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?
Can I deduct income-related expenses for capital gains?
As a rule, no. With the introduction of the withholding tax in 2009, the tax liability on capital gains is settled at a flat rate of 25 percent. Therefore, the deduction of actual income-related expenses is excluded. Instead, a saver's allowance is granted:
- 1.000 Euro for single persons
- 2.000 Euro for jointly assessed spouses
This allowance covers all expenses related to capital gains, such as custody fees or advisory costs.
No income-related expenses even with favourable tax assessment
Even if you apply for a so-called favourable tax assessment – i.e. taxation of your capital gains at the individual tax rate if it is below 25 percent – no actual income-related expenses may be claimed.
This has been confirmed by the Federal Fiscal Court (BFH ruling of 28 January 2015, VIII R 13/13).
Exception: Income-related expenses in mandatory assessment at individual tax rate
In certain cases, the withholding tax does not apply, but a mandatory assessment at the individual tax rate does. Then the general rules of income tax law apply, and income-related expenses may be deducted with proof.
In these cases, the saver's allowance is not granted, but actual expenses – e.g. interest on debt – can be considered (§ 32d paragraph 2 EStG).
Examples of such mandatory assessments:
Current case law: Prohibition of deduction of income-related expenses is constitutional
The Federal Fiscal Court decided in a recent ruling on 08.04.2025 (VIII B 79/24) that the prohibition of deduction of income-related expenses in § 20 paragraph 9 EStG is constitutional – even in the case of high capital gains where income-related expenses significantly exceed the saver’s allowance.
Can I deduct income-related expenses for capital gains?
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?
When are capital gains from shares tax-free?
Given the record prices, many shareholders are considering taking profits, following the classic investment rule "Only realised profits are real profits". The question arises: Does the state earn a share?
Yes and no, it depends on when the shares were purchased:
- Since 1 January 2009, capital gains from securities are generally subject to a flat withholding tax of 25 percent plus solidarity surcharge and, if applicable, church tax. However, this only applies if the securities were purchased after 2008.
- However, if you sell "old holdings" that were purchased before 1 January 2009, you can receive the capital gains tax-free without limit.
There is a small consolation for shareholders who invested after 2008: They can offset taxable capital gains against losses incurred in the past from shares purchased after 2008. And as long as the saver's allowance of 801 Euro/single (1.602 Euro/married) per year is not exhausted, investors can also receive capital gains from shares purchased after 2008 tax-free.
Also important to know: The "first in, first out" rule applies to the calculation of capital gains. This means that if an investor has purchased shares in a company several times and sells part of them, the tax office considers the shares purchased first to be the ones sold first.
When are capital gains from shares tax-free?
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?
How can capital losses be claimed for tax purposes?
Capital losses arise not only from price losses but also from the total loss of an investment, e.g. in the event of a debtor's insolvency. If a loan is lost, this loss can be considered as negative income from capital assets for tax purposes. After all, returns and profits from capital investments are taxable according to § 20 para. 2 no. 7 EStG.
Case law on debt defaults
For a long time, the tax authorities did not recognise such losses. However, tax courts and the Federal Fiscal Court (BFH) have corrected this: Since the introduction of the withholding tax in 2009, all changes in value – both gains and losses – at the asset level must be taken into account for tax purposes. There is no longer a separation between income and assets (BFH rulings of 12.05.2015, IX R 57/13 and of 24.10.2017, VIII R 13/15).
Tip: Declare the loss in the tax return
In the event of a total loss (e.g. insolvency of the issuer), the acquisition costs can be claimed as losses from capital assets. If this is rejected by the tax office, an objection should be lodged, referring to the above-mentioned BFH rulings.
Loss offsetting: Limit lifted
Since 01.01.2020, there was an annual offset limit of 20.000 Euro for such losses. Unused losses could be carried forward to subsequent years (§ 20 para. 6 sentence 6 EStG).
With the Annual Tax Act 2024, this limit was abolished – retroactively for all open cases. § 20 para. 6 sentence 6 EStG was deleted without replacement. Losses can now again be offset without limit against other capital gains.
How can capital losses be claimed for tax purposes?
Church tax on capital gains: Regulation since 2015
On capital gains, banks deduct the withholding tax of 25% as well as the solidarity surcharge of 5.5% on the withholding tax. In addition, church members must also pay church tax. Until 2014, they had the option of having the church tax deducted at source like the withholding tax or having it assessed as part of the tax return. That's the theory. In practice, many investors do not make use of this option, with the result that no church tax is paid on the capital gains.
Since 2015, banks have automatically deducted church tax from capital gains and paid it to the tax office along with the withholding tax and the solidarity surcharge. To do this, they enquire once a year between 1 September and 31 October at the Federal Central Tax Office whether the customer was liable to pay church tax on the cut-off date of 31 August of the relevant year. In certain cases, enquiries outside this period are also possible, e.g. when a life insurance policy is paid out. The new regulation applies to capital gains received from 1 January 2015.
If you do not want the bank to know about your membership of the Protestant or Catholic Church, you can object to the data query at the Federal Central Tax Office (so-called blocking notice). In this case, you will not participate in the automated procedure, and the bank will not deduct church tax on capital gains. You must lodge the objection by 30 June of the year if the blocking notice is to be taken into account for the regular query on 31 August of the year.
However, you must then submit the "Form KAP" to determine the church tax as part of the tax return. You should be aware that the Federal Central Tax Office forwards the blocking notice to your tax office, so it is easy for them to check whether the "Form KAP" is included with the tax return or whether you have submitted a tax return at all.
Church tax on capital gains: Regulation since 2015
What is recorded under income from capital assets?
On the following pages, you can indicate whether you have income from capital assets in the tax year. This includes, for example, interest or dividends from investment funds or shares. Your bank will provide you with a tax certificate (annual tax statement), from which you can obtain all the important data for entry on the following pages.
Details of your income from capital assets are still required in the KAP form if, for example:
- the capital gains have not been subject to tax deduction
- you wish to have the tax deduction reviewed in terms of its basis or amount,
- you are liable to pay church tax and have received capital gains from which capital gains tax but no church tax was deducted.
In this case, enter all capital gains received. Lohnsteuer kompakt will then automatically apply for a favourable tax treatment for all capital gains.
What is recorded under income from capital assets?
