Interest, dividends and price gains are taxed at a flat 25 percent. The investor allowance of €1,000 makes small portfolios tax-free. How to use it, what the advance lump sum is and when declaring in the tax return pays.
In short
- Withholding tax 25 percent plus solidarity surcharge, just under 28 percent with church tax, paid directly by the bank.
- Investor allowance €1,000 per person, €2,000 for couples, split across banks via exemption orders.
- Equity ETFs enjoy 30 percent partial exemption; accumulating funds pay a small advance lump sum.
- Marginal rate below 25 percent? Then apply for the favourable assessment in the tax return.
How the withholding tax works
Since 2009 capital income is not taxed at your personal rate but at a flat 25 percent, plus 5.5 percent solidarity surcharge on the tax, so 26.375 percent, around 28 percent with church tax. The bank pays the tax directly; it no longer appears in the assessment. This applies to interest, dividends, distributions, price gains on sale and the advance lump sum on funds.
The investor allowance
The first €1,000 of capital income a year are tax-free, €2,000 with joint assessment. For the bank to apply it you need an exemption order (Freistellungsauftrag). With several banks you split the amount, for example €700 for the portfolio and €300 for the savings account. Unused amounts can be recovered via the tax return. At 2.5 percent savings interest, €40,000 is tax-free; with a portfolio distributing two percent, €50,000.
Funds and ETFs
Equity funds with at least 51 percent stocks enjoy a partial exemption of 30 percent: only 70 percent of income is taxed, effectively around 18.5 percent. Accumulating funds pay an annual advance lump sum (Vorabpauschale) calculated from the Bundesbank base rate, for 2026 around 2.5 percent of the fund value at the start of the year times 70 percent, of which 30 percent is again exempt. The bank debits it from the settlement account in early January; it is credited on a later sale.
Offsetting losses
Price losses on shares may only be offset against share gains, other losses against all capital income. The bank keeps loss pots that carry into the next year. With portfolios at several banks you request a loss certificate by 15 December and offset in the tax return.
The favourable assessment
If your personal marginal rate is below 25 percent, for instance as a pensioner, student or part-timer, you apply for the favourable assessment (Günstigerprüfung) in the KAP annex. The tax office then uses your tariff and refunds the difference. Conversely it stays at 25 percent if your rate is higher; the withholding tax is therefore an advantage for high earners.
Old holdings and gold
Shares and funds bought before 2009 remain tax-free on sale, for funds up to a gain of €100,000 since 2018. Physical gold is tax-free after one year of holding because it is not capital income but a private sale. The same applies to gold ETCs with a delivery entitlement, but not to gold funds without physical backing.
Try it yourself
ETF Savings Plan CalculatorContribution, return, term: how your savings plan develops over the years, with a chart and compound interest.Savings Interest CalculatorBalance, rate, term and tax: what your instant-access savings bring after German withholding tax and the tax-free allowance.Frequently asked questions
Do I have to declare capital income in the tax return?
Not if the bank has paid the tax and you do not want the favourable assessment. The KAP annex is mandatory for foreign accounts without withholding and for church tax liability without data transfer.
What exactly is the advance lump sum?
A notional minimum taxation for accumulating funds so they are not favoured over distributing ones. It is small, credited on sale and does not apply in years with price losses.
Are cryptocurrencies capital income?
No, like gold they count as private sales: tax-free after one year, before that at your personal rate from €1,000 of gains.
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