Limited Use of the Saver’s Flat-Rate Allowance in Cases of Limited Tax Liability
While people generally take their tangible assets with them when moving abroad, securities accounts and loan agreements often remain in Germany. This raises the question of which tax benefits one can continue to take advantage of.
Taxation of Investment Income
For investment income from private assets, the finality principle generally applies; that is, taxation is carried out via the capital gains tax (25%) and is thus settled. If the income consists of interest or dividends distributed through a domestic bank, the capital gains tax is already withheld by the bank at the time of distribution. These capital gains therefore no longer need to be reported on your tax return. However, it is worth taking a look at the saver’s flat-rate allowance under Section 20(9) of the German Income Tax Act (EStG). This serves as a “substitute” for income-related expenses and can be registered with the bank, so that no capital gains tax is withheld on capital gains below this flat-rate allowance (as of 2026: € 1,000).
If you earn other types of investment income (e.g., interest under a private loan agreement) or have not registered a lump-sum allowance with your bank, these must be reported on your tax return and are subsequently subject to a 25% capital gains tax if they exceed the saver’s flat-rate allowance.
No Entitlement to the Saver’s Flat-Rate Allowance
However, if a person has neither a domicile nor a habitual residence in Germany and is considered to have limited tax liability, this use of the saver’s flat-rate allowance does not apply by analogy. In its ruling of April 4, 2023, 2 K 1405/19, the Saarland Fiscal Court (“FG”) addressed this issue. According to the FG, a taxpayer with limited tax liability does not have the option of having the saver’s flat-rate allowance – which replaces income-related expenses and is linked to capital gains tax liability arising from domestic capital gains – taken into account through the tax assessment process. In other words, it is neither possible to deposit a saver’s flat-rate allowance with the relevant bank or credit institution nor to reclaim the capital gains tax paid on income up to that amount as part of the tax return.
Favourable Treatment Test
However, in cases where capital gains tax is not automatically withheld, it is possible to include the saver’s flat-rate allowance in one’s tax return despite limited tax liability through the so-called “favourable treatment test” under Section 32d(6) EStG. This test determines whether the progressive income tax rate is more favorable in the individual case than the 25% capital gains tax rate. If this results in the taxpayer “sliding” into the income tax brackets, the saver’s flat-rate allowance may also apply to taxpayers with limited tax liability.
In a second step, it is also recommended in every case to review any applicable double taxation treaties in order to arrange for a possible credit or refund of taxes paid in Germany. As a tax firm specializing in international tax law, we are happy to offer you our advice on this matter.
Kerstin Aigner | TLI Steuerberater
