Does your broker charge you tax? Have you invested money in an investment and suddenly the broker wants taxes from you? Do you have the feeling that you are being cheated? You are probably right.

Here we explain the whole process of investment fraud, from the first contact to improper demands for payment. We also address the issue of proper taxation of your earnings.

Payout is tied to tax payment?

The initial presumed profits in online trading encourage investors to increase their investments. However, once investors decide to withdraw their funds from online trading and request repayments, complications arise. Broker demands taxes – all of a sudden.

Investors find that receiving their supposedly earned online credit is contingent on paying an allegedly owed “tax” beforehand. Caution is advised here. If your broker demands such a tax payment and refuses to distribute the profits, contact a competent lawyer as soon as possible.

Your lawyer will determine whether the online broker’s demand for a tax payment is reasonable. With these mostly fraudulent activities by the financial broker, your invested money is at risk. Please wait until it is clarified whether it is a dubious broker or not before making any further deposits.

“Tax” is a warning signal when trading online

You should never comply with a payment request from your broker that is called a “tax”. Before doing so, you should make sure that it is indeed a legitimate fee. The levying of such a “tax” is an indication of fraudulent activities in connection with financial transactions via the Internet.

It is common practice of fraudulent internet trading platforms to demand another large payment when an investor requests a withdrawal from his trading account or cancels his investment. Our clients tell us that they often had to pay “supposed taxes” several times in a row in order to receive the “payout” of their online trading account.

In reality, the expected payout never materialised, although alleged taxes had already been paid several times. As a result, the online broker broke off communication and closed the trading account.

Fraud proven by tax payments to the broker

Fraudsters demand special payments from their customers as a condition for the payment of their profits. A dubious online broker with fraudulent intentions will sooner or later demand that you pay taxes, usually in the amount of 10 %, 20 % or 30 %.

It is best to be extra careful and withhold future payments until you can verify the legitimacy of the demand. Because one thing is a fact: taxes are never paid directly to the broker, no matter where in the world. The state, and never a private company, is entitled to all tax revenues.

When a share is sold in Germany, the associated taxes are paid by the bank directly to the tax authorities. The tax is apportioned on the basis of existing profits, so no further payment is required.

Requests for you to pay taxes directly to the broker are illegal and indicate fraud.

Broker demands taxes: Beware of investment fraud on the Internet

To achieve their goal, fraudsters use the trustworthiness that comes from tax officials, governments and international organisations. Some less experienced investors may be “happy-go-lucky” that their broker will take care of this complex issue of paying taxes for them.

The dishonest brokers take full advantage of people’s trust in them and the circumstances in which they operate. At first glance, the claim that taxes must be paid before any of the supposedly huge returns can be distributed makes sense.

After all, it is common knowledge that stock market gains are subject to capital gains tax and cryptocurrency gains are subject to personal income tax. At the very least, you can take a broker’s warning about possible tax consequences seriously. However, brokers are not obliged to make tax payments on their own.

This is because taxes are not payable to the broker, but to the competent tax authority. In the case of shares held in private custody at a German custodian bank, this is done mechanically. The transfer of tax money to a broker in Germany is strictly prohibited.

Furthermore, tax authorities and tax offices do not commission external messenger services to directly transmit correspondence with taxpayers. It is a red flag if your financial broker is causing you trouble for false tax invoices and preventing you from receiving your money.

Noticing broker scams: Characteristics – what to look out for

In many cases of broker fraud, the victim is presented with an unexpected tax bill. After the broker has duped the consumer into believing large profits over an extended period of time, it is only then that the stated tax payment occurs and is not properly documented or explained.

Many consumers are happy with the money they have won until they discover, when they receive their payout, that they have been defrauded by a dishonest broker. Will I get my deposited money back after the alleged tax payment? These scammers use legitimate appearing tax agencies and recognised tax authorities to deceive their victims.

Trading beginners believe them and appreciate the broker’s friendliness. The scammers, on the other hand, don’t think to bother with all the paperwork involved in paying your taxes, or even to transfer a single euro to the state. Scammers exploit the hopes of beginners and their confidence to increase their own financial gains.

Broker demands taxes: Experiences of aggrieved parties

The dubious brokers we know of have demanded a whole range of taxes from investors. In every single case of fraud, the dishonest brokers demanded taxes only on the eve of a payout. The victims had no suspicion of broker fraud at that time.

Typically, fraudulent brokers tell their victims over an extended period of time that their “invested money” has a good chance of making a substantial profit. The fraudsters do this by luring their victims to fraudulent trading platforms and fooling them into believing false price movements on well-designed websites.

However, this is not the case: neither the money nor any returns have been invested. The victims were not only sent a demand for tax payment, but also forged official-looking papers.

These documents were issued by alleged tax officials of the European Union, tax investigation authorities, money laundering investigators or banks. These papers are forgeries using the letterhead of legitimate or fictitious tax authorities and offices.

Fake documents are used

The dodgy brokers even give their clients a fake dashboard showing manipulated price movements. Combined with fake documents supposedly issued by an EU financial institution, the scam can look very convincing.

After a certain period of time, tax investigators or other money laundering investigators may send you further documents and demand payment from you as a consumer. Since the fraudsters only use letterheads from fictitious or partially authentic tax offices, these documents are not legitimate either and are susceptible to forgery.

Taxes always to the tax office – even with cryptocurrency profits

In Germany, the competent tax office, not the broker, is responsible for this type of tax. So if a broker tries to send you a tax payment, it is illegal and probably a scam. The German and many other international tax authorities will not hire a private broker to send you official paperwork.

The following warning signals can help you recognise investment fraud. Investors may have to pay taxes on their investment gains, as a “capital gains tax” is levied on share gains. The same applies to cryptocurrency trading, where the profits made are taxable as regular income.

Broker demands taxes: Many investors do not suspect fraud when the obliging broker raises the possibility of tax liabilities, as this topic does not sound too unrealistic.

Online Trading – Taxes in Germany

Taxes must be paid in Germany, regardless of whether your broker is based in Germany or abroad. However, the taxation of trading transactions in online trading is handled very differently. Each transaction is immediately subject to the full 25% withholding tax paid by a German custodian bank or Internet broker based in Germany.

The trader does not have to worry about this as it is a legal requirement for German financial services companies. You should give the bank or other financial institution an exemption order. For the time being, your profits are tax-free up to the exemption limit of 801 euros. However, your broker will withhold taxes from profits above this.

A trader can instruct several service providers and issue a separate exemption order to each. With the automated deduction of trade tax in Germany, newcomers in particular can avoid having to deal with the issue of taxes right away.

Broker demands taxes? Helpful hints for investors

To convince yourself that the startling tax payment described above is legitimate, consider the following. It is probably a dishonest broker trying to scam you out of extra money. Any victim should contact their broker immediately and demand a refund, including legal action if necessary.

It is likely that the suspect broker is dishonest if he refuses to pay the lawyer even though he has been asked to do so by the lawyer. Take all appropriate legal action as soon as possible to recover your investment. Keep the “tax paper” that was allegedly sent to you. Please keep all your previous contacts with the dodgy broker.

This will help preserve evidence so that the guilty parties can be brought to justice. Explain your situation in detail to a specialised lawyer. Inform the relevant law enforcement agencies and write to the international organisations responsible for regulating the world’s financial markets. It is important to contact the relevant payment service providers.

This broker will certainly contact you again in the future, but under a false name. As the past has shown, the perpetrators do not stop carrying out their attacks. Additional payments or fees for a “guaranteed money back” are demanded as soon as the tax is paid. These are all further scams that you should avoid at all costs.

Please read our What to do about broker scams page where we cover the basics of the subject. If you have been the victim of a scam, our law firm offers a free initial consultation. All we need from you are some details, including the name of the dodgy broker who contacted you, the name of the trading platform they used and the total amount you lost.

Broker demands taxes. A lawyer can help those affected

Our law firm has been helping people who have been victims of internet and financial scams for years. The unlawful demand by brokers for an alleged tax payment runs like a red thread through virtually all the fraud cases we have seen in this area.

Therefore, fake taxes are a typical tactic used by fraudsters when doing business with questionable providers via the internet. Contact a lawyer who specialises in online trading and investment fraud if you believe you have been a victim of such a scam.

We will file a criminal complaint with the police and report the online investment fraud to the Federal Financial Supervisory Authority (BaFin). We examine the legal consequences of the online investment fraud as well as the civil law remedies available to you.

We have helped victims of online investment fraud and recovered their money in a number of cases. People who have been victimised by dishonest brokers can get free initial legal advice from our firm. Simply describe your situation in detail in an email, by phone or via the contact form.

An investment fraud lawyer can advise you and help you explore all your options to get your money back. Even if an investor only has a suspicion of broker fraud, they should still report it. Considering the possibility of getting cash back, time is of the essence.

BaFin’s public warnings against dubious financial service providers are a major clue to online trading providers that operate dubiously or are not licensed. Our regularly published warnings about brokers in the area of online trading and crypto trading also provide you with important information.