The "final withholding tax" is a tax collection technique for taxes on investment income and for gains from the sale of securities held as private assets (in particular bonds and shares), which was introduced in Germany from the 2009 assessment period. As a result, a so-called withholding tax procedure is applied to investment income, similar to that for wage tax.
This tax levies a uniform tax of 25% on investment income. This is independent of the individual tax rate. This means that individual capital income is no longer part of the annual income tax return. Instead of the annual income tax assessment, this tax is transferred directly by the financial institutions to the tax office for each customer. This procedure simplifies the taxation of investment income.
If you only have a low taxable income, you can apply for a favorable tax assessment at your local tax office. It will then apply your personal tax rate to the investment income if this results in a lower tax burden than the 25% tax deduction at the source of income. As a rule of thumb, if your personal marginal tax rate is below 25%, it may be worth applying for a favorable tax assessment.
Note
Further information
- Information from the Federal Ministry of Finance on withholding tax.
Legal basis
The "flat-rate withholding tax" was introduced into the Income Tax Act by Article 1 of the 2008 Corporate Tax Reform Act of 14.8.2007 (published in the Federal Law Gazette 2007, Part I, p. 1912).
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