How German Investors Can Recover Withholding Tax on Dividends
German investors who invest in international stocks are often subject to withholding taxes imposed by the respective countries. However, these taxes can be reclaimed under certain conditions. Here is a comprehensive guide on how German investors can recover withholding tax on dividends.
1. Double Taxation Agreements (DBA)
Legal Basis: Double taxation agreements between Germany and the respective foreign state regulate how taxation rights are divided. These agreements prevent double taxation and allow for the recovery of excessive taxes.
Example: If a German investor receives dividends from an Austrian stock corporation, a withholding tax of 27.5% is withheld in Austria. However, according to the DBA between Austria and Germany, the allowable withholding tax is only 15%. The investor can claim back the difference of 12.5%.
2. Application Submission
Deadlines: The application for the refund of withholding tax must be submitted within a certain time frame. This deadline varies depending on the country and DBA; it is often between one to three years after the payment of dividends.
Forms and Documents: The application requires specific forms and documents, which may vary by country. These typically include proof of dividend payment and confirmation of tax residency.
3. Contacting Foreign Authorities
Directly with the Foreign Tax Authority: The refund of withholding tax is usually done directly through the foreign tax authority. Therefore, German investors must contact these authorities to submit their application.
4. Creditable vs. Refundable Withholding Tax
Creditable Withholding Tax: A portion of the withholding tax can be credited against the German capital gains tax. This reduces the German tax burden without needing a refund.
Refundable Withholding Tax: The excess portion of the withholding tax that is not credited can be directly refunded from the foreign authority.
5. Advice and Support
Tax Advisors or Financial Service Providers: Due to the complexity of application procedures, it may be advisable to consult a tax advisor or a financial service provider with experience in international tax matters.
6. Examples of Stocks with Increasing Dividends
In addition to reclaiming withholding tax, it’s important for investors to invest in stocks that pay increasing dividends over the years. Examples often include established companies in stable industries that pursue a consistent dividend policy.
By utilizing double taxation agreements and submitting applications correctly, German investors can effectively recover withholding tax on dividends and maximize their returns.