Best law firms in Germany: US publisher Best Lawyers and Handelsblatt honor W&R Weigell
24. October 2024Best law firms in Germany: US publisher Best Lawyers and Handelsblatt honor W&R Weigell
24. October 2024German Banks will have to report income from foreign currency accounts to the tax office from January 2025
The turn of the year will be accompanied by an important innovation in the area of foreign currency income. Foreign currency accounts are bank accounts that are not held in euros, but in US dollars, British pounds, or Swiss francs, for example. Income generated on this can be taxable in Germany.
A transitional period expires on 31 December 2024, so that domestic banks will report foreign currency gains/losses to the German tax office from January 2025 at the latest and, if necessary, pay capital gains tax. Anyone subject to taxation in Germany who has failed to correctly declare such income themselves in the past may now consider a voluntary disclosure exempting from punishment.
Foreign currency gains may be taxable
Foreign currency gains (e.g., from the acquisition and disposal of foreign currency amounts; Interest on foreign currency accounts) may, depending on the specific circumstances, be taxable in Germany as private sales transactions (§ 23.1 sentence 1 no. 2 of the German Income Tax Act) or as income from capital assets (cf. § 20.2 sentence 1 no. 7, § 20.2 sentence 2 of the German Income Tax Act).
Private investors usually find out from the tax certificates of their banks which income from capital assets was generated and paid in a certain year. However, these certificates are often incomplete, as the banks have usually only considered accounts held in euros. Foreign currency accounts have often not been taken into account.
Instead, investors have themselves been obliged to declare and pay tax on profits from foreign currencies. Because the tax office usually did not have the opportunity to audit, foreign currency income that was not or not correctly declared was usually not noticed in the past. This is likely to change after 1 January 2025.
BMF letter of 11 July 2023: Reporting obligation for banks from January 2025
From 1 January 2025 at the latest, domestic banks must report these foreign currency gains and automatically pay the corresponding capital gains tax (as a result of the Federal Ministry of Finance letter of 11 July 2023, IV C 1 - S 2252/19/10003 :013, Federal Tax Gazette I 2023, 1471, para. 325). Some banks have already made the reports in the course of 2024 or are in the process of submitting them.
Voluntary disclosure can protect against criminal prosecution
When banks report such foreign currency accounts or profits, the tax office could suspect that similar profits have already been made in previous years. Therefore, investors should check whether they have correctly reported their foreign currency gains to the tax office in the past.
If these have not yet been declared, this could constitute a tax evasion offence. One possibility of immunity from punishment is a timely voluntary disclosure, through which unreported foreign currency gains are subsequently disclosed. However, this presupposes that the tax authorities are not yet informed about the foreign currency income. Since the banks are already meeting their reporting obligations or will do so soon, there is an acute need for action if you have had foreign currency accounts.
We will be happy to support you in the correct and legally compliant tax declaration of your foreign currency transactions.