Which income is considered capital income?

With the introduction of the withholding tax, it is generally no longer necessary to submit the KAP form. However, in some cases you must still complete the KAP form:

• capital gains are not subject to tax deduction (e.g. sale of GmbH shares of less than 1 percent)
• income from foreign accumulating investment funds
• income (interest, dividends, etc.) from foreign accounts or deposits
• interest from loan agreements between private individuals
• interest on tax refunds
• surrender of endowment insurance policies (for contracts concluded from 2005)

Note: For certain income, you must also complete the KAP-INV form (for income from investment income not subject to domestic tax deduction) or KAP-BET form (for income from capital assets in the case of shareholdings, if the income and the tax to be credited have been determined uniformly and separately).

Furthermore, the KAP form must be completed in the case of an optional assessment if:

• a loss carryforward from previous years is to be taken into account or a loss offset of income from capital assets is to be made, or
• the saver’s allowance has not been fully utilised, or
• church tax has not been deducted despite church tax liability, or
• foreign taxes are still to be taken into account, or
• to check the amount of the capital gains tax deduction.

If you wish to apply for a so-called favourable tax rate check, you must also complete the KAP form. This may allow you to benefit from a lower tax rate with your individual tax rate if it is lower than the withholding tax rate of 25 percent.

Losses from worthless shares in the case of pure account write-offs may be offset against income from capital assets, but there is a limit on the amount. Losses can only be offset against income from capital assets up to a maximum of 20,000 Euro. Unused losses are then carried forward to subsequent years. Important: In the case of worthless shares, the bank does not carry out a loss offset. It does not include losses in the loss pot. Losses from worthless shares must therefore be included in the tax return.

Which income is considered capital income?

When is it necessary to complete Form KAP?

With the introduction of the withholding tax, it is generally no longer necessary to submit the KAP form. However, in some cases, submission is still required:

• capital gains are not subject to tax deduction (e.g. sale of GmbH shares of less than 1 percent)
• income from foreign accumulating investment funds
• income (interest, dividends, etc.) from foreign accounts or deposits
• interest from loan agreements between private individuals
• interest on tax refunds
• sale of endowment life insurance policies (if taken out after 2005)

The KAP form must also be completed if one of the following points applies in the case of an optional assessment:

• a loss carryforward from previous years is to be taken into account or a loss offset of income from capital assets is to be made,
• the saver’s allowance has not been fully utilised,
• church tax was not deducted despite church tax liability,
• foreign taxes are still to be considered,
• the amount of the capital gains tax deduction is to be checked.

You must also fill in the KAP form if you wish to apply for a so-called favourable tax rate check. This may allow you to benefit from a lower tax rate if your individual tax rate is lower than the withholding tax rate of 25 percent.

Note: For certain income, you must also complete the KAP-INV form (for income from investment income not subject to domestic tax deduction) or the KAP-BET form (for income from capital assets in the case of shareholdings, if the income and the tax to be credited have been determined separately and uniformly).

Losses from worthless shares in the case of pure account write-offs may be offset against income from capital assets, but there is a limit. Losses can only be offset against income from capital assets up to a maximum of 20,000 Euro. Unused losses are then carried forward to subsequent years. Important: In the case of worthless shares, the bank does not carry out a loss offset. It does not enter losses into the loss pot. Losses from worthless shares must therefore be included in the tax return.

When is it necessary to complete Form KAP?

Are the costs of a voluntary disclosure deductible as income-related expenses?

Between 2010 and 2014, over 100,000 voluntary disclosures regarding undeclared capital income from Switzerland were submitted. Those affected by voluntary disclosure face two issues: firstly, the conditions for the effectiveness of immunity from prosecution are extremely complicated (see Uli Hoeneß), and secondly, the costs for the voluntary disclosure, i.e., for obtaining documents and for the tax advisor, are extraordinarily high.

The question is whether the high costs can be deducted as income-related expenses for income from capital assets.

• In principle, since the introduction of the withholding tax in 2009: Expenses related to capital income can no longer be deducted as income-related expenses for income from capital assets upon proof. All expenses are covered by the saver’s allowance. According to the tax authorities, the prohibition on deduction should also apply if the expenses are related to capital income from years before 2009 (BMF letter dated 9.10.2012, BStBl. 2012 I p. 953, para. 322).

The Federal Fiscal Court has confirmed that tax consultancy costs in connection with a voluntary disclosure for capital income from 2002 to 2008 cannot be deducted as income-related expenses in 2010. Although the costs for the tax advisor are income-related expenses for income from capital assets, they can no longer be deducted as such from 2009 onwards. Only a saver’s allowance of 801 Euro is now taken into account (BFH ruling of 2.12.2014, VIII R 34/13).

Are the costs of a voluntary disclosure deductible as income-related expenses?

What is the most favourable rate test?

With the tax return, you can request that your income from capital assets be included in the assessment. This means that this income will be taxed at your personal, progressive tax rate rather than the withholding tax rate of 25 percent.

However, if this so-called favourable rate check shows that your personal tax rate is higher than the withholding tax rate, your application will be considered as not submitted. You will not have to pay more than the 25 percent capital gains tax.

Please note that the application can only be made uniformly for all capital income. All tax certificates must also be submitted to the tax office.

What is the most favourable rate test?