Do I pay Forex trading taxes in Germany?

Best brokers for Forex trading in Germany

1

9.4/10

Go to broker

eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. Don’t invest unless you’re prepared to lose all the money you invest.

Minimum deposit:

$50, $100 (for UK clients)

Bonus for deposit:

0%

Regulation:

CySEC, FCA, ASIC

Review

The eToro broker was founded in 2007. The company promotes itself as a social trading platform working with traders from over 140 countries. The broker has several divisions operating under different jurisdictions and licensed by different regulators. For example, eToro (Europe) is licensed by the Cypriot regulator CySEC (109/10) and eToro (UK) is licensed by the British regulator FCA (583263). The broker also has a representative office in Australia and the USA. eToro Profile Details

Pros/Cons

•the minimum transaction amount for copying is $1;

•handy functionality for passive investing;

•regulated by independent monitors;

•it is possible to purchase contracts for fractional shares (that is, to invest amounts less than the cost of one share);

•it is possible to buy shares at once (not CFDs) on the US stock exchanges.

•high spreads;

•periodic technical failures in order execution;

•lack of the most popular platforms such as MetaTrader 4 and MetaTrader 5 in Europe and the CIS;

•no access to ECN systems, orders are processed only according to the STP (straight-through processing) scheme with access to specific liquidity providers;

•there is a commission for withdrawing funds;

•impolite support staff;

•inconvenient website.

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2

9.2/10

Go to broker

Your capital is at risk.

Minimum deposit:

No minimum

Bonus for deposit:

0%

Regulation:

FSC (BVI), ASIC, IIROC, FCA, CFTC, NFA

Review

The name OANDA is an acronym for “Olsen & Associates” or “Olsen AND Associates”. It is registered in the United States and provides its clients with a wide range of financial services in most countries of the world. The company was founded in 1996 and is currently regulated in four jurisdictions. The main regulator of the broker is the UK Financial Conduct Authority (FCA). Oanda Canada is licensed by IIROC. The company has several significant awards to its credit, including a victory in the category "Best Forex Trading Technologies" from the UK Forex Awards, "Best Trading Platform" from FX Week, as well as "Best Customer Service" from the US Foreign Exchange Report.

Pros/Cons

•Minimum deposit from 1 dollar.

•A large selection of the most popular trading instruments.

•Several reliable and reputable financial regulators.

•Inconvenient and poorly functioning site.

•Lack of cent accounts.

•Lack of bonus programs.

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3

9.1/10

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Minimum deposit:

$1

Bonus for deposit:

0%

Regulation:

FCA, BaFin, ASIC, MAS, CySec, FINMA, BMA, CFTC, NFA

Review

IG Markets has been providing brokerage services for retail traders since 2014. It was established in 1974 in London to work with professional traders. It is a part of the IG Group with representative offices in 17 countries. IG Markets stocks are traded on the London Stock Exchange as a part of the FTSE 250 index. The broker is regulated by FCA (Financial Conduct Authority | the UK), CySec (Cyprus Securities and Exchange Commission), ASIC (Australian Securities and Investments Commission), BaFin (the Federal Financial Supervisory Authority | Germany), FINMA (Swiss Financial Market Supervisory Authority), and NFA (National Futures Association). The IG Group global representative office is supervised by BMA (the Bermuda Monetary Authority). The broker provides services of trading Forex and different CFDs through MetaTrader 4 and its in-house platforms for retail and professional traders.

Pros/Cons

•Regulated activities and participation in compensation funds;

•No minimum deposit requirements when opening an account with the international division;

•Leverage is available for trading currencies and CFDs;

•Wide range of trading assets and markets;

•Fee rebates for new and active existing clients with large trading volumes;

•Floating spreads from 0.6 pips for retail Forex traders;

•Bonuses for new clients and partnership programs for different client categories.

•The broker can reject opening accounts to traders with low capital or insufficient knowledge of derivatives trading;

•Deposits and withdrawals can’t be made with e-wallets, electronic payment systems, or cryptocurrencies;

•Trading conditions differ for various countries, so you have to look for the broker’s website in your country.

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Forex trading taxation in Germany - How it works

Capital gains from financial investments, like the sale of shares or Forex gains, face a flat tax rate of 25%, plus a 5.5% solidarity surcharge. While related expenses cannot be deducted, there is an “investor's allowance” of EUR 801 (EUR 1,000 from the assessment period 2023) per taxpayer, providing relief for financial investment income. Specific rules and exemptions apply to capital gains from mutual funds units, and other capital gains are subject to progressive rates based on holding periods and total profits.

What are the tax rates for Forex trading income in Germany?

The tax rate for Forex trading income in Germany is 25%, effective from 2024. However, there is an investor's allowance of EUR 801 (EUR 1,000 from the assessment period 2023) per taxpayer for financial investment income. This allows for a tax-free threshold up to this amount.

How much trading income is tax-free in Germany?

In Germany, capital gains are taxable only if the overall gain over the year crosses the EUR 600 threshold.

Subjects of taxation in Germany

In Germany, an individual's tax liability is significantly influenced by their fiscal residence status. The determination of tax residency is based on factors such as having a dwelling in Germany or a habitual abode with a physical presence exceeding six months in a tax year. Notably, nationality does not play a role in this determination. Residents in Germany are subject to taxation on their global income, including various categories like agriculture, forestry, trade, business, employment, capital investment, rents, royalties, and other income. In contrast, non-residents are taxed solely on their German source income, usually through withholding mechanisms. The tax status for legal entities hinges on fiscal residence, with companies either incorporated or managed and controlled in Germany deemed tax residents. Taxable income for resident companies extends globally, while non-resident companies are taxed solely on income from a German source.

Tax benefits and exemptions in Germany

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The following are the most useful tax benefits and exemptions in Germany:

• Income-related expenses lump sum
  The German tax office allows a lump sum of €1,200 (increasing to €1,340 in 2023) for income-related expenses, covering work-related travel, stationery, and accountant services. Individuals exceeding this lump sum with additional expenses can deduct individual costs, provided they furnish proof or receipts

• Child allowance
  Deductions are applicable for childcare expenses, allowing up to €4,194 a year per child

• Education expenses
  Deductions are available for education expenses, allowing up to 30% of tuition fees

• Charitable contributions
  Individuals can benefit from deductions for charitable contributions, with a limit of up to 20% of adjusted gross income. This applies to donations made to German charities and specific international charities

• Alimony payments
  Deductions are applicable for alimony payments, with a cap at €13,805, subject to meeting the government's criteria

For legal entities

• Research and Development (R&D) allowance
  The German Research Allowance Act introduces a tax-free subsidy of 25% of salaries and wages for certain R&D purposes, with a limited maximum amount per year

• Local authorities' incentives
  Local authorities may provide facilities on favorable terms, such as inexpensive land on industrial estates and certain direct government aid

• Foreign tax credit
  If foreign-source income is not exempt from German taxation, a credit is given for the foreign tax actually paid and not otherwise recoverable. However, the credit is limited to the corporation tax (including the solidarity surcharge) on the net income

Case studies

1 Case Study 1: Anna Müller

In the financial year 2023, Anna actively engaged in currency trading as a side gig, primarily dealing with Forex and Contracts for Difference (CFD) transactions. Anna made a total profit of EUR 150 from her Forex and CFD trading activities during the year. According to German tax regulations, capital gains from financial investments, including Forex gains, are tax exempt for gains up to EUR 600. Therefore, Anna would not be liable to pay any taxes.

2 Case Study 2: Stefan Schneider

Stefan Schneider, a resident of Hamburg, has been actively involved in professional Forex and CFD trading for several years. During the financial year 2023, Stefan executed a series of successful trades, resulting in a substantial profit of EUR 50,000. As per German tax regulations, Stefan would be subject to the flat tax rate of 25% on his capital gains from Forex and CFD trading. The solidarity surcharge of 5.5% would also be applicable.

• Taxable amount = EUR 50,000 * 25% = EUR 12,500

• Solidarity surcharge = EUR 12,500 * 5.5% = EUR 687.50

Stefan's tax liability would be EUR 13,187.50.

3 Case Study 3: Luisa Wagner

Luisa, a single taxpayer, engages in short-term trading activities, resulting in capital gains of EUR 900 within a year. As these gains fall below the EUR 1,000 yearly threshold (updated from EUR 801), Luisa's capital gains remain tax-exempt. Her approach to keeping profits within this limit ensures no tax liability on her short-term gains.

Taxation tips for Forex trading in Germany

Understanding the fundamentals of taxation is crucial for Forex traders in Germany. Here are essential tips to optimize tax obligations:

• Familiarize with tax system
  Stay updated on German tax laws and any amendments to ensure compliance with the evolving tax code impacting Forex trading activities

• Maintain detailed records
  Keep comprehensive records, noting trade details, dates, amounts, and associated fees. Accurate documentation facilitates precise tax reporting

• Explore income-splitting
  Consider income distribution among family members strategically. This approach may help alleviate the overall tax burden on your Forex trading gains.

• Consult tax professionals
  Engage with tax professionals or accountants specializing in capital gains tax. Their expertise ensures you leverage all available tax deductions and credits.

• Trade tax awareness
  Local municipalities levy trade tax in Germany, with rates varying. Be aware of the trade tax rates in your jurisdiction, as they contribute to the overall tax liability.

• Comply with annual summary requirement
  Adhere to the new tax law mandating an annual summary of all trades, including spreads or multi-leg transactions treated as separate trades. This ensures adherence to regulatory requirements and accurate tax reporting.