How does Germany Tax Investments in Private Equity Funds?

[NewGuyGermany]

Hello everyone, I hope you are well. I'm new in Germany and still learning German. My wife works for a state government and I'm under family public health plan. I took a work break last year since I sold my tech company and I mostly work on investing my wealth. I do not currently have an employment income.

 

 

I have few investments in private equity funds in US. I only provide capital (Limited Partner) and someone else (General Partner) runs the business. I invested $100K last year in this fund. They may return 30K as distribution to me in december.

 

My question is will germany see it as income or return of capital? Even though its a distribution (income/dividend), my 100K is still at risk and can evaporate if my investment doesn't work out? or do I pay taxes now on this income and can write that loss in future if it happens?

 

If germany treats it as income then I also have to pay health insurance which would be 14% in my case?

 

thank you for your guidance.

 

[MeinNameIstHase]

vor 8 Stunden von NewGuyGermany:

If germany treats it as income then I also have to pay health insurance which would be 14% in my case?

It seems till now you are covered by the Familienversicherung (as family member at the public health insurance) if any. This will end if you have income above 455 Euro per month (valid for year 2020) that includes all type of income as defined by income tax code (Einkommensteuergesetz EStG). See reference §16 SGB IV (Sozialgesetzbuch IV). As far as I know your US income is 'income' wether or not it is taxable in Germany (income definition is one, taxation in Germany another).

As a result you have to establish a separate health insurance of your own ...
a) as free member of the public health insurance (freiwilliges Mitglied AOK) because you're not a "worker" with worker's salary/wage)

b) by getting a private health insurance (maybe preferable depending on your age and income)

 

Case a) is only available as long you are asking directly after ending of the coverage as family member. Once you're in b) there is no turning back to a) without not becoming a worker first.

This is my general knowledge about this without warranty. For deeper information you have to ask others.

[NewGuyGermany]

2 hours ago, MeinNameIstHase said:

It seems till now you are covered by the Familienversicherung (as family member at the public health insurance) if any. This will end if you have income above 455 Euro per month (valid for year 2020) that includes all type of income as defined by income tax code (Einkommensteuergesetz EStG). See reference §16 SGB IV (Sozialgesetzbuch IV). As far as I know your US income is 'income' wether or not it is taxable in Germany (income definition is one, taxation in Germany another).

As a result you have to establish a separate health insurance of your own ...
a) as free member of the public health insurance (freiwilliges Mitglied AOK) because you're not a "worker" with worker's salary/wage)

b) by getting a private health insurance (maybe preferable depending on your age and income)

 

Case a) is only available as long you are asking directly after ending of the coverage as family member. Once you're in b) there is no turning back to a) without not becoming a worker first.

This is my general knowledge about this without warranty. For deeper information you have to ask others.

Thank you for your guidance. I went to AOK page and there is no mention of a group which is taking a break? Do I come under self employed?

 

Also any guidance on the taxation will work? Will this be return of capital or income?

 

 

[Maury]

vor einer Stunde von NewGuyGermany:

there is no mention of a group which is taking a break

„Erwerbslos“ and „freiwilliges Mitglied“ are the groups you are looking for. This is a link to the respective website from the TK:

https://www.tk.de/techniker/leistungen-und-mitgliedschaft/informationen-versicherte/veraenderung-berufliche-situation/freiwillige-krankenversicherung-tk/haeufige-fragen-zu-beitraegen-fuer-freiwillig-versicherte/beitragshoehe-freiwillig-versichert-nicht-erwerbstaetig-2006970

[NewGuyGermany]

9 minutes ago, Maury said:

„Erwerbslos“ and „freiwilliges Mitglied“ are the groups you are looking for. This is a link to the respective website from the TK:

https://www.tk.de/techniker/leistungen-und-mitgliedschaft/informationen-versicherte/veraenderung-berufliche-situation/freiwillige-krankenversicherung-tk/haeufige-fragen-zu-beitraegen-fuer-freiwillig-versicherte/beitragshoehe-freiwillig-versichert-nicht-erwerbstaetig-2006970

So it seems it's 14.7% of annual income. If you don't sell your stocks and your dividends are under 6000 euros, you can be covered under family public health insurance right?

[Maury]

The maximum income to be insured within the „Familienversicherung“ is 455 EUR per month:

https://www.finanztip.de/gkv/verdienstgrenzen-familienversicherung/

 

Above that, you will need to pay 14,7% (for TK) of you income with a minimum of 156,06 EUR and a maximum of ca 690 EUR.

[NewGuyGermany]

20 minutes ago, Maury said:

The maximum income to be insured within the „Familienversicherung“ is 455 EUR per month:

https://www.finanztip.de/gkv/verdienstgrenzen-familienversicherung/

 

Above that, you will need to pay 14,7% (for TK) of you income with a minimum of 156,06 EUR and a maximum of ca 690 EUR.

Since I only have investment income would this not be applicable here?

Maximum investment income for relatives in GKV family insurance 2020 = EUR 5,460 + EUR 801 = EUR 6,261

[MeinNameIstHase]

Consider a private health insurance if it is not covered by family insurance and you have to establish your own insurance. It's a matter of costs vs. insurance service.

[Maury]

Yes, you’re right 12x455+801 for 2020

[NewGuyGermany]

Thank you so much everyone for help. Now just have to figure out how the taxation 

[Maury]

Taxation will strongly depend on the details of the PE fund.

[MeinNameIstHase]

PE Funds are covering a wide field. EStG distinguishes between distributions of earnings of companies the owner do have a stake of more than 1%, personal income of commercial enterprises/partnerships, income of landlords and lease income, dividends/distributions of earnings without substantial ownership (e.g. of stockholders with less than 1% ownership). The national definitions/rules in EStG vary to definitions in US and double taxation treaty. The last one may override some of the national rules declaring some types of income taxable in US but with impact on tax rate in Germany (so called Progressionsvorbehalt as Germany has rising tax rates on higher income).

You will most probably need some expert advice (Steuerberater/tax consultant) with special interest in international affairs and some additional accounting information of the PE Funds themselves to do it right.

[NewGuyGermany]

5 minutes ago, MeinNameIstHase said:

PE Funds are covering a wide field. EStG distinguishes between distributions of earnings of companies the owner do have a stake of more than 1%, personal income of commercial enterprises/partnerships, income of landlords and lease income, dividends/distributions of earnings without substantial ownership (e.g. of stockholders with less than 1% ownership). The national definitions/rules in EStG vary to definitions in US and double taxation treaty. The last one may override some of the national rules declaring some types of income taxable in US but with impact on tax rate in Germany (so called Progressionsvorbehalt as Germany has rising tax rates on higher income).

You will most probably need some expert advice (Steuerberater/tax consultant) with special interest in international affairs and some additional accounting information of the PE Funds themselves to do it right.

I own almost 2% share in the fund. It buys software companies and then runs them. Their distributions are marked as ordinary income for US. Do you think Germany would see it as dividends or personal income?

 

I also don't understand if its capital return or capital gains since I invested 100K last year. Here is what they told me but this is for US investors and I now live in Germany

[NewGuyGermany]

Would appreciate any help I could get here. My tax advisor has no clue on how to handle this?

[permabull]

vor einer Stunde von NewGuyGermany:

My tax advisor has no clue on how to handle this?

At least he's honest on this.

But seriously: You are free to choose your tax advisor... I wouldn't try to handle this without professional support. The Finanzamt certainly pursues non-compliant taxpayers less aggressively than the IRS, but it's not fun to deal with them either.

[MeinNameIstHase]

Hi,

start by asking the funds CPA/advisor. In case you are not the only investor residenting in Germany they may know it and are able to give notice which German advisor is dealing with it. At least they can tell you wether you are taxable in US or not.