How does the withholding tax on capital gains work?
August 25, 2023 | 55,00 EUR | answered by Paula Köhler
Dear tax advisor,
my name is Anneliese Ullmann and I have a question regarding the flat-rate tax on capital gains. A few years ago, I started investing in stocks and funds to increase my capital. Now I have heard that a flat-rate tax is levied on these capital gains.
I am unsure about how exactly the flat-rate tax works and which capital gains are affected by it. So far, I have not declared my capital gains in my tax return because I did not know how the taxation works. Now I am worried that I may have to pay additional taxes or even face penalties if I have not correctly taxed my capital gains.
Could you please explain to me how the flat-rate tax on capital gains works and which capital gains are affected by it? Are there any specific tax-free allowances or exemptions that I should consider when taxing my capital gains? And how can I ensure that I correctly declare my capital gains in my tax return to avoid potential additional payments or penalties?
Thank you in advance for your help and support.
Best regards,
Anneliese Ullmann
Dear Mrs. Ullmann,
Thank you for your question regarding the capital gains tax on investment income. I understand your uncertainty and would like to explain how the taxation of capital gains works.
The capital gains tax is a flat tax that is levied on certain investment income such as interest, dividends, and capital gains from securities sales. The tax rate is currently 25% plus solidarity surcharge and, if applicable, church tax. This tax is withheld directly by banks and other financial institutions and remitted to the tax office.
It is important to know that not all investment income is subject to the capital gains tax. For example, profits from the sale of shares held for longer than one year are tax-free. Additionally, exemption orders can be used to receive investment income tax-free up to a certain amount.
If you have not previously declared your investment income in your tax return, you should correct this retrospectively. You may have to pay additional taxes if the tax office determines that investment income has not been taxed. However, in general, no penalty is imposed if you voluntarily correct your tax return and declare the previously untaxed investment income.
To ensure that you correctly declare your investment income in your tax return, I recommend keeping all relevant documents such as portfolio statements, dividend certificates, and purchase or sale receipts carefully. If you are unsure, you can also seek assistance from a tax advisor or the tax office to receive support with the taxation of your investment income.
I hope this information is helpful to you and I am at your disposal if you have any further questions.
Best regards,
Paula Köhler
