Germany ETF Tax Guide (Besteuerung von ETFs und Fonds)
ETFs in Germany are taxed under the Abgeltungsteuer system (25% + Soli + church tax). Key features: the Vorabpauschale (advance flat-rate tax on deemed unrealised gains calculated annually using the Basiszins), the Teilfreistellung (30% of returns from equity ETFs >50% stocks are tax-free, 15% for mixed funds), and favourable treatment for accumulating vs distributing ETFs. Dividends from funds are taxed as ordinary dividends with the Teilfreistellung applied.
Germany has a sophisticated tax regime for investment funds designed to prevent indefinite tax deferral through accumulating (thesaurierende) funds. The Vorabpauschale ensures that even if a fund does not distribute income, investors pay tax annually on a deemed return based on the fund's value and the Basiszins (basic interest rate published by the Bundesbank). Understanding these rules is essential for choosing between accumulating and distributing ETFs and for accurate tax reporting. For related reading, see our Capital Gains Tax Guide → and Savings Allowance Guide →.
Vorabpauschale (Advance Flat-Rate Tax)
- How it works: The Vorabpauschale is an annual deemed gain calculated as: fund value at the start of the year × Basiszins × 0.7 (70% of the base rate). For 2026, the Basiszins is expected around 2.5%–3.0% (it was 2.29% in 2024, rising from near-zero in prior years). If the fund's actual price increase during the year is lower, the actual increase is used instead.
- Who pays it: All investors holding fund units at the start of the year must pay Vorabpauschale on the deemed gain — even if the fund did not distribute anything (accumulating funds). For distributing funds, the actual distributions are deducted from the Vorabpauschale calculation.
- Tax on Vorabpauschale: The deemed gain is subject to the normal Abgeltungsteuer (25% + Soli + church tax), reduced by the Teilfreistellung. The tax is withheld by your German broker if you have a Freistellungsauftrag or sufficient cash in the account. If not, you must pay via your tax return.
- Basiszins reset: The Basiszins is reset annually by the Bundesbank based on long-term government bond yields. The near-zero rates of 2015–2022 meant the Vorabpauschale was negligible; the 2023–2026 normalisation has made it significant again.
Teilfreistellung, Sale, and Distributions
- Equity ETFs (Aktien-ETFs, >50% stocks): 30% Teilfreistellung — 30% of all fund returns (distributions, realised gains, Vorabpauschale) are tax-free. Only 70% is subject to Abgeltungsteuer. This applies to most MSCI World, S&P 500, and emerging market ETFs.
- Mixed funds (Mischfonds, >25% stocks): 15% Teilfreistellung. Applies to balanced funds and multi-asset ETFs with meaningful equity exposure.
- Real estate funds (Immobilienfonds): 60% Teilfreistellung for domestic real estate funds, 80% for foreign real estate funds (if they meet certain criteria). These are very tax-efficient.
- Selling fund units: When you sell ETF units, the gain (sale price minus acquisition cost) is subject to Abgeltungsteuer. The Teilfreistellung applies — e.g., for an equity ETF, only 70% of the gain is taxed. Losses from ETF sales go into the allgemeiner Verlusttopf and can offset other non-share capital gains.
- Distributing vs accumulating: Distributing (ausschüttende) ETFs pay out dividends/interest annually — these distributions are taxed normally (with Teilfreistellung). Accumulating (thesaurierende) ETFs reinvest income internally, but the Vorabpauschale ensures annual taxation of the deemed return. For most investors, accumulating ETFs are slightly more tax-efficient for long-term buy-and-hold, but the difference is small.