ministry of Finance at the beginning of each year and the value of your funds.
The calculation for the Vorabpauschale is: value of your funds x base interest rate x 0.7. The base interest rate for 2020 is for example 0.07% (in 2018 it was 0.87% and in 2019 it was 0.52%). If your accumulating fonds are worth 100,000 EUR at the beginning of the year, the Vorabpauschale would be 100,000 EUR x 0.0007 x 0.7 = 49 EUR. The Vorabpauschale is then taxed with the usual Abgeltungssteuer (plus Solidaritätszuschlag) of 26.375% and you get a partial exemption of 30% ("Teilfreistellung", which means you only pay taxes on 70% of the Vorabpauschale). In our example it would be 49 EUR * 0.7 * 0.26375 = 9.05 EUR. It will also be automatically deducted by your broker* and can be covered by the tax-free allowance.
*I am not sure how it works for foreign brokers, I assume they will not automatically deduct the German taxes and you will have to add this to your yearly tax declaration.
I would advise to use some of the calculators available on the Web to calculate your taxes on the Vorabpauschale, e.g. https://www.finanzfluss.de/geldanlage/vorabpauschale-berechnen/ or https://www.justetf.com/de/etf-steuerrechner.html
Not sure if a 5 year old will understand it, but German tax laws are a bit complicated, unfortunately.
Zitat von TheWanderer am 7. November 2020, 19:57 UhrDie Berechnung ist etwas kompliziert, aber deutsche Broker führen die Steuern automatisch für dich ab. In dem Fall musst du nicht selbst rechnen, außer ggf. zur Kontrolle, und auch in der nächsten Steuererklärung idealerweise gar nichts mehr dazu angeben. Wenn dir @semifrugalist s Erklärung noch nicht ausreicht, kannst du dir folgenden ausführlichen Artikel anschauen. Mir hat er sehr geholfen das Prinzip zu verstehn: https://www.justetf.com/de/news/etf/etf-und-steuern-das-neue-investmentsteuergesetz-ab-2018.html
Die Berechnung ist etwas kompliziert, aber deutsche Broker führen die Steuern automatisch für dich ab. In dem Fall musst du nicht selbst rechnen, außer ggf. zur Kontrolle, und auch in der nächsten Steuererklärung idealerweise gar nichts mehr dazu angeben. Wenn dir @semifrugalist s Erklärung noch nicht ausreicht, kannst du dir folgenden ausführlichen Artikel anschauen. Mir hat er sehr geholfen das Prinzip zu verstehn: https://www.justetf.com/de/news/etf/etf-und-steuern-das-neue-investmentsteuergesetz-ab-2018.html
Zitat von firenow am 7. November 2020, 21:17 UhrZitat von Semifrugalist am 7. November 2020, 19:13 UhrThe general concept is:
- If you own distributing funds, you have to pay taxes ("Abgeltungssteuer" + "Solidaritätszuschlag") on the dividends you get. The tax is 26.375% (25% Abgeltungssteuer plus Solidaritätszuschlag) and will be automatically deducted by your broker*. If it's below your exemption order for capital gains, it will be covered by the tax-free allowance (maximum 801 EUR per year for singles, 1,602 EUR for married couples).
- If you own accumulating funds, since 2018 you have to pay taxes on the pre-determined flat rate ("Vorabpauschale"). The calculation is a bit more difficult as it's based on a base interested rate which is set by the Federal Ministry of Finance at the beginning of each year and the value of your funds.
The calculation for the Vorabpauschale is: value of your funds x base interest rate x 0.7. The base interest rate for 2020 is for example 0.07% (in 2018 it was 0.87% and in 2019 it was 0.52%). If your accumulating fonds are worth 100,000 EUR at the beginning of the year, the Vorabpauschale would be 100,000 EUR x 0.0007 x 0.7 = 49 EUR. The Vorabpauschale is then taxed with the usual Abgeltungssteuer (plus Solidaritätszuschlag) of 26.375% and you get a partial exemption of 30% ("Teilfreistellung", which means you only pay taxes on 70% of the Vorabpauschale). In our example it would be 49 EUR * 0.7 * 0.26375 = 9.05 EUR. It will also be automatically deducted by your broker* and can be covered by the tax-free allowance.*I am not sure how it works for foreign brokers, I assume they will not automatically deduct the German taxes and you will have to add this to your yearly tax declaration.
I would advise to use some of the calculators available on the Web to calculate your taxes on the Vorabpauschale, e.g. https://www.finanzfluss.de/geldanlage/vorabpauschale-berechnen/ or https://www.justetf.com/de/etf-steuerrechner.html
Not sure if a 5 year old will understand it, but German tax laws are a bit complicated, unfortunately.
This is gold @semifrugalist. Makes perfect sense and thank you so much for writing this up. As long as I don't sell these stocks, this increase in value is not counted against my allowed yearly income for family public health insurance right? I have about 20K increase in stocks in 2020 but I haven't sold anything.
Zitat von Semifrugalist am 7. November 2020, 19:13 UhrThe general concept is:
- If you own distributing funds, you have to pay taxes ("Abgeltungssteuer" + "Solidaritätszuschlag") on the dividends you get. The tax is 26.375% (25% Abgeltungssteuer plus Solidaritätszuschlag) and will be automatically deducted by your broker*. If it's below your exemption order for capital gains, it will be covered by the tax-free allowance (maximum 801 EUR per year for singles, 1,602 EUR for married couples).
- If you own accumulating funds, since 2018 you have to pay taxes on the pre-determined flat rate ("Vorabpauschale"). The calculation is a bit more difficult as it's based on a base interested rate which is set by the Federal Ministry of Finance at the beginning of each year and the value of your funds.
The calculation for the Vorabpauschale is: value of your funds x base interest rate x 0.7. The base interest rate for 2020 is for example 0.07% (in 2018 it was 0.87% and in 2019 it was 0.52%). If your accumulating fonds are worth 100,000 EUR at the beginning of the year, the Vorabpauschale would be 100,000 EUR x 0.0007 x 0.7 = 49 EUR. The Vorabpauschale is then taxed with the usual Abgeltungssteuer (plus Solidaritätszuschlag) of 26.375% and you get a partial exemption of 30% ("Teilfreistellung", which means you only pay taxes on 70% of the Vorabpauschale). In our example it would be 49 EUR * 0.7 * 0.26375 = 9.05 EUR. It will also be automatically deducted by your broker* and can be covered by the tax-free allowance.*I am not sure how it works for foreign brokers, I assume they will not automatically deduct the German taxes and you will have to add this to your yearly tax declaration.
I would advise to use some of the calculators available on the Web to calculate your taxes on the Vorabpauschale, e.g. https://www.finanzfluss.de/geldanlage/vorabpauschale-berechnen/ or https://www.justetf.com/de/etf-steuerrechner.html
Not sure if a 5 year old will understand it, but German tax laws are a bit complicated, unfortunately.
This is gold @semifrugalist. Makes perfect sense and thank you so much for writing this up. As long as I don't sell these stocks, this increase in value is not counted against my allowed yearly income for family public health insurance right? I have about 20K increase in stocks in 2020 but I haven't sold anything.
Zitat von Muslime_Frugi am 8. November 2020, 11:15 UhrYes, this is correct. Abgeltungssteuer is relevant in case of dividends ans selling stocks only
Yes, this is correct. Abgeltungssteuer is relevant in case of dividends ans selling stocks only
Zitat von Semifrugalist am 8. November 2020, 11:42 UhrZitat von firenow am 7. November 2020, 21:17 UhrThis is gold @semifrugalist. Makes perfect sense and thank you so much for writing this up. As long as I don't sell these stocks, this increase in value is not counted against my allowed yearly income for family public health insurance right? I have about 20K increase in stocks in 2020 but I haven't sold anything.
Yes, as long as you don't sell any stocks/funds, the capital gain is not taxed and not counted as income. Though I don't know if the Vorabpauschale is somehow counted as income, but as you have seen in my sample calculations, it is currently very low, so that wouldn't bother me too much.
If you are really in doubt and as soon as we talk about higher figures, I would recommend that you contact a tax consultant. As I mentioned in my first post, I'm not sure how the Vorabpauschale is handled if you are taxable in Germany but have your deposit abroad. Or do you plan to transfer your stocks to a German bank anyhow?
Zitat von firenow am 7. November 2020, 21:17 Uhr
This is gold @semifrugalist. Makes perfect sense and thank you so much for writing this up. As long as I don't sell these stocks, this increase in value is not counted against my allowed yearly income for family public health insurance right? I have about 20K increase in stocks in 2020 but I haven't sold anything.
Yes, as long as you don't sell any stocks/funds, the capital gain is not taxed and not counted as income. Though I don't know if the Vorabpauschale is somehow counted as income, but as you have seen in my sample calculations, it is currently very low, so that wouldn't bother me too much.
If you are really in doubt and as soon as we talk about higher figures, I would recommend that you contact a tax consultant. As I mentioned in my first post, I'm not sure how the Vorabpauschale is handled if you are taxable in Germany but have your deposit abroad. Or do you plan to transfer your stocks to a German bank anyhow?
Zitat von firenow am 8. November 2020, 13:59 UhrZitat von Semifrugalist am 8. November 2020, 11:42 UhrZitat von firenow am 7. November 2020, 21:17 UhrThis is gold @semifrugalist. Makes perfect sense and thank you so much for writing this up. As long as I don't sell these stocks, this increase in value is not counted against my allowed yearly income for family public health insurance right? I have about 20K increase in stocks in 2020 but I haven't sold anything.
Yes, as long as you don't sell any stocks/funds, the capital gain is not taxed and not counted as income. Though I don't know if the Vorabpauschale is somehow counted as income, but as you have seen in my sample calculations, it is currently very low, so that wouldn't bother me too much.
If you are really in doubt and as soon as we talk about higher figures, I would recommend that you contact a tax consultant. As I mentioned in my first post, I'm not sure how the Vorabpauschale is handled if you are taxable in Germany but have your deposit abroad. Or do you plan to transfer your stocks to a German bank anyhow?
yes I will definitely hire a tax advisor for our first return. Just wanted to understand this because I'm covered on my wife's public insurance and thought that I have to pay my own because of 20K gains in stocks which are unrealized. Now I understand that only dividend income and REALIZED capital gains (Total value-capital paid) is counted as income for public health insurance.
Since I hold these in foreign broker, I have to report them myself. They are still under our allowed exemption (1600 for couple) but I have been thinking of moving them to german broker.
Zitat von Semifrugalist am 8. November 2020, 11:42 UhrZitat von firenow am 7. November 2020, 21:17 UhrThis is gold @semifrugalist. Makes perfect sense and thank you so much for writing this up. As long as I don't sell these stocks, this increase in value is not counted against my allowed yearly income for family public health insurance right? I have about 20K increase in stocks in 2020 but I haven't sold anything.
Yes, as long as you don't sell any stocks/funds, the capital gain is not taxed and not counted as income. Though I don't know if the Vorabpauschale is somehow counted as income, but as you have seen in my sample calculations, it is currently very low, so that wouldn't bother me too much.
If you are really in doubt and as soon as we talk about higher figures, I would recommend that you contact a tax consultant. As I mentioned in my first post, I'm not sure how the Vorabpauschale is handled if you are taxable in Germany but have your deposit abroad. Or do you plan to transfer your stocks to a German bank anyhow?
yes I will definitely hire a tax advisor for our first return. Just wanted to understand this because I'm covered on my wife's public insurance and thought that I have to pay my own because of 20K gains in stocks which are unrealized. Now I understand that only dividend income and REALIZED capital gains (Total value-capital paid) is counted as income for public health insurance.
Since I hold these in foreign broker, I have to report them myself. They are still under our allowed exemption (1600 for couple) but I have been thinking of moving them to german broker.
Zitat von firenow am 8. November 2020, 14:00 UhrAlso thanks @thewanderer, @semifrugalist and @muslime_frugi . You guys are so helpful. I really appreciate it 🙂
Also thanks @thewanderer, @semifrugalist and @muslime_frugi . You guys are so helpful. I really appreciate it 🙂
Zitat von TheWanderer am 8. November 2020, 14:12 UhrZitat von firenow am 8. November 2020, 13:59 UhSince I hold these in foreign broker, I have to report them myself. They are still under our allowed exemption (1600 for couple) but I have been thinking of moving them to german broker.
If you plan to stay longer, that would probably save you a lot of headache. 🙂
Zitat von firenow am 8. November 2020, 13:59 UhSince I hold these in foreign broker, I have to report them myself. They are still under our allowed exemption (1600 for couple) but I have been thinking of moving them to german broker.
If you plan to stay longer, that would probably save you a lot of headache. 🙂
Zitat von firenow am 8. November 2020, 14:14 UhrWhich broker do you guys use? I don't trade much. Probably 2 transactions in whole year. Interactive broker is free if you hold above 100k.
Which broker do you guys use? I don't trade much. Probably 2 transactions in whole year. Interactive broker is free if you hold above 100k.
Zitat von Privatier am 8. November 2020, 15:03 UhrMaxblue (Deutsche Bank) for my portfolios
Consors and ING Diba as backup
Maxblue (Deutsche Bank) for my portfolios
Consors and ING Diba as backup
Zitat von Semifrugalist am 8. November 2020, 15:06 UhrZitat von firenow am 8. November 2020, 14:14 UhrWhich broker do you guys use? I don't trade much. Probably 2 transactions in whole year. Interactive broker is free if you hold above 100k.
There are a lot of brokers available here in Germany and most of the online banks/brokers don't charge you for the depot itself, but only for the transactions. Especially when have only two transactions per year, it doesn't matter so much which broker you choose. I would definitely advise you not to go to a traditional branch office bank, which might have higher costs for the depot itself and/or the transactions.
Personally I have depots at Onvista Bank and comdirect, but others are equally good or better, depending on your personal needs. ING, DKB, Consorsbank, Trade Republic, Smartbroker are for example other popular banks/brokers.
I would recommend to have a look at one of the many broker comparisons. Just to name a few:
- https://de.extraetf.com/etf-broker
- https://www.justetf.com/de/online-broker-vergleich/etfs-kaufen.html
- https://www.finanztip.de/wertpapierdepot/
- https://www.finanzen.net/online-broker-vergleich
- https://www.brokervergleich.de/online-broker/vergleich/
There will not be a single "best" broker, it really depends on your personal needs and usage.
Zitat von firenow am 8. November 2020, 14:14 UhrWhich broker do you guys use? I don't trade much. Probably 2 transactions in whole year. Interactive broker is free if you hold above 100k.
There are a lot of brokers available here in Germany and most of the online banks/brokers don't charge you for the depot itself, but only for the transactions. Especially when have only two transactions per year, it doesn't matter so much which broker you choose. I would definitely advise you not to go to a traditional branch office bank, which might have higher costs for the depot itself and/or the transactions.
Personally I have depots at Onvista Bank and comdirect, but others are equally good or better, depending on your personal needs. ING, DKB, Consorsbank, Trade Republic, Smartbroker are for example other popular banks/brokers.
I would recommend to have a look at one of the many broker comparisons. Just to name a few:
- https://de.extraetf.com/etf-broker
- https://www.justetf.com/de/online-broker-vergleich/etfs-kaufen.html
- https://www.finanztip.de/wertpapierdepot/
- https://www.finanzen.net/online-broker-vergleich
- https://www.brokervergleich.de/online-broker/vergleich/
There will not be a single "best" broker, it really depends on your personal needs and usage.
