Law & taxes for corporate bonds

Corporate bonds offer investors attractive returns, but there are a few things to consider when it comes to the taxation of bonds. Even before you make your first investment, the question arises: do I have to pay tax on bonds – and if so, how?

Corporate bonds are fixed-interest securities where you provide the issuer – usually a company – with capital. In addition to interest payments and possible repayment at the end of the term, you may have to pay tax on price gains due to changes in market interest rates. The taxation of your bonds follows very clear rules.

Who has to pay tax on bonds?

In principle, the following applies in Germany: If you receive interest or pay tax on bonds, a final withholding tax of 25% applies, plus solidarity surcharge and, if applicable, church tax. However, the exemption order (saver’s lump sum) allows tax exemption up to €1,000 for individuals or €2,000 for married couples.

You pay tax on both interest and capital gains under the same tax rule. For example, if you exit a corporate bond, you must pay tax on the profit less acquisition costs as capital gains if it exceeds the lump sum.

Taxation of bonds: government regulations

According to the current BMF circular (Section 20 EStG), proceeds from interest and sales proceeds are considered income from capital assets. An important innovation since the Annual Tax Act 2024 is that losses from bankrupt bonds can now be offset against other investment income without limit, provided the tax assessment is still open. This makes it clear that you not only pay tax on successful bonds, but also receive tax relief for losses.

Taxing capital gains – here’s how it works

You pay tax on capital gains in the same way as interest: the custodian bank pays withholding tax. The same taxation applies to capital gains realized during the investment period – for example, when selling before the end of the term. It is important to note that until 2008, tax-free capital gains were not applicable under certain conditions in the case of discount regulations, but today such special rules have been abolished.

Tips for investors on the taxation of your bonds

1. Make targeted use of the saver’s allowance to avoid paying tax on bonds unnecessarily.
2. Set off losses on defaulted bonds – this reduces the tax burden on other investment income.
3. Pay attention to German withholding tax obligations – banks automatically report interest income and sales proceeds to the BZSt.
4. Clarify with your tax advisor whether deposits for interest or capital gains must be declared separately, as both are subject to the same tax law.

Clear rules, real opportunities

The taxation of bonds in Germany is regulated by the flat-rate withholding tax, which means that every interest payment and every sale with a profit must be taxed, unless you make use of the saver’s allowance. Profits and price gains are taxed equally, while losses from bankrupt bonds can be offset against tax. A system that may not seem easy to understand at first glance, but which ultimately offers additional transparency.

With FI Investments as your investment partner, you can integrate corporate bonds into your portfolio in a strategically smart way, as well as acting with foresight and efficiency from a tax perspective.