Foreign Investment Accounts and Taxes: Reporting Income on Form KAP

How can you tell if your bank is paying taxes?

The paying agent is the decisive factor. A domestic credit institution, financial services provider, or securities firm that holds or manages the securities or handles their sale and pays out or credits the income withholds the capital gains tax and remits it to the tax office (Section 44(1) of the Income Tax Act (EStG)). In this case, the income tax on these earnings is considered paid in full (Section 43(5) of the Income Tax Act (EStG)), and the tax return is generally left blank for these items.

If a provider does not have a domestic paying agent, this deduction does not apply. The tax office does not automatically receive the income, but the tax is still due.

What should be included in Schedule KAP for a foreign securities account?

All investment income on which no German withholding tax was withheld must be reported on the income tax return (Section 32d(3) of the German Income Tax Act (EStG)). This includes interest, dividends, and gains from the sale of stocks. These gains are always subject to taxation, regardless of other tax thresholds (Section 32d(3) of the German Income Tax Act (EStG)).

Fund income not subject to domestic withholding tax is reported on Form KAP-INV: current income from investment shares, as well as gains and losses from their sale. Information regarding the saver’s flat-rate allowance is reported on Form KAP. Foreign taxes on fund income also belong on Form KAP; Form KAP-INV does not have a field for this.

The tax amounts to 25% of the income, less any creditable foreign tax. In addition, there is a solidarity surcharge of 5.5% on the tax and, if applicable, church tax (Section 32d(1) of the Income Tax Act (EStG)). The saver’s flat-rate allowance of €1,000 (€2,000 for jointly assessed spouses) is deducted as income-related expenses (Section 20(9) of the Income Tax Act (EStG)); actual income-related expenses are excluded. If the personal tax rate is below 25%, the “more favorable treatment” test may be requested: In this case, investment income is taxed at the standard rate if this results in a lower income tax, including surtaxes (§ 32d(6) EStG). The application applies uniformly to all investment income for the year; for spouses who file a joint tax return, it applies to the investment income of both spouses.

When it comes to foreign investment accounts, there’s a catch to the “more favorable treatment” rule: Foreign tax is then credited only against the additional income tax at the standard rate that applies to the capital gains that have been added to the taxable income. Those who have paid a lot of withholding tax may therefore be able to offset less and end up worse off, even though their tax rate is lower. A comparison of tax rates alone is therefore misleading; only a complete calculation of both approaches is meaningful.

How do you report a foreign brokerage account on your tax return?

How is foreign withholding tax credited?

If another country levies tax on the dividend, that tax is credited against the German income tax (Section 32d(5) of the German Income Tax Act (EStG)). This is subject to the condition that the tax originates from the same country as the income and that it is equivalent to German income tax. Taxes levied by a third country or any other foreign tax are not credited.

Three limits apply. First, only the tax assessed and paid counts, reduced by any entitlement to a tax credit. If more tax was withheld abroad than provided for under a double taxation treaty, the excess amount must be settled there and is not creditable. Second, a maximum of 25% of each individual income item is credited. For fund income, only the portion that remains taxable after the partial exemption counts toward this limit. Third, the credit is limited to the German tax attributable to the investment income received during the year. The 25% limit thus applies to each item of income; this cap applies to all income for the year combined. A high withholding tax on a single dividend may therefore still leave room for the German tax on the remaining income.

A tax that is deemed to have been paid under a treaty (deemed withholding tax) is also credited. It has its own field in the KAP attachment and does not belong in either of the two fields for credited and creditable taxes.

The “Creditable Foreign Withholding Tax” overview from the Federal Central Tax Office (as of January 1, 2025, published on June 20, 2025) shows which rate applies under each treaty.

How is the advance lump-sum amount calculated for a foreign securities account?

Without a domestic institution, no one calculates the advance lump-sum payment. The amount is determined using the same formula as in Germany: fund value as of January 1 multiplied by the base interest rate multiplied by 70 percent, capped at the increase in value and reduced by distributions (Section 18 of the Investment Income Tax Act (InvStG)). The base interest rate is 2.53% for 2025 and 3.20% for 2026. It is deemed to have been received on the first business day of the following year and is therefore included in the tax return for that year. The procedure is described in the article on the advance lump sum.

The partial exemption under Section 20 of the Investment Income Tax Act (InvStG) applies regardless of the bank’s place of business; it depends on the fund’s category. This category is determined by the fund’s investment terms: According to these terms, an equity fund continuously invests more than 50 percent of its net assets in equity investments, while a balanced fund invests at least 25 percent.

How are losses included in the statement?

Losses from capital assets cannot be offset against income from other sources, such as salary (Section 20(6), first sentence, of the Income Tax Act (EStG)). They reduce capital gains in subsequent years (second sentence). Losses from the sale of shares offset only gains from the sale of shares (sentence 4). For spouses who file a joint tax return, the offset is applied jointly before any loss carryforward is determined (sentence 3).

You don't need a loss certificate for a foreign securities account. It is only required for losses subject to capital gains tax, and losses incurred through a foreign institution are not subject to that tax.

What documents are required for a foreign securities account?