Earning dividend income + German tax issues

Flag-Pins-Germany-Ireland

We’ve collected our first dividends from our VWRL investments!

I’m very very excited about that!!!!

Surprisingly, so is Mr. German! :mrgreen:

Yay for passive income!

As Richard from Banks Germany pointed out, investing in European Vanguard products (that are domiciled in Ireland) may not be the easiest tax-wise for German residents. Even though Ireland and Germany are in the EU, they have different dividend tax rates, and just because part of the VWRL dividends are withheld in Ireland as tax, doesn’t mean we don’t have to pay the difference in taxes to Germany (Germany has higher taxes than Ireland).

*big sigh*

But thanks Richard for pointing it out! It’s so much better to know about it now, than to figure it out during tax time next year.

German domicile

Of course, none of this would matter if we are expecting to make less than 1608 EUR in dividends over the year, which is the tax-free cut-off for married couples in Germany. However, we’re planning to continue investing 100% of my income, and will hopefully earn more than the cut-off in dividends.

So now I’m on a search for a Germany-domiciled broad based index ETF that gives dividends. Do all ETFs give dividends? I’m not sure. 😕

Chun Yi from Smart Kohle pointed me to the Deka DAX UCITS ETF, which is a very low cost ETF with 0.15% TER. Sounds good, and from the looks of the Deka website, all of their products appear to be domiciled in Germany. I don’t know that for sure, but their website is entirely in German except for the phrase “Made in Germany” – a tell-tale sign. 😛 When Mr. German is less occupied, I’ll ask him to grammar & spell check my draft email to Deka asking them for their domicile; or maybe I should just send my awful version, since obviously someone who doesn’t know German would ask such a question.

The only thing that ‘bothers’ me about the Deka DAX ETF is that it only tracks the DAX, and I want a broad based all world fund like my beloved VWRL. The other Deka products are also region specific. Also, I don’t know if they give dividends and when. Need to poke around their site a bit to find out.

iShares also has some ETFs domiciled in Germany. I’ve found two: iShares Core DAX UCITS ETF (0.16% TER) and iShares STOXX Europe 600 UCITS ETF (0.20% TER). But again they are region-specific and the all world funds are domiciled in Ireland (surprise surprise!).

To not lose steam, I’m planning to buy the Deka DAX UCITS ETF with my next pay cheque. I figure I can’t go too wrong with it.

In conclusion, we gotta move to Ireland! :mrgreen:

UPDATE: JustETF has a great list of all the dividend (and non-dividend) ETFs in Germany here.

UPDATE 2: Excuse my novice-ness to the investing world. I think I understand a bit more the concept of growth stocks vs dividend income. I used to think this did not exist in the index ETF world, but lo and behold, it does! There are dividend and non-dividend yielding ETFs that track an index. Non-dividend yielding stocks are growth stocks and should have higher growth rates compared to the dividend yielding group. I’m in the process of deciding whether to focus on growth or dividend as a strategy, the former being easier with taxes (at least in the short-term).

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14 thoughts on “Earning dividend income + German tax issues

  1. I think my brain may have just exploded!! There is a lot of good information in here that not only helps for people in Germany, but can help guide others to successful international investing around the world!

    Congrats on your dividend income! Getting the ball rolling is always the hardest part…

    Are you looking to participate in a Leveraged ETF or Arbitrage? I truly love how ETFs have lower fees than mutual funds do, however the liquidity can be either a good thing or a bad thing depending on the day!!

    What type of assets are Deka involved in??

    Based on the reports and charts, this is a pretty good time to buy before it rises in price!! Though it looks like buying back in October 2014 would have been optimal… almost a 50% rise in price!!

    Keep up the good work on acquiring passive income!

    Liked by 1 person

    • Hi Jason! I’m pretty novice when it comes to investing and understanding investing, so not sure how helpful it can asides from reading how an expat stumbles through the process. But thanks! :mrgreen:

      I don’t know what leveraged ETF or arbitrage even means! Have you written an article about it? Or know of any good articles? If so, let me know and I’ll have a read.

      Deka has many ETFs that appear to be domiciled in Germany. They are not only limited to ETFs though, they have a range of financial products and even focus on real estate. I’m only interested in their ETFs though.

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      • I loveeee real estate as you know!! Haha i’m all ears to learning more about them!! Yes! If you visit http://www.investopedia.com/terms/e/etf.asp they have all sorts of valuable info! That is actually where I learned what an ETF even is! Haha regardless of the investment field you are curious about, they’ll have information for you to delve into! In addition to investment help, they have wealth management and personal finance articles that will leave even the most knowledgeable of people speechless!

        Any questions you may have about money, this is a great place to learn a few things before jumping into the deep end of the pool!

        “Question everything. Learn something. Answer nothing.” -Euripides

        Liked by 1 person

  2. Hi Jess,

    I use ComDirect and use Sparplan (savings plan) for investing in stocks. Since you buy monthly, I would really suggest a Sparplan for ETF’s. In such cases you do not have to pay the broker fees for buying the ETF’s. Side tip 1: you can actually change the sparplan anytime and any amount of time (only thing you spend is the TAN numbers). So if you want to invest a higher amount a particular month, just change the sparplan, once the ETF are bought for that month, change it again. Side tip 2: you can have multiple sparplan for a same ETF with different dates within a month, if you are into cost average benefit.

    Check out Comdirect and the ETF available for sparplan (www.comdirect.de/cms/wertpapiere-top-preis-etfs.html). There are 75 ETF available, and I found TER are very reasonable between 0.1% and 0.6% depending on the ETF. The tracking error of the ETF’s are also well within acceptable limits. Usually dividend plans have higher TER as tracking and distribution of dividends adds administrative costs. As I mentioned in my earlier comment, growth based funds are also better in terms of tax planning. But if you are planning

    If you are looking for World index to replace your VWRL, look for ETF tracking MSCI world index. This is an alternative to the FTSE All world (which VWRL tracks), and from the quick check of the factsheets, it seems that the weight to different countries are very comparable. I have a ETF with Ishare which tracks MSCI which has a TER of 0.2%. Unfortunately, ComDirect only provides Growth ETF of MSCI World under Sparplan.

    You can also diversify with multiple ETF’s. Let me quickly explain my strategy for an EU centered equity allocation. I am equally dividing between

    S&P 500 – ETF, this takes care of the US part.
    MSCI World ETF. Even though half of are US stocks, I could not find any other better world index. This is an alternative for the FTSE All world index tracked by VWRL. About 55% weight is given to North America.
    DAX – Index fund. Being in Germany, it was kind of obvious choice for me. And I believe the German companies will do well in medium/long run.
    STOXX 600 – EU index.

    This makes it about 55% Europe, 35% US, and 10% rest of the world. I will probably add a 10% exposure to an emerging market ETF, so it will probably end up 50% EU, 30%US, 20% Rest of the world. Yes, it is a lot of funds (5) for equity part. But since my broker fees are nil, I think it is ok.

    I am using ETF of iShares, db-xtracker and comStage. As I said, I was limited by the choice of 75 ETF’s because of the saving plan offered by my broker. But I found their TER was very decent and had a small tracking error, and being a Index fund the returns are same with the others too.

    Now coming to the tax part, you are allowed a limit of €1602, but remember this is for everything, including capital gains if any. Side tip, make sure to use that limit, for example, you can sell some funds which makes capital gains at the end of the year to ensure that you use your limit. You can invest again into the fund starting of the next year. This way the capital growth is now not taxed when you withdraw them. Ofcourse, this tip is only applicable if you were still resident in DE when you wanted to withdraw it.

    Unless, you earn more than ~€2400 each year, the 10% withholding tax is actually more than what you would actually pay if you had a fund without withholding tax in DE. That is, only if you earned more than ~€2400 you have to pay additional tax to DE, because there is a exemption. I know this is not well explained, but a back of the envelope calculation will clarify this. Let me know if I can explain better.

    Richard

    Liked by 2 people

    • Richard!! You’ve totally opened my eyes! There’s such thing as NO TRANSACTION fee?!!!!! In *Germany*?????? I had no idea!!! okokok – I’m going to do the Sparplan with comdirect and start getting in on this. I do quite like my CapTrader though, and they speak English which is GREAT. But no fees is no fees!!

      Going to look at your recommendations more thoroughly later. But I was also thinking of creating my own all world fund using different trackers, even though I prefer 1 fund (easier to keep track of).

      Thanks for the cap gains tax tip!! I hadn’t thought about it that way, but you’re right. We should always try to max out our gains for the year and then re-invest the next calendar year. Genius!!

      The 2400 EUR/year and 10% withholding tax is not yet clear. Is it relating to choosing funds that are domiciled in Germany versus somewhere else (Ireland)? I thought the cut off was 1602 EUR, not 2400 EUR? If you give me some terms I can also google it myself to figure it out. It’s probably not fun typing out German tax stuff!

      Thanks so much Richard! I appreciate that you’ve reached out to me and are helping me (a stranger!) with your experience and guidance. Not something I could have found on Toytown! 🙂

      Like

      • Here is the back of envelope calculations, sorry after I put down the calculations on paper, it is in fact ~€2650. Stay with me here,

        Tax-rates in IE and DE
        DE – First €1602 – No tax. After that 25% (plus Solidarity + Church tax, but lets say 25 for ease of calculation)
        IE – 10% withholding tax from first Euro

        So,
        If you earn 1000
        DE: No tax
        IE: €100

        If you earn €1602
        DE: No tax
        IE: €160

        If you earn €2000
        DE: ~ €100 (i.e 25% of €398 (amount above €1602)
        IE : €200

        If you earn €2500
        DE: ~ €230 (i.e 25% of ~€900)
        IE : €250

        If you earned €2650
        DE : ~€262
        IE: €265

        So, only if you earned more than €2650 as capital gain, then the taxes in DE will be more than IE. In all other cases, you actually end up paying higher taxes as withholding taxes, than what you actually have to pay. A refund is due if you paid less, but I have to read on how you can go about getting that.

        Liked by 1 person

      • :)))))) Thank you SO much Richard! Again. 🙂 I hadn’t looked at it that way at all.

        You have definitely changed my mind on VWRL or any fund domiciled in Ireland. Since most all-world funds are domiciled in Ireland, it makes more sense to create an all world fund out of Germany domiciled funds, as you’ve suggested above.

        You’re so good at this!!!

        Like

    • Oh man! Richard just blew me away! This gentleman sure knows his stuff! Haha this is why I constantly harp on people to excel at one specific niche so they can be super helpful to others. Richard, thank you for being a huge influence and showing me that this ideology of mine is accurate. Keep up the great work!

      Liked by 1 person

  3. Great job navigating all that! I don’t think I would have been able to – I leave all the long term investing work to my husband. But you’ve inspired more to learn a bit more about our investing strategy (although it does sound much simpler) – so I’ll be bringing this up with The MC over dinner tonight! Congrats on collecting your first dividends 🙂

    Like

    • Yay! Glad I could influence a dinner table topic over at the FI35 house. 🙂

      Please be so thankful that your strategy is simple to understand! I would LOVE simple. Perhaps mine is not overly difficult, but when it’s all in German, it’s like…….. dkjfsklj kljf skljf klsjdfkld and adds an extra layer of complexity and stress. Would love it if I could buy Vanguard Admiral shares or something similar. But hey, I didn’t move to the US! 🙂

      Like

  4. Pingback: Why I’ve stopped buying VWRLs | Ms. Canadian Expat

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