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Capital Income: These Basic Rules Apply To The Taxation Of Capital Income

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Investment Income In Private Assets

Capital Income. Investment income from private individuals is no longer subject to the standard (progressive) income tax rate. With this, the tax liability of the investor is settled at a flat rate. The deduction of the withheld tax amounts in the assessment is not applicable. There are exceptions, however, where the income is to be recorded as part of the income tax assessment.

Income In Business Assets

The income is recorded as part of the determination of profits and is therefore subject to regular taxation (income or corporation tax). According to the “partial income method”, dividends and similar income are taxable at 60%. The withheld tax amounts are credited. Besides, business expenses that are related to income are deductible as business expenses in the ratio in which they are taxable.

Use The Exemption Order For Investment Income

The top priority in terms of investment income (interest on overnight money, share profits, income from subordinated loans, etc.) is: Check your exemption requests! If you do not use up the savings lump sum because you have not given your bank a corresponding exemption order, you are giving away cash.

Is it worth transferring investment income to children?

Due to the final withholding tax, the transfer of assets to children has become unattractive for tax reasons. The withholding tax rate is equal for everyone, regardless of the amount of income. Admittedly, consideration could still be requested for the children as part of the saver lump sum. Still, then the tax office will certainly deal intensively with whether there is a transfer to be recognized. If you still want to transfer assets, you should observe the following principles, but don’t forget these principles vary by country and tax companies;

  • After the transfer of assets, the investments must be in the child’s name.
  • Also, the final transition must be determined. The will of the parents should be recognizable for the bank (e.g. express regulations on the favouring and creditor status of the child).
  • For the tax allocation of investment income, the parents must treat the children’s financial assets as if they were someone else’s assets.
  • Difficulties in interpretation can be avoided if it is made clear when setting up the savings account that the parents’ power of disposal is based only on parental custody and that the relevant procedure is followed.
  • As a precautionary measure, the interest income should be left in the case of minor children until they reach the age of majority. It is harmful if the proceeds are used for the maintenance of the child or the interests of the parents. In the case of children of legal age, the parents can demand that the child use the income and assets to meet their maintenance needs.

Automated Account Retrieval By The Tax Office And Other Authorities For the purpose of accessing accounts, domestic credit institutions are currently obliged to create a file with the following master data for each domestic account / custody account: account number, date of opening and closing of the account, name and date of birth of the account holder, name and date of birth of an authorized person / beneficial owner. Account balances and account movements are not part of the master data

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