German investors receiving dividends from foreign stocks are often confronted with a withholding tax that diminishes their returns. This withholding tax is deducted directly at source by the foreign country and can be divided into two types: creditable and refundable withholding taxes.
Creditable and Refundable Withholding Tax
Creditable withholding tax can be credited against the German flat tax on capital gains. For example, if 15% withholding tax was paid abroad, the German capital gains tax will be reduced accordingly.
Refundable withholding tax, on the other hand, cannot be automatically credited and must be reclaimed by the investor from the respective foreign tax office. This often occurs through an application to the foreign tax authority, accompanied by relevant documentation. Applications can usually be submitted retroactively for up to three years.
Practical Steps for Investors
- Check the actual withholding tax rate compared to the DBA rate.
- Gather all relevant documents as well as a current residency certificate.
- Submit the application directly to the foreign tax authority.
- Provide important information such as ISIN and exact dividend amounts.
- Keep confirmations of the application safe.
Since many countries have different procedures and processing times can be lengthy, it is advisable to act early.
Some brokers do not offer support for the recovery process; investors must carry out the process themselves or hire a service provider.
This approach enables German investors to optimize their net dividends despite initial reductions caused by foreign withholding taxes.
| Step | Description |
|---|---|
| Check withholding tax rate | Determine the actual withheld tax rate vs. DBA agreement |
| Gather documents | Provide dividend proofs + residency certificate |
| Submit application | To the foreign tax office with form/online portal |
| Provide important information | Input ISIN numbers, dividend amounts without % sign |
| Note processing time | Can take months to years |
This way, German investors can reclaim parts of their foreign withholding taxes and improve their dividend yields.