German funds - rates, eligibility, availability of relief etc.
Withholding tax
| Standard rate of withholding tax: | 0% / 26.375% a | Trading restriction: | Yes |
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a. No withholding tax (Kapitalertragsteuer; KESt) and solidarity surcharge (Solidaritätszuschlag; SolZ) are deducted by LuxCSD for fund distributions of German funds, if evidence is provided that the fund is an investment fund pursuant to § 1 of the Investment Tax Act (Investmentsteuergesetz; InvStG) or a special investment fund pursuant to § 53 InvStG. For funds not certified accordingly, the current tax deduction logic is applied; if no tax base (Bemessungsgrundlagen) parts are delivered, the income amount is taken as the tax base.
The following information relates to the situation where the before-mentioned evidence is not provided.
For non-certified German funds, the effective standard withholding tax rate on income comprises a standard rate of 25% plus a solidarity surcharge (SolZ; Solidaritätszuschlag) of 5.5% of the standard rate.
The tax calculation for non-certified German funds is done on the following tax bases (Bemessungsgrundlagen):
Cash distribution:
- Domestic Dividend Part;
- REIT-Part;
- Estate Part.
Accumulation (Thesaurierung):
- Domestic Dividend Part;
- Foreign Dividend Part;
- Interest Part;
- REIT-Part;
- Estate Part.
Note: If no tax base (Bemessungsgrundlagen) parts are delivered, the complete income amount is taken as the tax base.
Distributions of tax liquidity are not processed by LuxCSD.
Availability of relief
Click on the zoom icon to view the diagram showing the availability of relief at source and/or reclaim of withholding tax on income from German funds that are not certified and their distribution is therefore subject to KESt.
| Eligible beneficial owners | Relief at Source | Quick Refund | Standard Refund |
Residents of Double Taxation Treaty countries | No | No | Yes |
Residents of Germany | No | No | No |
| Dividends paid to a foreign investment fund pursuant to § 1 “InvStG” a | Yesb | No | Yes |
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a. According to the German Investment Tax Act, if a foreign investment fund obtains and provides a Fund Status Certificate for classification of the fund pursuant to § 1 InvStG, the German KESt is reduced to 15% at source irrespective of the location of the fund. Customers must in this case provide a break down to disclose the fund company (identified by the Ordnungsnummer) and the relevant holdings of the fund company per single income payment to get taxation at a reduced rate of 15% (withholding tax standard rate including solidary surcharge). This per payment information must be provided to LuxCSD 30 calendar days after the record date of the taxable income event latest, using the existing Upload Beneficial Owner List functionality.
If the Fund Status Certificate of a foreign investment fund is submitted after the payment date of the event, the overpaid KESt amount (11.375%) can be reclaimed by applying the standard tax refund procedure and presenting the relevant documents to the Federal Central Tax Office within the statutory deadline.
b. Relief at source is possible (BD process within 30 days after Payment) but no standing instruction. Please refer to Announcement C21032
Relief at source and quick refund
Relief at source and quick refund are not available through LuxCSD.
Standard refund
A standard refund is available if the beneficial owner qualifies for the benefit of a reduced rate of withholding tax in accordance with a Double Taxation Treaty (DTT) between its country of residence and Germany.
Customers can reclaim withholding tax on behalf of beneficial owners through LuxCSD by submitting the appropriate required documentation.
Residents of Germany cannot reclaim withholding tax through LuxCSD.
Taxation of German growth funds / accumulation funds
The reinvestment of a German fund / accumulation fund, which is according to the height of the revenue that the fund achieved during the business year, is liable to tax according to the German Income Tax Act (EStG).
Distributions of tax liquidity are not processed by LuxCSD.
The responsibility for taxation has changed over the years and can be separated into the following relevant tax regimes:
- Withholding tax (1 January 2009 – 31 December 2011)
With the introduction of the withholding tax (Kapitalertagsteuer; KESt) as of 1 January 2009, taxation was applied by the issuer of the growth fund on the basis of the newly introduced KESt rate of 25% and the additional solidarity surcharge (Solidaritätszuschlag; SolZ) of 5.5% of the KESt.
Under this tax regime, growth funds were also liable to church tax (Kirchensteuer; KiSt)1 based on the denomination and residence (German Federal State) of the end investor. As the issuer is not aware of these details, it was decided that the church tax could not be debited and should remain within the assets of the growth fund, with the responsibility for the taxation falling to the end investor within his annual tax declaration. - OGAW IV (as of 1 January 2012)
With the introduction of the OGAW IV Directive and the related changes in the German Income Tax Act, responsibility for the taxation of German growth funds switched from the issuer to the last domestic paying agent (for example, Clearstream Banking AG). The tax rates introduced with the that withholding tax regime as of 1 January 2009 (KESt and SolZ) remained the same.
The issuer of the growth fund must provide the maximum tax amount (tax liquidity), which includes KESt (25%), SolZ (5.5% of the KESt) and the highest possible KiSt (9% of the KESt)1.
The last domestic paying agent reduces the tax liquidity by KESt and SolZ and credits the reduced tax liquidity (KiSt) to its foreign customers. German domestic depository banks get the full tax liquidity in Germany as the last domestic paying agent for their clients. The foreign customer is credited with the KiSt because he is not liable to church tax.
KESt, Solz and KiSt are deducted in cash from the fund’s capital, so that the intrinsic value of the fund’s units is reduced, but, because KiSt, unlike KESt and Solz, cannot be reclaimed via German Tax Authorities, non-German investors and German customers not subject to church tax must get the withdrawn KiSt back from the fund’s capital.
The following example compares the two tax regimes to show the calculation differences. It also shows that a foreign customer has the same value of the growth fund independent of the effective tax regime.
| Tax regime before OGAW | OGAW IV | |
Reinvestment | 100.00 | 100.00 |
| KESt 25% a | -25.00 | -25.00 |
SolZ 5.5% of KESt | -1.37 | -1.37 |
KiSt 9% of KESt | 0.00 | -2.25 |
Assets of growth fund | 73.63 | 71.38 |
Credit of KiSt to foreign customer | 0.00 | 2.25 |
| Assets of growth fund after KiSt credit | 73.63 | 73.63 |
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a. The displayed KESt is not correct: normally, the 25% tax rate is reduced to 24.45% because the German Income Tax Act excludes the church tax as a special expense.
- InvStG 2018 (as of 1 January 2018)
No KESt and SolZ are deducted by LuxCSD for fund distributions of German funds, if evidence is provided that the fund is an investment fund pursuant to § 1 InvStG or a special investment fund pursuant to § 53 InvStG. For funds not certified accordingly, the OGAW IV tax deduction logic is applied. If no tax base (Bemessungsgrundlage) parts are delivered, the income amount is taken as the tax base.
Distributions of tax liquidity are not processed by LuxCSD.
Calculation done by the last German domestic depository bank based on the OGAW IV regime
The following section describes, referring to WSS screenshots, the calculation that is done by the last German domestic depository bank (auszahlende Stelle).
The tax calculation is done on the following taxable bases (Bemessungsgrundlagen):
- Domestic Dividend Part (inländischer Dividendenanteil);
- Foreign Dividend Part (ausländischer Dividendenanteil);
- Interest Part (Zinsanteil);
- REIT Part (REIT-Anteil);
- Estate Part (Immobilienanteil).
Example for calculation of tax:
Note: Customers of LuxCSD and customers of Clearstream Banking AG with "6-series" accounts on the Creation platform, are considered as foreign residents.
| Customer | Holding | |
Foreign | 100 Units | |
Domestic | 100 Units | |
| Field name in WSS-WM | Description | Value |
| Tax liqudity / liability (Steuerliquidität): | ||
ANZUF.ST.LIQUID. | Full tax liquidity per tradable unit | EUR 2.799 |
| Taxable bases (Bemessungsgrundlagen): | ||
KEST-BG ZINSEN | Interest Part | EUR 3.00 |
KEST-GRUNDL.MIETE | Estate Part | EUR 4.00 |
REIT-DIVIDENDEN | REIT-Part | EUR 1.00 |
DIV.OHNE REIT-DIV. | Domestic and foreign Dividend Part | EUR 2.00 |
Calculation for foreign customers in LuxCSD:
Holding * (full tax liquidity-(sum of taxable bases/100*26.375) = Credit:
100 * (2.799 - ((2+1+3+4)/100*26.375) = 16.15
These taxable bases can be found in WSS-WM (see the attachment).
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1. The church tax (KiSt) is paid by members of religious communities, based in general on income tax and the church real-estate tax, for the financing of the issues of the church. In the Federal Republic of Germany, the church tax is deducted by the respective local tax offices and not, as in most other countries, by the religious communities themselves.