How can I, as an investor, avoid double taxation of capital gains abroad?
September 29, 2022 | 120,00 EUR | answered by Albrecht Schneider
Dear Tax Advisor,
My name is Bernd Stricker and I am an investor. In recent years, I have made increasing investments abroad to diversify my portfolio. However, I have now encountered the problem of double taxation of capital gains and I do not know how to deal with it.
My current situation is as follows: I earn capital gains both in Germany and abroad, which are taxed in each respective country. I am concerned that I may have to pay taxes again on my foreign capital gains in Germany, leading to a high tax burden.
My concerns are that double taxation could significantly reduce my returns and I do not know what options are available to avoid this problem. I would like to know what tax planning options exist to avoid double taxation of capital gains abroad.
Can you provide me with specific solutions on how I, as an investor, can avoid double taxation of capital gains abroad? I would greatly appreciate your expertise and support in this matter.
Thank you in advance.
Sincerely,
Bernd Stricker
Dear Mr. Stricker,
Thank you for your inquiry regarding the double taxation of capital gains abroad. I understand your concerns and would like to suggest some possible solutions to avoid this problem.
First of all, it is important to know that double taxation of capital gains between Germany and many other countries can be avoided through Double Taxation Agreements (DTA). These agreements determine which country has the right to tax certain income and thus prevent double taxation. Therefore, it is advisable to check whether such an agreement exists between Germany and the country where you earn capital gains.
Furthermore, there is the option to apply for the offsetting of foreign taxes against the tax owed in Germany. This means that the tax already paid abroad is credited against the German tax to avoid double taxation. This offsetting mechanism is regulated in § 34c of the Income Tax Act.
Another option to avoid double taxation is to apply for an exemption method. In this case, the income earned abroad is exempt from taxation in Germany if it has already been taxed there. However, this method may not be applicable in all cases and needs to be assessed on an individual basis.
It is important to seek advice from an experienced tax advisor in your specific case to find the best solution to avoid double taxation. Each situation is unique and requires a detailed analysis of the tax circumstances.
I hope this information is helpful to you and I am available for any further questions. Thank you for your trust and I look forward to assisting you in solving this tax issue.
Best regards,
Albrecht Schneider
