Wednesday, 6 June 2012

Will Germany revive its net wealth tax?

A German task force might soon recommend that Germany reintroduce a new wealth tax. This could impact both German and non-German residents. The German net wealth tax was last levied for 1996, and was discontinued after the Federal Constitutional Court held that it breached German constitutional law.  That decision was based mainly on the differences in taxation between real estate and other assets. Taxpayers may wish to consider the following aspects of a potential net wealth tax.
  • Tax rate – A 1% effective tax rate would apply to the net assets held by individuals and/or corporations.  This measure is expected to generate approximately Euro 11.5 billion in additional annual tax revenues. 
  • Tax base - Taxpayers would calculate the tax base by referring to the assets' fair market values.  The valuation rules in the German Inheritance Tax Act and Valuation Tax Act would likely be used to determine values. Notably, this would require annual valuations of businesses, groups, investments and other assets, thereby creating extra burdens for both taxpayers and the tax administration. 
  • Exempt amounts/thresholds - Individuals may receive a Euro 2 million exemption (plus an additional Euro 2 million for spouses).  However the de minimis threshold for corporations may remain at Euro 200,000.  In other words, if the threshold is exceeded, it would provide no benefit to corporations. Individuals holding corporate shares would bear 50% of the net wealth tax; the corporation would bear the other 50%.  
Source & more info: pwc