Proposals by the Commission have already been advanced.
In Germany, low-income earners now have the opportunity to exempt themselves from paying capital gains tax. This exemption is made possible through the submission of a Capital Gains Tax Exemption Order (Nichtveranlagungsbescheinigung or NV-Bescheinigung).
To apply for this exemption, individuals must submit an application form to their bank or financial institution, such as savings banks or insurance companies. This exemption order instructs the bank to stop automatically withholding the capital gains tax (Abgeltungssteuer) of 25% plus the solidarity surcharge on interest, dividends, and capital gains from the sale of shares and ETFs.
The legal basis for this exemption is Section 44a of the German Income Tax Act (EStG), which allows tax exemption up to the tax-free allowance of €1,000 from 2024. Without submitting this order, banks must deduct tax automatically.
The effect of submitting a Capital Gains Tax Exemption Order is that your bank will not withhold the capital gains tax from your investment income and gains. This means you receive interest, dividends, and proceeds from share or ETF sales without immediate tax deductions at source, improving your net liquidity. However, if your gains exceed the €1,000 allowance or your overall tax liability needs adjustment, you must settle this through your annual tax return. If you did not submit an exemption order, you can still apply for a refund of any overpaid capital gains tax at tax filing.
It is recommended to submit a Freistellungsauftrag, the Capital Gains Tax Exemption Order, parallel to every account opening. Since 2015, banks have been paying church tax directly to the state, so most tax IDs are already known to the financial institutions. However, the application for an NV-Bescheinigung is submitted to the responsible tax office and is valid for three years.
Eligible individuals are those whose income does not exceed the basic allowance of €11,784 for 2024 or €12,096 for 2025. Foreign banks and brokers will provide an annual certificate for capital gains, and withheld tax paid directly to the tax office can be reclaimed via the income tax return. With foreign banks and brokers, capital gains can be declared in the tax return and the allowance claimed.
In summary, submitting a Capital Gains Tax Exemption Order to your bank or broker can help in avoiding withholding tax deductions on your investment income upfront if your total taxable capital gains remain below the exemption threshold. The Freistellungsauftrag for capital gains is the responsibility of the investor.
- To take advantage of the capital gains tax exemption for low-income earners in Germany, individuals should submit a Capital Gains Tax Exemption Order (Freistellungsauftrag) to their bank or financial institution.
- By submitting the Capital Gains Tax Exemption Order, one can avoid withholding tax deductions on their investment income and gains, thereby improving their net liquidity, as the bank will no longer automatically withhold the capital gains tax from their investment income and gains.
