Since the year of 2009, there is a special tax on dividends and interest income, a so-called "Abgeltungsteuer" which proceed with 25 percent on that income.
The government's goal is to simplify the tax rules for capital income. Only in certain exceptions, an income tax declaration must be turned in.
But in practice, it appears that many exceptions and special rules often leads to increased administrative work.
At a bonus allocation from a capital company to its shareholders, a 25 percent tax credit for this so-called "Abgeltungssteuer" is made. In addition, the so-called "Solidaritätszuschlag" (East/West unification Appendix) is added by a further 1.375 per cent.
The rules and rates of taxation generally apply to foreigners. However, the tax deduction is considered as an advanced payment of the tax burden. The Double taxation agreement between Sweden and Germany applies in this context.
An example:
A Swedish citizen has a share in a German GmbH. At a bonus allocation that is 10,000 Euro, 2,638 Euro (2,500 Euro Abgeltungssteuer and 138 Euro reunification Appendix) shall be deducted and be paid to the Tax Authority.
The Double taxation agreement between Germany and Sweden, however, states that the tax burden cannot exceed 15 percent (i.e. 1,500 euro). The difference of the paid tax burden in Germany, which is 1,138 Euro, can be retrieved by an application at the Bundeszentralamt für Steuern (BZSt). In Sweden, the normal tax rules are used on dividends, but the tax burden of 15 percent in Germany will be refunded.
For shares in the company's operating assets the "mother-daughter relationship" (EWG) Nr. 90/435 applies. Under these conditions, the dividends from the German subsidiary to Sweden are tax free. However, a tax deduction is made automatically, which can be prevented with an application to BZSt.
The best and most effective solution is to apply for tax exemption for dividends at BZSt before the deduction is made.
Oliver Bartl
Operations Manager
SkanRevision