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 private loan agreements
- interest on tax refunds
- sale of endowment life 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 separately and uniformly).
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.
There are special regulations for losses from worthless shares in the case of pure account write-offs.
Which income is considered capital income?
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?
When is it necessary to complete the KAP form?
Since the introduction of the withholding tax in 2009, the KAP form (income from capital assets) is generally no longer mandatory. The withholding tax is deducted directly by the banks and paid to the tax office. However, in certain cases, you must or can still submit the KAP form – especially if you wish to claim tax advantages or have received certain income without tax deduction.
Submission is mandatory if:
- Capital gains were not subject to domestic tax deduction, e.g.:
- Income from foreign capital investments (e.g. interest, dividends, funds)
- Interest from private loans
- Income from foreign accumulating funds
- Interest on tax refunds
- Sale of endowment life insurance policies (if taken out after 2005)
- Gains from the sale of GmbH shares with less than 1% participation
Voluntary assessment („optional assessment“) is advisable if:
- a loss carryforward is to be used
- a loss offset with capital gains is intended
- the saver’s allowance has not been fully utilised
- church tax was not correctly deducted
- foreign withholding tax is to be credited
- you wish to apply for a favourable tax rate (individual tax rate lower than 25%)
Additional forms:
- KAP-INV form: For certain investment funds without tax deduction
- KAP-BET form: For capital gains from participations with separate determination
Losses from worthless shares: Tax treatment
Background
If shares become worthless – for example, due to insolvency – losses are incurred that can be claimed for tax purposes. For a long time, these losses were only partially deductible. This changed with the Annual Tax Act 2024:
- The previous loss deduction limit of 20.000 Euro per year was abolished (retroactively for all open cases).
- At the same time, the previous rule applies again: losses from shares may only be offset against gains from share sales – not against interest or dividends (§ 20 para. 6 sentence 4 EStG).
Loss offset: Automatically by the bank or in the tax return?
Loss offset by banks:
Banks maintain two loss offset pots for each customer:
- General loss pot – for interest, dividends, funds, etc.
- Share loss pot – only for gains and losses from share sales
Within the respective pot, an automatic offset takes place. However:
- Losses from worthless shares were often not included in the loss pot – especially if they exceeded 20.000 Euro.
- Therefore, a loss certificate is usually required in these cases.
What do you need to do?
- Apply for a loss certificate from the bank by 15 December.
- Enter the certified losses in the KAP form:
- Share losses separately
- Other losses separately
Tip: Check your tax certificate for notes such as „Unbalanced losses“ or „Losses according to § 20 para. 6 sentence 6 EStG“. If your bank has not carried out an automatic offset, you must claim these losses via the tax return.
What applies to old losses?
Losses from previous years that were treated according to the old regulation (§ 20 para. 6 sentence 6 EStG old version) may, according to the Federal Ministry of Finance (para. 118 of the letter dated 14 May 2025), be transferred to the general loss pot for simplification purposes – even if they were originally only deductible with share gains.
What applies to the sale of worthless shares?
The sale of worthless shares is treated for tax purposes like a write-off. Shares are considered „worthless“ if the sale proceeds are not higher than the transaction costs (BMF letter dated 03.06.2021).
Example: Many investors sold their Varta shares at a symbolic value before the write-off. The loss is tax-relevant – but only deductible with share gains.
Constitutional doubts?
The Federal Fiscal Court (BFH) considers the restriction on loss offset to be constitutionally questionable. The matter is currently before the Federal Constitutional Court (Ref. 2 BvL 3/21). Tax assessments are provisional on this point – an objection is not necessary (BMF letter dated 31.01.2022).
Important: The losses must still be entered in the tax return and supported by a loss certificate!
Also for derivatives: Loss limit lifted
The limit of 20.000 Euro also applied to losses from derivatives (e.g. options). This has also been lifted. The general rules for loss certificates and entry in the KAP form apply accordingly.
Conclusion: How to proceed
- Check losses – are worthless shares affected?
- Apply for a bank certificate – by 15 December
- Fill in the KAP form – separate by loss types
- Apply for a favourable tax rate if applicable
- Check tax assessment – whether it is provisional
Tip: It is better to speak to the tax office than the bank. The latter is bound by the instructions of the Federal Ministry of Finance (§ 44 para. 1 sentence 3 EStG) and may not deviate – even if the regulation is questionable.
When is it necessary to complete the KAP form?
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?
