Guide to Preparing Foreign Capital Income for Your German Tax Return

As a resident of Germany, you’re required to report your worldwide income, including any capital income earned abroad. This guide will help you understand how to prepare your foreign capital receipts for your tax return.

1. Understanding Capital Receipts and Taxation in Germany

In Germany, all your global capital income is subject to income tax or withholding tax (Abgeltungssteuer), even if it has already been taxed in another country. This includes:

Interest
Dividends
Stock Profits
Virtual Profits from ETFs or Other Funds

2. Double Taxation Agreements (DTAs)

Germany has Double Taxation Agreements with many countries to prevent you from being taxed twice on the same income. Here’s what you need to know:

Tax Credits: Foreign taxes paid can often be credited against your German tax liability.
Withholding Tax Limits: DTAs may limit the amount of foreign withholding tax, reducing your overall tax burden.
Review Applicable DTAs: Check the DTA between Germany and the country where you earned income to understand the specifics.

3. Reporting Foreign Capital Income

a. Organize Your Income by Category

Create an Excel table to categorize your income:

Income Type: Interest, Dividends, etc.
Date of Receipt: The date you actually received the income.
Amount: In both the foreign currency and euros.
Foreign Tax Paid: Any taxes withheld or paid abroad.

Example Table:

Income Type	Date of Receipt	Amount (Foreign Currency)	Exchange Rate	Amount (EUR)	Foreign Tax Paid (Foreign Currency)	Foreign Tax Paid (EUR)
Dividends	15/03/2022	USD 1,000	0.85	€850	USD 150	€127.50
Interest	20/06/2022	GBP 500	1.15	€575	GBP 75	€86.25

Note: Use the exchange rate applicable on the date of receipt.

b. Apply the Inflow Principle

Tax Year Alignment: Income is taxed in the year you receive it, which may differ from the foreign tax year.
Accurate Dates: Ensure all dates reflect when the income was actually credited to you.

4. Documentation of Foreign Taxes Paid

Keep All Records: Maintain copies of foreign tax certificates and statements showing taxes withheld or paid.
Proof for Tax Credits: These documents are essential to claim credits and avoid double taxation.

5. Stock-Based Compensation: RSUs and ISPPs

a. Restricted Stock Units (RSUs)

Before Vesting: Subject to income tax, usually withheld by the issuing company.
After Vesting: Dividends received are subject to capital gains tax.
What You Need to Do:
Provide vesting schedules.
Document any dividends received post-vesting.

b. International Stock Purchase Plans (ISPPs)

Dividends: Taxable when received.
Speculative Gains: Taxed when shares are sold after vesting.
What You Need to Do:
Record purchase and sale dates.
Document dividends and sale proceeds.

6. Practical Steps and Considerations

a. Inform Foreign Financial Institutions

Tax Residency Notification: Inform your foreign banks or brokers that you are a German tax resident.
Liability Certificate: Obtain an „Ansässigkeitsbescheinigung“ from your local Finanzamt to provide to foreign entities.

b. Currency Conversion

Use Accurate Exchange Rates: Convert foreign income to euros using the rate on the date of receipt.
Consistent Method: Apply the same method consistently throughout your records.

7. Checklist for Submission

Ensure you have the following before submitting your information:

Completed Excel Table: Categorized income with all required details.
Foreign Tax Documents: Certificates and statements of taxes paid.
Stock Compensation Details:
RSUs: Vesting dates and dividend records.
ISPPs: Purchase/sale dates and amounts.
List of Countries: Where you earned capital income for DTA verification.

8. Client Responsibility

While we are here to assist you, it is your responsibility to:

Gather and Organize Data: Accurately collect all relevant financial information.
Provide Complete Documentation: Submit all necessary records to support your income and tax payments.
Ensure Accuracy: Double-check all entries for correctness.