Germany, like many other nations, has recognized retail trading, including profits from Forex trading, as taxable. German residents must understand and declare their trading profits on their tax returns.
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This article covers key areas of German taxation for trading, including:
- The tax rates for Forex trading income in Germany
- Tax benefits and exemptions in Germany
- Taxation tips for Forex trading in Germany
To give readers context, I have broadened the topics to discuss German Forex legislation and financial regulators.
Let’s get started.
What Are the Tax Rates for Forex Trading Income in Germany
There Are Three Parts to Trading Taxes
Tax rates for trading gains or income consist of three parts:
- Capital Gains Tax ((Kapitalertragsteuer)—mandatory of 25% of capital gains.
- Solidarity Charge ((Solidaritätszuschlag)—mandatory 5% of capital gains tax.
- Church Tax (Kirchensteuer)—optional 8% or 9% of capital gains tax.
The capital gains tax and solidarity charge take the total tax rate to 26.375%, and with an optional church tax of 9%, the total becomes 28.625%.
Let’s go through each part in more detail.
Capital Gains Tax (Kapitalertragsteuer)
The capital gains tax is generally 25 percent (a different rate only applies in a few exceptional cases).
The capital gains tax applies to gross profit from capital investments such as interest, trading gains, and dividends from share corporations.
Solidarity Charge (Solidaritätszuschlag)
The solidarity surcharge is an additional fee on capital gains tax. It is currently 5.5% of the 25% (not 5.5% of the capital gains). This equals 1.375% of the gains (0.25 x 0.055 x 100), bringing the capital gains tax plus solidarity charge to an effective rate of 26.375%.
Church Tax (Kirchensteuer)
The additional church tax currently varies between 8% and 9% of the capital gains tax, depending on region and religious affiliation.
Only members of a respective church pay the church tax. Non-members of a church tax-collecting denomination do not have to pay it. Under public law, members of a religious community can formally declare their wish to leave the community to state (not religious) authorities. With such a declaration, the obligation to pay church taxes ends. Some communities refuse to administer marriages and burials of former members who declared to leave.
Using 9%, the church tax is effectively 2.25% of the gains (0.25 x 0.09 x 100). Adding this to the capital gains tax and solidarity church, a 9% church tax brings the total effective tax rate to 28.625%.
Trading Gains Are Subject to Capital Gains Tax, Not Income Tax
German residents pay capital gains tax on their trading gains rather than including them in their income tax.
German residents (regardless of citizenship) pay tax on Forex and other capital gains. German laws determine residency for tax purposes on several factors, including:
- Whether the person has a dwelling or habitual abode in Germany.
- Whether their physical presence exceeds six months in a tax year.
How Much Trading Income Is Tax-Free in Germany
Investor’s Allowance
Capital gains qualify for the 'investor's allowance' of EUR 1,000 per taxpayer per year (for the total of all capital gains). This amount is doubled for married taxpayers filing jointly.
German Forex Legislation
The Forex market in Germany operates within a well-defined legal framework to ensure a secure environment protecting traders and market integrity. German legislation allows residents to participate freely in Forex trading, i.e., buying and selling currencies on leverage for speculative purposes.
The heart of Germany’s financial regulation lies with the German Financial Regulatory Authority or BaFin.
Germany’s Forex legislation aligns with the European Securities and Markets Authority (ESMA) and the Markets in Financial Instruments Directive (MiFID). This means that the European Union leverage limits apply to German traders.
German Financial Regulators
BaFin—Germany’s Financial Regulator
The Bundesanstalt für Finanzdienstleistungsaufsicht, or BaFin, monitors Germany’s financial institutions, including Forex brokers. BaFin’s remit ensures market stability and shields consumers from financial malpractices.
German Forex Broker Regulation
Forex brokers in Germany are not legally required to obtain BaFin authorization, but doing so is a sign of a Forex broker’s commitment to adhering to strong regulatory standards.
To verify if a Forex broker is authorized by BaFin, look for a BaFin registration number in the disclosure text at the bottom of the broker's homepage. Next, look up the registration number on BaFin’s financial register on their site to validate that the broker is currently authorized in Germany.
Tax Benefits and Exemptions in Germany
Aside from the EUR 1000 Investor’s Allowance, there are no other exemptions for retail traders (e.g. Forex or equity traders) in Germany.
Germany’s Grundfreibetrag, or annual basic allowance, only applies to income tax, not capital gains tax. For reference, the annual basic allowance is €11,604 for 2024, i.e., the first €11,604 of a single person’s income (after deducting costs) is tax-free.
Taxation Tips for Forex Trading in Germany
- Determine if you are a German resident for tax purposes: This may be straightforward for most people, but it could be unclear for people who spend more than six months of the year out of the country. Remember, citizenship does not determine residency for tax purposes.
- Know if your broker withholds taxes: German brokers generally automatically withhold taxes from trading gains—find out from your broker if they do so.
- Consult a tax specialist if your situation is complex.
Bottom Line
All German residents pay tax on capital gains above the Investor’s Allowance (EUR 1000 for 2024). The tax on Forex trading and other market gains consists of capital gains tax (currently 25%), and a solidarity charge (currently 5.5% of the 25%), bringing the total charge to 26.375%. Lastly, the optional church tax (8% to 9% of the 25%) brings the effective tax on trading to 28.625%.
German Forex brokers are not required to register with Germany’s financial regulator, BaFin, but a broker’s registration is a sign of high standards. Find out from your broker whether they automatically withhold taxes on trading gains.
