I remember the last time I looked into stocks and Germany my conclusion was the following:
āIf I perform well with stocksā = I have to pay a lot lot lot of taxes
āIf I am performing ok with stocksā = I have to pay a lot lot of taxes
āIf I underperformā = I have to pay a lot of taxes
āIf I lose all my money a la BITCONNECTā = I donāt have to pay any taxes
It became clear early on that even if I am a smart investor for the long run ā on top of the risks I do have to pay all these taxes.
Compare this with my current setup here in the UK:
ETFs via Vangaurd ISA
Freetrade Stocks (non-ISA at the moment but under capital gains limit)
Unless Germany is changing their tax system on stocks and dividendsā¦ I find the UK and Freetrade a very attractive environment to invest.
You might want to sync your personal situation with the taxation regulation - especially with regards to your residency status.
Ordinary UK residents (as opposed to non-doms or those with unlimited tax liability in Germany), canāt claim the German ā¬801 relief anymore.
Dividend income is taxed at source, so your German broker will withhold 25% plus 5.5%, about half of which you can reclaim from the German HMRC equivalent as per double taxation agreement, but thatās a very manual process.
Re comdirect: Iām a bit confused by their Wertpapiersparplan conditions - account appears to be free initially, but thereās still an order charge of 1.5%. That, plus all the tax is more off-putting to me than a limited stock/ETF universe.
Re Trade Republic: They seem to have pretty strict residency requirements for new customers.
I for one canāt wait for Freetrade to expand their universe. As soon as FT covers the stocks I still hold in Germany, Iāll be transferring (well, letās see how EUR will be handled), even if that means taking a one-off Capital Gains Tax hit by selling and repurchasing. The ideal situation of course would be a cross-country portfolio transfer-in, but that seems rather unlikelyā¦
Is dividend income taxed with 25% and not 15%? Or is the other 10% other taxes like āKirchensteuerā etc.?
That order charge with comdirect is 0% IF you pick one of their āfreeā 170 ETFs. This is not true for any other stocks or ETFs you might want to select. Those have indeed a 1.5% order charge.
Abgeltungssteuer is 25% and charged on interest & dividends, and on that 5.5% SolidaritƤtszuschlag (fab material for compound word fetishists), which I think is a total deduction of 26.375%. Normally brokers automatically withhold this, including for overseas residents.
The double taxation agreement specifies max 15% withholding tax on dividends, so as UK tax resident you can reclaim 11.375% from Bundesfinanzministerium.
Note, this is just my understanding as a normal investor, I canāt guarantee that the above is correct, but it reconciles with my paperworkā¦
@Raul Unfortunately, I do not think there is.
However there are other books like āThe Little Book of Common Sense Investing by Bogleā that are all about passive investing.
The book by Gerd Kommer is just mainly focused on broadly diversified ETFs and proclaims the advantage of passive investment strategies over active ones based on scientific evidence.
Now this topic is always highly controversial between people so people have to come to their own conclusions. Other good books are Talebs āSkin in the Gameā or āFooled by Randomnessā.
@CEY You are welcome. The Gerd Kommer book is one of the best passive investment books I ve read so far.
I think it should be read by anyone interested in passive investing or long-term investing in general.
@Tim Okay, I believe I have read that somewhere before
It kinda dawned on me. I also did not understand what actually changed with the new taxation laws of 2018. There are a lot of articles about it out there which seem very convoluted.
It would be a very short post due to my personal circumstances, ie, small bankroll.
But Iāll tell you this much. It has been both an eye opening experience and a humbling experience
Edit: I mainly go for index trackers. Outside Freetrade, I have money on a SP500 tracker.
On Freetrade I have 3 ETFs, all focused on dividends: S&P Dividend Aristocrats, UK Dividend and Euro Stoxx 30 Dividend. If I understand correctly, dividend stocks have less volatility. Why ETFs rather than picking individual stocks? Cuz itās the most sensible thing to do with the small amount of money I am able to deploy, and I find it hard to believe reading those books is enough. I mean, will I play football as good as Messi if I buy and put on his boots and jersey?! But Iāll give it a go with fractionals and a small pot.
I also allocate some funds to crowdfunding. At the moment the weight of my crowdfunding investments is on the high side and I must not do any more for a while in order to regain balance.
I do like to read. I wouldnāt do anything else in life if I could
I have my ISA all in Lifestrategy 100 and I think FTSE All Cap.
Then I have about 15 different individual stocks through the Freetrade app. Iāve been reading and watching videos of Peter Lynch and trying to follow his philosophy of invest in what you know (and also research fundamentals).
Iām more open to risk so thatās why Iāve got some individual stocks. I work and have friends in engineering, so I discover some info that may not be as well known/understood by institutional investors. Iām hoping Freetrade will add more interesting LSE and AIM stocks as thereās mainly only well know stocks at the moment, so this limits what you can invest in.
While the choice on FT can seem somewhat limited, itās plenty and any more choice would possibly just be a diversion. Do we need more indices that investable securities anyway? Anyway ā¦
Having grown up in Germany and keeping in touch with some Germans, taxes are bad. 25% tax on all capital gains and all dividends with a very low exemption. Yes, many banks and brokers offer free savings plans on some products. However, I recently checked this, the average TER for an open ended fund in Germany is generally much higher than its UK counterpart. For passive products this is unlikely the case.
Here comes an interesting fact which might be of interest to some of you. If you open a stock broking account in Germany and you donāt have a tax residence in Germany you are donāt pay the 25% tax, everything is tax free with the understanding that you honestly tax this in your country of residence, which I do. For UK residents this is nice as we have a generous capital gains tax threshold. I am in the process of opening an account and I expect the process to complete within a total of 4 weeks!!! Yes, letters, photocopies and an id check via something like zoom. And more paperwork to prove you pay your taxes abroad and have no tax residency in Germany. So, if your German is semi-fluent and you can stomach the admin, you can have an account is a different jurisdiction, denominated in a different currency, with low dealing costs and access to a large array of products.
However, you have to find a broker first that lets you join without a German address; especially now that the UK is not an EU country anymore. Itās not easy, a lot of hassle. Not sure why anyone here would do that given that youāre not taxed here anyways.
Holding foreign currency is easier with different providers and fund performance isnāt related to the account currency when you plan on bringing it back to the UK eventually.
