EU Tax Regulations for Investment Funds

EU Tax Regulations for Investment Funds

We will observe this on the case of Germany.

Vast tax reporting changes and pre-payment of estimated annual gains taxes impacting every Expat and German residing in Germany and having fund investments were performed by the German government as a reaction to court decisions of the European Union.

The new rules impact markedly upon the profitability of investments and investors throughout the European Market area as well. These are retroactive to January 1st, 2018.

What does one have to do to be in compliance with the new regulation?

According to, the capital gains on each fund will need to be calculated from the beginning of 2018. These are now taxable as long as these funds have not been sold before the end of the year.

Therefore the following steps will have to be undertaken for each fund.

“Classification into one of three fund categories. (Equity fund, Mixed fund or ‘Special’ fund)

Calculation of the capital gain between January 1st and December 31st after the deduction of distributions.

Calculation of the following year’s taxable gain.

All future profit calculations will be set against the income generated by the proceeds of an actual sale of the fund. If an additional investment in a fund is undertaken, or if balances are only partly sold, the documentation is even more complicated, especially as a reporter covering the financial returns of an investment in each fund over the past several years will also be required.

Conservatively estimated, one can expect an annual time expenditure per fund for this additional documentation of at least half an hour and more. This will result in considerable additional costs for advice from your tax adviser. That, in turn, will have a negative impact on the returns of an investment portfolio.

Note that no prepayment taxation will need to be calculated for funds sold in 2018, because the actual profit and loss on these investments will already be apparent. Investors should, however, decide now how their fund investments should be structured for the future.”

These new tax regulations should be considered with your tax adviser. Because of new regulations, investors may discover that their “significant other” is not a wife or husband, darling or partner but their tax advisor!

These regulations are relevant for all investors

Everyone resident in Germany must declare global investment assets for tax purposes. The new twist is – the payment of estimated gains taxes — even if the product has not been sold. 

That is something new.

Should the investment eventually be sold, the actual sale price tax will then result in a tax credit should a loss have been incurred. Conversely, a greater tax will be imposed based on the increased profitability above and beyond the estimated pre-sale payments.

This also applies to US nationals who, because of their US citizenship, have to report their investment income in the United States as well as in Germany. However, double taxation can be avoided by calculating the German taxation against one’s US tax liability.

However, if you are holding all your investment assets with a custodian bank in Germany and your bank is undertaking the necessary administration, you need not read on — because your custodian bank will calculate all necessary tax information under the new regulations and will prepare a certificate for you to send to your tax office.

If, on the other hand, your financial investments are held with banks outside Germany, you and your tax adviser will have to prepare the necessary documentation for tax purposes in Germany.

This new situation with its myriad hypothetical situations can become an accounting nightmare especially given its esoteric probabilities. Related regulations being couched in language which is difficult enough for experts but obscure to amateurs. 

Worse, even more, new rules are anticipated further compounding the situation.

So, think twice if you want to invest somewhere in Germany.

Also, you should take care about double taxation in the EU.

However, high tax rates in Europe caused many investors to search for zero-tax countries.

Finding zero-tax country

While living in Europe and paying zero income tax is a rare feat, it is possible for almost anyone to live in Europe full-time and pay low taxes on their income. Even if they’re not a millionaire.

We are not talking about living like a digital nomad. Of course, it’s possible to spend three months in the summer living in Europe, then spending another few months further south in a country like Serbia. So long as you don’t place tax bonds in any one country, your only care is making sure you aren’t on the catch for taxes in your home country.

For many successful people, the choice is full-time home and the benefits of minimal taxation.

That’s where low tax countries come to the scene.

While some countries like France will always be off-limits to those seeking top tax planning, you can find a dozen European countries with favorable tax rates.

For example, Andorra. The only tax is an income tax, of which a plentiful 24,000 euros is exempt, and the top rate of 10% takes effect at the 40,000 euro level. To start a company, you will need to present a business plan, and deposit a 50,000 euro bond for a single applicant.

Or, Bulgaria. At 10%, Bulgaria has the European Union’s lowest personal income tax rates. Bulgaria’s tax system is simple: live there and pay 10%

Or, Malta. Malta is part of the Schengen Area, and part of the European Union. Malta has some of the EU’s most tax-friendly programs. For individual residents and corporations, corporate tax rates are low, only 5%.

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