What Are the Procedures for Dividend Taxation and Payment for a Domestic Shareholder?
Dividend payments to a domestic shareholder are taxed with a standard rate of 25 percent ("flat tax") plus Solidarity surcharge. The flat tax is charged independently of the personal effective tax rate and voids all further related tax liabilities. For shareholders with a personal effective tax rate lower than 25 percent it is possible to declare the dividend income in the personal tax declaration and to get a refund of the difference between the personal effective tax rate and the paid flat tax.
Tax-Free Allowances and Tax Deductible Amounts for Private Investors
A general allowance for income from capital gain in the amount of EUR801 (EUR1,602 for married couples filing jointly) will be granted. A deduction of actual costs related to this income from capital gains is not allowed.
Withholding of Capital Gains Tax and German Solidarity Surcharge
The depository bank (until 31 December 2011: the paying joint stock company) is required to withhold a capital gains tax of 25 percent (tax rate of the flat tax) plus Solidarity surcharge of 5.5 percent (a total of 26.38 percent) and turn this amount over to the German Tax Office.
Example 1: The Investor Does Not Have Proof of Exemption or a Certificate of Non-Assessment.
If the investor has not provided his or her depository bank with proof of exemption or a certificate of non-assessment, 26.38 percent of the dividend amount (25 percent capital gains tax and an additional 5.5 percent Solidarity surcharge) will be withheld before payment to the shareholder. The shareholder will receive a tax certificate of the withheld capital gains tax and Solidarity surcharge for tax return purposes. The withheld tax voids all tax liabilities related to this income. This means provision of a tax certificate will only be necessary if the individual effective tax rate is lower than the flat tax rate of 25 percent.
Example 2: The Investor Has Proof of Exemption or a Certificate of Non-Assessment.
If the investor has provided his or her depository bank with proof of exemption or a certificate of non-assessment, the depository bank pays out the full dividend amount to the shareholder without any withholding of capital gains tax or Solidarity surcharge. In this case, the shareholder does not receive a tax certificate for tax return purposes.
What Are the Procedures for Dividend Taxation and Payment for a Foreign Shareholder?
A foreign shareholder (an investor with a permanent domicile or primary residence outside Germany) has only limited tax liability in Germany if, for example, he or she earns capital gains in Germany. This includes dividends from German joint stock companies.
Taxation on German-earned dividends is applied according to tax regulations in the shareholder’s country of residence.
Taxation in Germany
Foreign shareholders who own their shares in private holdings are not liable for taxes in Germany beyond the amount withheld by the depository bank (until 31 December 2011: the paying joint stock company) for capital gains tax (and the additional Solidarity surcharge). The shareholder may not deduct related expenses.
The depository bank makes the dividend payment to the foreign investor after withholding the capital gains tax of 25 percent and an additional 5.5 percent Solidarity surcharge (a total of 26.38 percent) required under German law. The shareholder receives a tax certificate detailing the withheld capital gains tax and Solidarity surcharge for personal income tax return purposes.
Discounted Capital Gains Tax
A discounted capital gains tax can be applied to dividend payments to a foreign shareholder if there is a double-taxation agreement between Germany and the shareholder’s country of residence. The discount is applied by calculating the difference between the German capital gains tax liability (including the Solidarity surcharge) and the tax liability according to the tax rates under the applicable double-taxation agreement. A tax credit request form is then filed with the German Ministry of Finance for a refund of this amount. Tax credit request forms are available from the German Ministry of Finance (An der Küppe 1, 53225 Bonn, Germany or the German website http://www.bzst.bund.de) at German embassies and consulates. The tax credit request form must be submitted to the German Ministry of Finance by the end of the fourth year following the year of dividend payment.
E.ON Recommends Individual Tax Advice
The explanations above are not necessarily comprehensive due to the numerous potential circumstances in individual cases. Shareholders should not hesitate to obtain individual tax advice which can better take into account individual situations.