Interest from a foreign bank account may be taxable in Germany. Your tax residence, the type of investment and applicable statutory and treaty rules are decisive. A foreign bank does not automatically fulfil your German reporting obligations for you.
When must foreign interest be included in a German tax return?
Individuals with a residence or habitual abode in Germany are generally subject to unlimited income tax liability under § 1 EStG . This also covers foreign income; a double taxation treaty may affect its treatment.
Taxable investment income that has not been subject to German withholding tax must be included in the income tax return under section 32d(3) EStG . This often applies to foreign bank interest. The specific bank documents show whether German withholding tax has been deducted.
How is the income calculated?
Details of interest received and the investment documents are needed. Foreign currency amounts, foreign taxes withheld and the time of receipt must be recorded accurately. The saver allowance may be relevant for private investment income. Amounts already taken into account at other banks must also be considered.
Private investment income is often subject to a separate tax rate of 25 per cent, plus solidarity surcharge and church tax where applicable. However, statutory exceptions and an assessment using a more favourable personal rate may apply. Business investments may be subject to different rules.
Is foreign withholding tax credited in full?
Not automatically. Section 32d(5) EStG limits the credit and also takes account of entitlements to foreign tax relief. Any applicable double taxation treaty must also be reviewed. Part of the foreign tax may need to be reclaimed abroad rather than credited in Germany. The amount cannot be reliably determined without the documents and the country concerned.
Which documents are useful?
- Annual statements and interest certificates from the foreign bank.
- Evidence of foreign taxes withheld and actually paid.
- Details of residence, stays and possible changes during the year.
- Previous tax returns and assessments for the periods concerned.
- An overview of other investment income, for example from German banks.
What if income has not previously been declared?
First, the years concerned, income and returns already filed must be identified. If a taxpayer later discovers an error relevant to tax, a duty to notify and correct promptly may arise under § 153 AO .
This must be distinguished from a voluntary disclosure providing immunity from punishment under Section 371 AO. Among other things, it requires complete information and compliance with statutory payment requirements. Blocking grounds may exclude immunity. A blanket promise that reporting omitted income ends all criminal prosecution would therefore be incorrect.
How I can support you
Together, we review the treatment of your foreign investment income and how to handle returns already filed. I consider tax and, where relevant, tax criminal law issues together. Appointments are available in Berlin, Munich and online.
Further information: Tax law advice and Representation in tax criminal law.
Legal bases
In particular § 1 EStG, § 20 EStG, § 32d EStG and sections 153 and 371 AO. The applicable double taxation treaty depends on the specific facts.