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Taxation of foreign exchange trading in 2021

April 25, 2021 | 40,00 EUR | answered by Steuerberater Knut Christiansen

I have a multipart question about the taxation of foreign exchange trading. It concerns brokers that are not based in Germany, but in EU countries, and therefore do not withhold taxes directly.

There are brokers that offer foreign exchange trading as spot trading (i.e. you have account balances in different currencies, sell currency X for currency Y, and may have negative balances in some currencies for which you may pay interest. For example, you can buy JPY for EUR, then buy USD with these JPY, and finally buy EUR again with USD to balance everything out).

There are also brokers that package foreign exchange trading in CFDs, where you open a position in a currency pair and close it at some point (so chains like the one above do not occur). You only have an account balance in the base currency of the account (e.g. EUR). Overnight holdings are hedged by the broker through swaps, for which you pay a nightly fee.

Am I correct in assuming that the tax situation in Germany for this scenario is as follows:
- In the case of Spot Forex, it is not considered income from capital assets within the meaning of §20 EStG, but rather private sales within the meaning of §23 EStG, and the CFD variant is considered a forward transaction within the meaning of §20 EStG?
- Therefore, in the case of Spot Forex, I would have to report profits and losses in Annex SO (and not in KAP) (with a separate breakdown of individual trades) and I would have to pay tax on the total profit (i.e. profits - losses) within a calendar year at my personal income tax rate (no flat-rate tax). However, a total loss could not be offset against other income?
- In the case of the CFD variant, I would have to report profits and losses in Annex KAP, profits would be taxed at 25% (+ Soli) (ignoring the saver's allowance), but losses would only be credited up to a maximum of 10,000 EUR per year (new regulation from 2021), so this variant is only cheaper up to a certain trade volume (i.e. if the losses from trades do not exceed 10,000 euros significantly)

Steuerberater Knut Christiansen

Good day and thank you for using frag-einen.com!

Regarding your question, taking into account the fee, of which I receive half, I would like to provide the following information:

As far as currency transactions are concerned, profits and losses made within a year are subject to taxation according to § 23 para. 1 No. 2 EStG. These must be declared in the attachment SO. Here, the personal tax rate applies (so no flat tax). Losses can only be offset against gains from private sales transactions. Offsetting against, for example, income from non-self-employed work is not possible.

Futures contracts (CFDs) are classified as income from capital assets according to § 20 para. 2 EStG. Profits and losses must be determined separately and declared in the attachment KAP. From 2021, there is the (absurd) peculiarity that losses may only be offset against profits up to 20,000 EUR (no longer 10,000 EUR) (§ 20 para. 6 EStG). The remaining profits would then be subject to a flat tax of 25% (plus solidarity surcharge and, if applicable, church tax). Therefore, if you make profits of over 20,000 EUR and losses of up to 20,000 EUR simultaneously, you would be subject to taxation. With profits of 100,000 EUR and losses of 100,000 EUR, you would have to pay taxes on 80,000 EUR according to current legislation. It remains to be seen if this will pass constitutional scrutiny.

I hope I have answered your questions, otherwise feel free to ask further questions at no additional cost.

I would like to point out that this forum cannot replace a comprehensive and personalized tax consultation, but is mainly intended to provide an initial tax assessment. By adding or omitting relevant information, the legal assessment of your issue could be different.

Best regards,

Knut Christiansen
Tax consultant