German taxation of foreign interest bearing account

Questions and answers regarding your tax return or investments
kiplette
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Re: German taxation of foreign interest bearing account

Post by kiplette »

Right.

So Kid#3 has been to see the suggested (by her works union) Steuerberaterin from Steuerring who does seem to know the ins and outs of her work situation and what you can claim etc, which is good.

However when it comes to investments, she has not heard of the Vorabpauschale and does not believe it is a thing. The tax lady did not ask for kid#3's Freistellungsauftrag (which she forgot about in the horror of realising that the Steuerberaterin was less informed than her). She did show the lady her printed out bits of KAP-INV and the tax advisor had no idea what those were and asked where they came from :shock:

So kid#3 is a customer of this Steuerberater - if tax lady just files inexactly, ignoring the Vorabpauschale, then would this go horribly wrong for kid#3?
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Re: German taxation of foreign interest bearing account

Post by PandaMunich »

The people at Steuerring (which is a Lohnsteuerhilfeverein) are not Steuerberater.
A Steuerberater is someone who has passed the Steuerberater exam: https://en.wikipedia.org/wiki/Steuerber ... BCfung%22)

The people at the Lohnsteuerhilfeverein are people who left school after grade 10, did a 3 year apprenticeship as a Steuerfachangesgestellte(r) and then opened an office of a Lohnsteuerhilfeverein.

They know a very small part of income tax law (EStG), i.e. the standard deductibles an employee can claim for, but do not expect them to know about investment tax law (InvStG = Investmentsteuergesetz), which is where she could read up on the Vorabpauschale, it's laid down in § 18 InvStG: https://www.gesetze-im-internet.de/invs ... /__18.html

--> There is a reason why Lohnsteuerhilfevereine are much cheaper than a Steuerberater.
So kid#3 is a customer of this Steuerberater - if tax lady just files inexactly, ignoring the Vorabpauschale, then would this go horribly wrong for kid#3?
Nope, she is a client of a Lohnsteuerhilfeverein.
Which wouldn't help her either, since in Germany, you yourself are responsible for any mistakes in your tax return.

Your daughter would only commit tax evasion if her total capital income (= interest + dividends + currency profit + profit from selling stocks/funds/bonds/options + Vorabpauschale) were over the savers' tax free allowance (Sparerpauschbetrag) of 1,000€.
Which I doubt.

So it doesn't really matter, except that a few years down the line, the Finanzamt will be informed about the non-German brokerage account by that other country's tax department and your daughter should at that point be able to prove that her capital income was really not more than 1,000€ per year, to avoid being accused of tax evasion.
Last edited by PandaMunich on Tue May 13, 2025 10:48 am, edited 1 time in total.
kiplette
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Re: German taxation of foreign interest bearing account

Post by kiplette »

Thank you. I'll pass all of that on to her.
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Re: German taxation of foreign interest bearing account

Post by runandnap »

In 2023 I opened a one year (renewing) CD with a bank in the US, and chose the option to pay out the interest after the year, thinking this would minimize how many interest payments I'd need to keep track of.

But it turns out that the interest was still credited to the CD monthly, even though it can't be touched without penalty until the year is up (at which point you can choose whether it is paid out into a checking (current) account or stays in the CD when it renews for another year)..

I'm thinking I'm out of luck, and that next year when applying the new interpretation of the law, each monthly interest credit will still need to be tracked with the relevant rate for that month (versus all together at the time of the yearly maturation). Would that be correct?
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Re: German taxation of foreign interest bearing account

Post by PandaMunich »

If you get the interest monthly, then yes, use either the exchange rate that was valid on that day or the average one for that month to convert the credited interest into €, please see here: viewtopic.php?p=8074#p8074

But you do know that you will still, additionally, have to calculate (and tax) as capital income the currency profit or loss that was incurred for this capital during the year that this capital had been invested?
And you realise that you will also have to calculate (and tax) for each monthly interest batch, the currency profit or loss that was incurred during the 11 months, 10 months, 9 months and so on that that batch was in that account until the end of the 1 year period?
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Re: German taxation of foreign interest bearing account

Post by runandnap »

Thank you, PandaMunich! :)
PandaMunich wrote: Sat Jul 12, 2025 1:00 pm But you do know that you will still, additionally, have to calculate (and tax) as capital income the currency profit or loss that was incurred for this capital during the year that this capital had been invested?
And you realise that you will also have to calculate (and tax) for each monthly interest batch, the currency profit or loss that was incurred during the 11 months, 10 months, 9 months and so on that that batch was in that account until the end of the 1 year period?
Yes, that was my understanding from reading this thread. A hassle, but it'll have to be done. If I understand it right there's still a reprieve for 2024 at least.

On the bright side, it seems that this year there may be more losses than gains on the value. (Of course that also means it has less value if I transfer it all to Germany when it matures. Ouch.)
relh6l
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Re: German taxation of foreign interest bearing account

Post by relh6l »

On Wed May 29, 2024 1:20 pm. silty2 said:-

"If you don't feel like reading the below long explanation, here's what you need to do:

By the end of 2023, get rid of all your non-€ accounts outside Germany that pay interest - except for current accounts, no matter whether they pay interest or not, those you get to keep."

This was (presumably) quoted from an earlier post on the old forum.

Is that actually correct?

I have a savings account with my UK bank, which pays just under 2% interest, and am considering moving the money to another account with a different UK bank, which will pay just over 4%. I don't want to move the money to Germany, since I have a couple of projects in the UK; and, from a quick search I cannot see any German banks that pay as much interest. For the last few years, my German tax returns have been prepared by a Steuerberater, who has always calculated the payments/refunds correctly, and has included the UK interest payments on the German return.

Now that I have started to receive a pension from the UK, my income has reached a level so that I have to pay UK tax, including on the interest from the savings account. I supply the values from the relevant bank statements, and the Steuerberater no doubt has a sophisticated software program that calculates the tax in a few seconds, so is there any reason to give up the UK deposit account? Since I will have to pay German tax on the interest from the deposit account in any case, does it really matter if the account is with an UK bank or a German one?

Thanks in advance for any thoughts on this.
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Re: German taxation of foreign interest bearing account

Post by PandaMunich »

This is not about paying tax on the UK interest in Germany, which you will continue to have to do.
This is about additionally paying tax on the currency profit to Germany.

For example, if you had a 1 year term deposit of 100,000 GBP at 3% that you invested on 01.08.2025, when 1€ = 0.86650 GBP: https://www.ecb.europa.eu/stats/policy_ ... ex.en.html
So the € "purchase" label attached to that term deposit is £100,000 / £0.86650/€ = 115,406.81€

On 31.07.2026, when this term deposit ends, you get paid 3,000 GBP interest and the exchange rate (switching on my crystal ball!) will be 1€ = 0.84 GBP.
--> your "selling price in € for the 100k£ in the deposit is £100,00 / £0.84/€ = 119,047.62€

You will have to tax as capital income:
interest: £3,000 / £0.84/€ = 3,571.43€
+ currency profit: 119,047.62€ - 115,406.81€ = 3,640.81€
___________________________________________________________
= 7,212.24€
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