Germany–Switzerland · Private Investors
Scenario 04 · Switzerland → GermanySwiss Private Investors Investing in Germany
An individual resident in Switzerland may acquire shares in a German GmbH or AG, become a partner in a KG or GmbH & Co. KG, operate a business directly in Germany or invest in German real estate. The structure chosen determines the treatment of German income tax, trade tax, withholding tax, tax returns, bookkeeping and the application of the Germany–Switzerland double taxation agreement.
Starting Point
Residence in Switzerland does not rule out German taxation
A person resident in Switzerland is generally not subject to unlimited German income tax liability on their worldwide income. However, certain income connected with Germany may qualify as German-source income and be subject to limited German tax liability.
The investment structure is decisive. A shareholding in a German corporation has different German tax consequences from an interest in a German partnership or a business operated directly in Germany.
In addition, the Germany–Switzerland double taxation agreement limits or modifies Germany’s taxing rights under domestic law in many cases. German domestic law and the treaty must therefore always be considered together.
The Swiss Tax Perspective
This page addresses the German taxation of Swiss investors. The Swiss treatment of German shareholdings, dividends, business profits and real estate is covered on TaxRep Switzerland.
Structure Comparison
Corporation, partnership, permanent establishment or real estate?
The German tax burden and ongoing compliance requirements depend heavily on the chosen form of investment.
| Investment | Basic German Tax Treatment | Typical Issues |
|---|---|---|
| German GmbH / AG | The company is a separate taxpayer; the investor becomes relevant upon dividend distributions and exit | Investment income withholding tax, treaty provisions, share disposals |
| KG / GmbH & Co. KG | Generally a tax-transparent business partnership | Ongoing profit allocation, determination of taxable income, trade tax |
| Own German business / permanent establishment | Direct German business income | Income tax, trade tax, bookkeeping, treaty provisions |
| German real estate | Germany generally has its own taxing rights | Rental income, sale, real estate transfer tax, financing |
| Investment through a Swiss holding company | The investor is a Swiss company rather than an individual | Different treaty and withholding tax rules |
German Corporation
A Swiss individual acquires shares in a German GmbH or AG
A German GmbH or AG is a separate German taxpayer. Its ongoing profits are generally subject to corporate income tax and trade tax at company level.
The Swiss shareholder generally becomes relevant at a second level, particularly when receiving dividends, disposing of the shareholding or entering into specific transactions with the company.
- The German company pays its own business taxes
- Dividends are subject to German withholding tax
- The treaty limits German withholding tax
- Share disposals require a separate assessment
- Shareholder loans must be treated separately
- Remuneration for services must be distinguished from dividends
Dividends
German dividends paid to an individual resident in Switzerland
Under German law, dividends paid by a German corporation are generally subject to investment income withholding tax. For a private shareholder resident in Switzerland and entitled to treaty benefits, the Germany–Switzerland double taxation agreement generally limits German withholding tax to 15% of the gross dividend.
If a higher amount of German tax is initially withheld, treaty relief must be obtained through the applicable relief or refund procedure.
The remaining German withholding tax must then be coordinated with the Swiss taxation of the dividend.
| Level | Assessment |
|---|---|
| German GmbH / AG | Distribution resolution and investment income withholding tax |
| Tax treaty | Swiss residence and limitation of German withholding tax |
| Relief procedure | Refund or relief for the amount exceeding the treaty rate |
| Switzerland | Swiss taxation and relief from double taxation |
15% is the treaty limit, but may differ from the amount initially withheld
The German paying agent may initially withhold tax at the domestic rate. The difference between that amount and the tax permitted under the treaty may need to be reclaimed through a relief procedure.
Share Disposals
A Swiss investor sells shares in a German GmbH
Under German domestic law, gains realised by a person with limited tax liability on the disposal of a substantial shareholding in a German corporation may generally be treated as German-source income.
For this purpose, section 49 of the German Income Tax Act (EStG) refers, among other provisions, to the requirements of section 17 EStG. Section 17 EStG generally requires the seller to have held, directly or indirectly, at least 1% of the company’s capital at some point during the preceding five years.
For an investor resident in Switzerland, however, the analysis must go further. The Germany–Switzerland double taxation agreement generally allocates taxing rights over gains from the disposal of corporate shares to the seller’s state of residence, unless a specific exception applies.
An important special rule applies in particular to certain individuals who were resident in Germany before the disposal and hold a substantial shareholding. Article 13 of the treaty must therefore be examined separately for former German tax residents.
Domestic law and the treaty may lead to different outcomes
Section 49 EStG may initially establish a basis for German taxation. The treaty may then restrict Germany’s taxing rights. Particular care is required for former German residents, property holding companies and cases involving a previous departure from Germany.
German Partnership
A Swiss investor acquires an interest in a KG or GmbH & Co. KG
For tax purposes, an interest in a German partnership differs fundamentally from a shareholding in a German GmbH.
If the Swiss investor is a partner qualifying as a co-entrepreneur (Mitunternehmer) in a German business partnership, their share of the taxable result is generally allocated to them on an ongoing basis. German taxation does not depend on whether the profit is actually paid out or retained in the business.
The Germany–Switzerland double taxation agreement generally treats business income from partnerships under the rules for business profits or permanent establishment profits.
Business Partner
The Swiss partner may earn German business income directly.
Income Determination
The tax bases are generally determined separately and uniformly for all partners.
Trade Tax
In a business partnership, the partnership itself is liable for trade tax.
Special Partner Remuneration
Salary, loan interest and renting assets to your own partnership
Payments to a partner in a German business partnership are not necessarily treated in the same way as payments to an unrelated third party.
Remuneration for services, loans or the provision of assets may be included in the partner’s profit share for tax purposes as special partner remuneration (Sondervergütungen).
The Germany–Switzerland double taxation agreement contains an express provision for partnership income which may also cover such remuneration where, under the law of the state in which the permanent establishment is situated, it is attributed to the partner’s permanent establishment income.
Own Business in Germany
Swiss entrepreneur with a German permanent establishment
If an individual resident in Switzerland operates a business and maintains a permanent establishment in Germany for that business, they earn German business income directly.
Germany may tax the profit economically attributable to the German permanent establishment. At the same time, the result must be coordinated with the entrepreneur’s Swiss taxation.
- German tax registration
- German income tax return
- Generally also trade tax
- Bookkeeping or profit determination
- Separate assessment of VAT
- Profit attribution under the Germany–Switzerland treaty
Permanent Establishment Profits
Germany does not automatically tax the entire business profit
For a cross-border business, it is necessary to determine which part of the total profit is economically attributable to the German permanent establishment.
Key factors include the functions performed in Germany, the personnel deployed, the assets used and the risks assumed there.
| Area | Typical Question |
|---|---|
| Personnel | Which activities are actually performed in Germany? |
| Sales | Where are customers acquired and contracts concluded? |
| Assets | Which assets serve the German operations? |
| Risks | Which business risks are economically attributable to Germany? |
| Switzerland | Which functions and business assets remain with the Swiss head office? |
Real Estate
Swiss investor owning German real estate
German real estate is a separate investment category. Germany generally has the right to tax income from immovable property situated in Germany.
This applies in particular to ongoing rental income. A subsequent sale may also be subject to German taxation, regardless of the owner’s residence in Switzerland.
German real estate transfer tax must also be considered on acquisition. Commercial properties, property holding companies and multiple investments raise additional questions concerning trade tax, VAT, financing and legal form.
Rental Income
Rental income from German property generally gives rise to taxable income in Germany.
Sale
A disposal gain may remain taxable in Germany under German law and the treaty.
Acquisition
German real estate transfer tax must also be included in the acquisition budget.
Financing
Assess equity, shareholder loans and other payments separately
A Swiss investor can finance a German company through equity, shareholder loans or other financing instruments.
Interest payments, however, follow different tax rules from dividends. Whether Germany may tax interest received by a Swiss creditor depends, among other factors, on the specific debt claim, its security, its attribution to a permanent establishment and the treaty provisions.
For shareholder financing, the interest rate, term, repayment arrangements and actual implementation should therefore be documented from the outset.
Personally or Through a Swiss Company?
Invest directly or through a Swiss holding company?
For larger business investments, a Swiss investor may invest through a Swiss AG or GmbH instead of holding the investment directly as an individual.
This changes the investor for tax purposes. The Swiss company, rather than the individual, holds the German shareholding. This can affect withholding tax treatment, financing, reinvestment and a subsequent exit in particular.
A holding structure should therefore be compared with direct personal ownership before the acquisition, rather than shortly before a distribution or sale.
Investment Through a Swiss Company
The corporate perspective is explained separately on the page “Swiss Companies Investing in Germany” .
German Compliance
What German obligations does a Swiss investor have?
German compliance requirements depend heavily on the type of investment. An individual holding a minority interest in a German GmbH generally has significantly fewer ongoing German obligations than a business partner in a GmbH & Co. KG or a Swiss entrepreneur with their own German permanent establishment.
| Situation | Typical German Compliance Requirements |
|---|---|
| Only a shareholding in a GmbH / AG | For dividends, primarily withholding tax and treaty relief; additional filing obligations depend on the circumstances |
| Disposal of a substantial German shareholding | Review German taxing rights and the treaty before the sale; a tax return may be required |
| KG / GmbH & Co. KG | Procedures for determining taxable income, personal German taxation and partnership compliance |
| German permanent establishment | Tax registration, income tax, trade tax, bookkeeping / profit determination |
| German rental property | Generally an annual German income tax return |
Registers & Ownership Structure
Also consider beneficial ownership and registration requirements
Investments in German companies require consideration of corporate law and registration obligations in addition to income taxation.
Shareholders in a German GmbH are recorded in its shareholder list. Information on the beneficial owner may also be required for the German Transparency Register.
For Swiss ownership structures involving several tiers, the identity of the individual who ultimately controls the company should therefore be clearly documented from the outset.
Practical Approach
Assess a Swiss investor’s German investment in eight steps
Investment Objective
Identify whether the investment involves a shareholding, an operating business, a joint venture or real estate.
Legal Form
Compare a GmbH, partnership, permanent establishment and direct investment.
Investor
Compare direct personal ownership with a Swiss holding company structure.
Tax Treaty
Reconcile Germany’s domestic taxing rights with the Germany–Switzerland double taxation agreement.
Cash Flows
Plan dividends, interest, remuneration for services and profit withdrawals separately.
Compliance
Organise tax returns, income determination procedures, withholding tax and registration.
Switzerland
Coordinate German taxation with the Swiss tax treatment.
Exit
Consider a sale, succession and any previous German residence in advance.
Frequently Asked Questions
Swiss Investors with Investments in Germany
Can a Swiss individual own shares in a German GmbH?
How are dividends from a German GmbH paid to a Swiss investor taxed?
Is German tax automatically withheld at just 15%?
Must a Swiss investor pay German tax when selling shares in a German GmbH?
What ownership threshold is relevant for section 17 EStG?
What if the Swiss investor previously lived in Germany?
How is an interest in a German GmbH & Co. KG taxed?
Must a Swiss partner in a KG pay German tax on profits that have not been paid out?
What applies to an investor’s own German permanent establishment?
Must a Swiss owner of German rental property file a German tax return?
Is a Swiss holding company better than direct personal ownership?
Further Tax Knowledge
Related Topics
Tax Advice Switzerland → Germany
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