How are Corporate Actions taxed?

The tax treatment of corporate actions depends on German tax law and the structure of each event. Similar-looking events may be taxed differently, and tax rules may change over time. 

For corporate actions, we automatically:

• Identify whether the event is taxable or tax-neutral
• Apply German withholding taxes where required
• Apply the correct loss pot (stock or other)
• Use your exemption order if available
• Report and transfer taxes to the German tax authorities

Cash dividends are treated as investment income (Kapitalerträge) and are subject to standard German withholding taxation. When you receive a cash dividend, we automatically apply:

• Capital gains tax (25%)
• Solidarity surcharge (5.5% of the tax amount)
• Church tax (0%, 8% or 9%)

Your available exemption order and loss pots (other loss pot) are applied before taxes are deducted.

Some companies allow shareholders to choose between receiving a dividend in cash, in shares, or as a combination of both. From a tax perspective, the form of payment does not usually change the treatment. 

• The dividend is generally taxable as investment income
• If shares are received, the fair market value of the shares is used as the taxable amount
• Tax is typically deducted in cash

The received shares are booked with an acquisition cost based on their market value at the time of distribution.

With dividend reinvestment plans, dividends are automatically used to buy additional shares. Although no cash is paid out, the dividend itself is still considered taxable income.

• The dividend is taxed at the time it is credited
• The reinvested amount becomes the acquisition cost of the new shares

A company can issue also shares instead of cash as a dividend. In this case the stock dividend is taxable and treated similar to scrip dividends or dividend optional when shares are distributed.

• Generally taxable as investment income
• If shares are received, the fair market value of the shares is used as the taxable amount
• Tax is typically deducted in cash

The received shares are booked with an acquisition cost based on their market value at the time of distribution.

If the company is issuing shares directly to the customer as bonus shares often distributed from the company reserves, this is usually considered tax-neutral under German tax law.

• No withholding tax is deducted at the time of the distribution
• Bonus shares are booked in with a cost of €0
• Tax is applied later when you sell the shares and realise a gain.

In a qualified spin-off, a company distributes shares of a newly created or separated company and meets the requirements for tax neutrality.

• The event is generally tax-neutral
• No withholding tax is deducted
• The original acquisition cost is allocated between the old and new shares

If a spin-off does not qualify for tax-neutral treatment, it is treated as “dividend in kind” which is considered taxable income.

• The received shares are taxed based on their market value at the time of distribution
• Standard German withholding taxes apply, utilizing the Other Loss Pot
• The original shares usually keep their original acquisition cost

If your shares are exchanged exclusively for new shares, the transaction is usually tax-neutral.

• No immediate taxation
• The original acquisition cost is carried over to the new shares

Tax is only applied when the new shares are sold.

Some mergers include a cash payment in addition to new shares.

• The cash portion is treated as taxable investment income
• The share exchange itself may remain tax-neutral
• Taxes are calculated only on the cash component

In certain cases, an exchange is treated as a taxable disposal of your old shares.

• Old shares are considered sold at market value
• A gain or loss may be realised immediately
• Capital gains tax applies if there is a profit

A cash squeeze-out forces minority shareholders to sell their shares for cash. For tax purposes, this is treated like a regular sale of shares.

• Gains are subject to capital gains tax
• Losses may be added to the stock loss pot

A return of capital is a payment from a company’s capital account and therefore not a profit but a a return of the investors capital which is generally tax-neutral.

• No withholding tax is applied
• Your acquisition cost is reduced by the amount received
• If the acquisition cost reaches zero, further payments may become taxable as a disposal gain

If a fund is liquidated, the final payout is treated as a sale of your fund units.

• Capital gains tax applies to any realised profit
• Partial exemptions (if applicable) are applied automatically
• Loss pots are taken into account (in this case, the Other Loss Pot)