Caution with custody accounts with foreign brokers: Why German investors have a tax liability here

In times of neobrokers and global trading, access to international financial markets is easier than ever before. But many German investors underestimate this: While German banks automatically pay capital gains tax to the tax office, this is not the case with foreign brokers. Those who do not take action themselves are in breach of their tax obligations and risk criminal tax proceedings.

The misunderstanding: flat-rate withholding tax is not a sure-fire success

In Germany, capital gains are generally subject to a final withholding tax of 25 % (plus solidarity surcharge and church tax, if applicable). At a German bank, the system works silently: the bank calculates the tax, withholds it and pays it to the tax office. For the investor, the tax liability is thus "settled".

This system does not apply to foreign brokers. Foreign brokers without a German branch generally do not pay taxes to the German tax office. Profits are paid out gross. This leads to an active obligation on the part of the investor:

1. Cancellation of the compensation effect: As no tax was withheld at source, the exempting effect of the tax deduction does not apply.
2. The active debt to be discharged: In this case, you are legally obliged to declare this income in your income tax return. You must provide the tax office with the data (Annex KAP) without the tax office requesting you to do so separately.
3. Transparency through AIA and DAC8: Through the Automatic exchange of information (AEOI) and the new EU directive DAC8 the Federal Central Tax Office (BZSt) receives detailed data on your foreign deposits and crypto transactions from most countries. The tax office uses this as control material to check whether you have fulfilled your obligation to pay tax.

Special case of crypto assets

• Profits from Bitcoin & Co. are generally not subject to withholding tax, but are recognised as Private sale transaction (§ 23 EStG) taxed at your personal income tax rate (up to 45 %).
• Holding period: After one year, the sale is not taxable, i.e. these crypto transactions do not have to be declared in the tax return - but the documentation of the transactions (e.g. by means of transaction overviews, screenshots, etc.) is important in order to be able to prove that the one-year period has been exceeded in the event of queries from the tax authorities, which are becoming increasingly likely in view of the new information options mentioned above.

The solution: subsequent declaration and voluntary disclosure

If you have not declared income abroad or taxable crypto gains in the past, there are two ways back to legal certainty:

• Tax return correction (§ 153 AO): If you have made a mistake without intent or recklessness (e.g. not realising that the broker did not withhold tax), you must correct it immediately.
• Self-disclosure exempting from punishment (§ 371 AO): If there has already been tax evasion in the case of wilful non-disclosure of income (even through mere omission), voluntary disclosure is the only way back to legality. This requires a complete review of all years for which the statute of limitations has not expired before the tax office becomes aware of this, for example as part of the exchange of information. Only then can the voluntary disclosure have the effect of discharging the offence.

Why refurbishment is a professional matter

A subsequent declaration is often more complex than expected. Standard reports from foreign brokers often deviate from the German tax logic, as the addressee is not the German tax office. We support you in preparing the report for the tax office. Frequent topics include the categorisation of certain financial products, currency conversion, the application of the FiFo method, the correct offsetting of loss pots and the offsetting of foreign taxes in accordance with double taxation agreements.

Conclusion: Proactive action is mandatory

The use of foreign brokers completely shifts the tax responsibility to the investor. Anyone who realises profits without tax being withheld is obliged to declare them transparently and promptly.