How is income from Afranga taxed in Germany?

How is income from Afranga taxed in Germany?

Many German investors on Afranga ask our support team questions such as: How is my interest taxed in Germany? Is it considered foreign income? Can I offset Bulgarian withholding tax?

1. Interest Classification

Interest earned through Afranga loans qualifies as capital income under German tax law per § 20(1) No. 7 EStG, covering interest from loans and receivables. This treatment applies identically to German investment platforms, making Afranga interest standard taxable capital income for German residents.

2. Foreign Income Status

The interest qualifies as foreign capital income because the location of the debtor determines the source under German rules. Most Afranga loan originators operate in Bulgaria. German investors must declare and pay German taxes on this foreign-source income.

3. Bulgarian Withholding Tax Credits

The Germany-Bulgaria Double Taxation Agreement permits withholding tax crediting up to 5%. If Bulgarian loan originators withhold 10%, Germany credits only 5%. Foreign withholding tax credits apply within DTA limits against flat taxes.

4. Tax Return Reporting

Investors must report gross interest income per § 32d EStG in Annex KAP of their tax returns. Foreign tax credits are claimed under § 34c EStG, also entered in form KAP.

Summary

For German residents, Afranga interest represents:

• Taxable capital income
• Foreign-sourced income
• Eligible for up to 5% withholding tax credits under the Germany-Bulgaria DTA

This article is for informational purposes only and does not constitute tax advice. We recommend consulting a qualified tax advisor for your individual circumstances.