Eichel Proposes Uniform Tax On Capital Gains

by Ulrika Lomas, Tax-News.com, Brussels

03 November 2003

German Finance Minister Hans Eichel last week announced plans for a uniform tax rate on capital gains in a bid to encourage investors repatriating capital under next year’s tax amnesty to keep their money inside the country.

Under current laws, dividends and interest income are taxed at the individual’s personal tax rate, which could be up to 48.5%, and banks automatically withhold 30% of this income as an advance payment. This is then balanced by the tax office according to the investor’s personal tax rate.

Under Eichel’s new proposals, which have the support of the opposition Christian Democrats, who form the largest party in the Upper Chamber, banks will now apply a uniform 25% tax rate on investments repatriated to Germany under the new tax amnesty law. It is envisaged that the regulation will be effective through to the first quarter of 2005 when a 35% rate will kick in.

Although the measure will potentially deprive the government of much-needed tax revenues, it is thought that the change will encourage more investors to take advantage of the amnesty, which in turn will benefit the government’s finances.

The Finance Ministry is estimating that the amnesty will result in approximately 20 billion euros flowing back into Germany, yielding around 5 billion euros in tax revenues.

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