RSU taxation

The decision to sell your RSUs and ESPP shares either while being a resident in Germany or after relocating to India in January 2025 depends on the taxation rules in both countries. Here's a breakdown to help you make an informed decision:

1. Taxation in Germany

- Capital Gains Tax:   

In Germany, capital gains on the sale of shares are generally taxed at a flat rate of  26.375%  (including solidarity surcharge). However, you can offset capital losses and enjoy a tax-free allowance (e.g., €1,000 for singles in 2024).

- Holding Period Benefit:

Germany does not offer a reduced tax rate for long-term capital gains. All gains are taxed regardless of the holding period.

- Relocation Considerations:

If you sell the shares while still a resident in Germany, you will pay German taxes. Germany taxes its residents on worldwide income.

2. Taxation in India

- Capital Gains Tax: In India:

- Shares listed on a recognized stock exchange (like NASDAQ or Indian exchanges) qualify as listed securities.

- For shares held for more than 24 months, gains are classified as long-term capital gains (LTCG) and taxed at 20% (with indexation benefit) or 10%  (without indexation benefit) for foreign-listed shares.

- The basic exemption limit  and relief under the double taxation avoidance agreement (DTAA) may apply.

- Residential Status: If you sell the shares after becoming an Indian resident in January 2025, India will tax your global income. The tax liability will depend on the valuation date of the shares and currency fluctuations.

3. Double Taxation Avoidance Agreement (DTAA)

- Germany-India DTAA:

This agreement ensures you don’t pay tax twice on the same income. If you sell the shares as a German resident, you might avoid Indian taxes on these shares.

- Tax Credits: If you sell the shares after relocating to India, the taxes paid in Germany (if applicable) may be credited under the DTAA.

Key Considerations

1. Tax Rates and Benefits:

- If German tax rates (26.375%) exceed Indian LTCG tax rates (20%), you may benefit from selling after relocating to India.
- Indexation benefits in India may further reduce the taxable amount.

2. Currency Exchange Rates:

- Gains in foreign shares will be calculated in Indian Rupees (INR), and fluctuations in the exchange rate may affect your taxable gain.

3. Ease of Compliance:

- If you sell before relocating, you simplify tax compliance to just German laws for 2024.

4. Thresholds and Exemptions:

- Assess whether the €1,000 tax-free allowance in Germany or basic exemption limit in India applies.

5. Future Plans:

- Consider future financial goals and whether you'll reinvest the sale proceeds.

Recommendation

- Sell in Germany if:

- You want to avoid dealing with Indian tax laws and the complexity of DTAA claims.

- Your total gain is small, and the German tax-free allowance can be used.

- Sell in India if:

- You want to leverage lower LTCG tax rates (10-20%) with or without indexation.
- You expect significant tax savings due to currency appreciation or other factors.

For optimal tax planning, consider consulting with a tax advisor familiar with cross-border taxation in Germany and India. They can model scenarios specific to your holdings and relocation plans.

This response is prepared with the help of ChatGPT.  As we also deal with international taxation, we can help you to structure the transaction and cost effective tax planning.

When deciding whether to sell your RSUs (Restricted Stock Units) and ESPP (Employee Stock Purchase Plan) shares while being a resident in Germany or after relocating to India, it's important to consider the tax implications in both countries.

Tax Implications in Germany

In Germany, capital gains from selling shares are generally taxed at a flat rate of 25% plus solidarity surcharge and church tax if applicable. This applies to both RSUs and ESPP shares, regardless of how long you've held them. Since your shares are more than 24 months old and considered long-term, this standard rate still applies.

Tax Implications in India

Upon becoming a tax resident of India, you will be taxed on your global income according to Indian tax laws. For shares held for more than 24 months, as in your case, the gains are considered long-term and are taxed at 20% after indexation benefits. Indexation adjusts the purchase cost of your investments to reflect inflation, which can reduce your taxable gains.

Considerations for Selling Before or After Moving:

1. Tax Rates: Germany's flat rate (approximately 26.375% including the solidarity surcharge) might be higher compared to India's 20% after indexation benefits, which could significantly lower the effective tax rate.

2. Exchange Rate Risk: Currency fluctuations between the Euro and the Indian Rupee could affect the net amount you receive from the sale of shares. Consider the potential risk and impact of exchange rate changes.

3. Tax Residency: If you sell the shares while still a tax resident in Germany, you might avoid complications related to declaring this income in India. However, if you become a tax resident in India in January 2025 and then sell your shares, you will need to report this income in India for that financial year, potentially leading to double taxation, unless there is a relief provided under the Double Taxation Avoidance Agreement (DTAA) between Germany and India.

4. DTAA: Germany and India have a DTAA, which should ideally prevent double taxation of the same income. It will be crucial to obtain a Certificate of Tax Residency from Germany if you sell the shares after moving to India, to claim any relief under the DTAA.

Suggestion:

It may be financially beneficial to sell the shares while you are still a tax resident in Germany, considering the potentially lower effective tax rate after indexation in India and the administrative simplicity. 

For detailed, personalized advice, consider a phone consultancy. Hope you find the information helpful. You are free to contact me for further discussion. If you could spare two minutes of your time to write a review, it would be greatly appreciated and bring immense happiness to read it. Thank you. Shubham Goyal.

When deciding whether to sell your RSUs and ESPP-acquired shares of Company A while still a resident in Germany or after relocating to India in January 2025, it's important to consider the tax implications in both countries.

Taxation in Germany:

In Germany, capital gains from the sale of shares are subject to a flat tax rate of 25%, plus a 5.5% solidarity surcharge, totalling approximately 26.375%. This tax is generally withheld at the source. Additionally, there is an annual tax-free allowance of €1,000 for single filers and €2,000 for married couples filing jointly.

Taxation in India:

In India, foreign shares held for more than 24 months are considered long-term capital assets. Long-term capital gains (LTCG) from the sale of such shares are taxed at 20% plus applicable surcharge and cess, with the benefit of indexation on the cost of acquisition.

Considerations:

1. Tax Rates: The effective tax rate on long-term capital gains is slightly higher in Germany (approximately 26.375%) compared to India (20% plus surcharge and cess).

2. Indexation Benefit in India: India offers an indexation benefit for long-term capital gains, which adjusts the purchase price for inflation, potentially reducing the taxable gain. This benefit is not available in Germany.

3. Tax-Free Allowance in Germany: Germany provides a tax-free allowance on capital gains (€1,000 for singles; €2,000 for couples), which can reduce the taxable amount if your gains are within this limit.

4. Double Taxation Avoidance Agreement (DTAA): Both countries have a DTAA in place, which aims to prevent double taxation. However, the mechanics can be complex, and foreign tax credits may be available depending on the specifics of the agreement.

It is not clear whether Company A is an Indian Company or a Foreign Company.

There are 2 scenarios in your case:

Scenario 1: If Company A is a Foreign Company: In this case if you sell those shares and RSUs while being tax resident of Germany (remember this status is for a financial year and not w.e.f. any particular date), then such capital gains arising on sale will be only subject to DTAA in India and technically non-taxable. This is so because if your status is that of an 'NRI,' only the income earned or accrued in India will be taxable in India.

However, if you plan to sell these shares/ RSUs while being Resident of India, the entire capital gains shall be taxable @12.5% (assuming this is long term and also by the time you sell, this rate becomes effective).

Scenario 2: If Company A is an Indian Company: In this case, irrespective of your Resident/ Non-Resident status, the entire capital gains shall be taxable @12.5% (assuming this is long term and also by the time you sell, this rate becomes effective). Further, in case you are an NRI at the time of sale, TDS will also be applicable.

- For taxation in Germany, it is better to consult local tax advisor

- Taxation in India depends on the residential status of a person. If you will relocate to India in Jan 2025 then for FY 2024-25 your residential status would be non-resident and you would be liable to pay tax on Indian income only. For F.Y. 2025-26,2026-27 your residential status would be resident but not ordinary resident (RNOR). In such case (RNOR) also, foreign capital gain is not taxable in India.

- If you sell it being ROR (Ordinary resident), long term capital gain would be taxable @12.5% without benefit of indexation. To save tax on long term capital gain, you can further reinvest the amount in the residential house and claim exemption u/s 54F. If tax is also payable in Germany then you can claim benefit of DTAA.

For detailed discussion you may opt for phone consultation 

Hi if you have got indian company shares or you have got shares of foreign company that will play very major role in deciding tax implication