By Marco BösingHow Are Prop Trading Profits Taxed?
Prop trading taxes concern the tax treatment of profits that traders earn through prop trading firms such as FTMO, Topstep, or similar providers. The tax classification in Germany is not clearly defined and depends largely on the contract structure between the trader and the prop firm.
There are generally two common tax classifications: if payouts are treated as income from capital assets, the flat capital gains tax (Abgeltungssteuer) applies. If they are classified as other income or business income, they are subject to the personal income tax rate and potentially trade tax.
Since most prop trading firms are based abroad and no automatic tax withholding occurs, traders are obligated to report their profits independently in their tax return. Working with a tax advisor who specializes in trading taxation is particularly advisable in this case.