Mutual Fund Taxation – This comes to you as an investor

Investing in mutual funds is becoming increasingly popular among investors. You have the opportunity to start with small investment amounts already and spread your risk by investing in various companies. As an investor, you are protected by a regulatory authority that verifies that the investment fund rules are in place. From 01.01.2018 the taxation of investment funds should change. What depends on investors?

What changes for investors?

What changes for investors?

In 2018, domestic funds should be treated as foreign tax equivalent. The aim of this measure is to make the preparation of tax returns easier and to close tax loopholes. Then, all in all, only four details are needed for the taxation of investment funds:

  • Amount of the distribution
  • Value of the investment fund at the beginning of the year
  • Value of the fund at the end of the year
  • Type of fund (equity funds, mixed funds, real estate funds)

From 2018, private investors as well as institutional investors will pay a fund tax on their fund shares. In order not to burden investors financially twice, the withholding tax from 2018 partially eliminated. For equity funds, 30 percent of profits remain tax-exempt (so-called partial exemption). For real estate funds, there are 60 percent and 80 percent when the investment focus of the fund is abroad.

Real estate funds
15 percent corporation tax will be payable on 01.01.2018 for the following dividends:

  • Dividends on income from rent
  • Dividends resulting from profits from real estate sales

Balanced funds
As far as mixed funds are concerned, the size of the equity funds is crucial. The prerequisite for 15% of the dividend payments being tax-free is that you invest at least 25% in equities with the funds.

Advance flat rate for accumulating funds

Advance flat rate for accumulating funds

In the case of accumulation funds, there is an advance lump sum which is determined by the respective custodian bank at the end of each year and directly deducted by the custodian bank. This depends on the value of the fund and the base rate. At the beginning of the following year, investors pay taxes on this lump sum. Again, you shouldn’t have to pay twice. Therefore, in this case, the tax paid will be offset against the flat-rate compensation. In addition, there is the possibility of an application for exemption for savers whose profits remain below a certain annual allowance. In this case, you do not have to pay taxes:

  • Singles: As a single person, you can apply for an exemption on capital gains up to € 801
  • Married or couples in registered partnership: Option of an application for exemption for profits up to 1,602 euros

You need to pay taxes on exchange-traded funds (ETFs) if they are called synthetic ETFs. In this case, the ETFs will be subject to withholding tax. Synthetic and physical ETFS are equal in taxation terms.

Elimination of grandfathering

If you have purchased investment funds before 2009, you must pay withholding tax on income from 01.01.2018. If you want to sell these, you have a free allowance of 100,000 euros. As soon as you exceed this, you will incur the following costs:

  • 25 percent withholding tax
  • solidarity surcharge
  • Possibly. church tax

Taxation of investment funds – the changes at a glance

Taxation of investment funds - the changes at a glance

  • From 1 January 2018, the taxation of investment funds and ETFs will change
  • Domestic and foreign funds are then equated
  • The fund tax is calculated by the custodian bank and paid directly to the tax authorities
  • You have the option of an annual allowance: No income tax is payable on income up to 801 euros (single person) or 1,602 euros (married)
  • The grandfathering is eliminated
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