Flat-rate tax, partial exemption and saver's allowance for ETFs in Germany

Basics7 min read · updated 1 September 2026 · 5 sources

In Germany, gains and distributions from ETFs are subject to the flat-rate withholding tax (Abgeltungsteuer). How much you keep in the end depends on three levers: the partial exemption (Teilfreistellung) for each type of fund, the saver's allowance (Sparer-Pauschbetrag) and the order in which units are sold. Knowing them will not let you avoid tax, but it often lets you defer it and make full use of the allowance.

Tax rate: 25% plus solidarity surcharge and church tax

The legal basis is § 32d of the EStG (2009) (Income Tax Act): 25% flat-rate tax, plus a 5.5% solidarity surcharge on top. Church tax is deductible as a special expense; that is why the flat-rate tax falls when church tax is due. The law expresses this with a formula:

With 8% church tax, this gives 1 / 4.08 = 24.51% flat-rate tax and 27.8186% in total. If your personal income tax rate is below 25%, you can obtain the lower rate through the most-favourable assessment (Günstigerprüfung) in your tax return.

Partial exemption: part of the income stays tax-free

The partial exemption under § 20 of the InvStG (2016) (Investment Tax Act) compensates for the fact that taxes have already been paid at fund level: since 2018, funds in Germany have paid tax themselves on German dividends, and foreign dividends are usually subject to withholding tax. It applies to capital gains, distributions and the Vorabpauschale (advance lump-sum taxation), but also to losses: for equity funds, they only count at 70%.

Saver's allowance

Up to €1,000 of investment income a year stays tax-free, €2,000 for jointly assessed couples. For the bank to take it into account, it needs an exemption order (Freistellungsauftrag); you can split it across several banks. Whatever is not used in a year is lost and cannot be carried over to the next year.

What is taxed

With ETFs there are three types of income, all of which fall under the flat-rate tax and all of which benefit from the partial exemption:

1. Distributions in the year they are paid, usually quarterly or annually.
2. Vorabpauschale on accumulating (and low-distributing) funds, each time at the start of the following year.
3. Capital gains on sale, reduced by the Vorabpauschale amounts already taxed.

Unlike with individual shares, foreign withholding tax on funds is not credited individually. It is withheld at fund level and settled on a flat-rate basis by the partial exemption. For shares held directly, by contrast, the bank credits withholding tax against the flat-rate tax up to a limit. There is no partial exemption on interest from bonds, instant-access savings and fixed-term deposits. It is fully taxable once the allowance has been used up.

Tax rules change. The examples reflect the rules as of 2026 for private investors with a brokerage account in Germany; if in doubt about your own situation, ask a tax adviser.

FIFO and loss offset pots

• FIFO: if you sell part of a holding, the units bought first count as sold first (§ 20 para. 4 EStG). With long-running savings plans, these are the ones with the largest gains.
• General loss offset pot: losses from ETFs are offset against gains, interest and dividends.
• Stock loss pot (Aktienverlusttopf): losses from individual shares can only be offset against gains from individual shares.
• Loss carryforward: the bank carries losses that have not been offset forward to the next year.
• Transferring your account to another bank within Germany carries over the acquisition data; FIFO applies per brokerage account.
• Losses at several banks are offset by each bank only on its own books. If you have losses at bank A and gains at bank B, request a loss certificate (Verlustbescheinigung) by 15 December and make up the offsetting in your tax return.

For advanced readers: deferring tax instead of saving it

The flat-rate tax only becomes due when gains are realised: on sale, on distributions or through the Vorabpauschale. Until then, a deferred tax amount keeps working in the portfolio. Constantinides (1983) showed that it is therefore optimal to realise losses immediately and gains as late as possible. In Germany, the allowance and loss offsetting strengthen this effect: losses reduce the tax immediately, and gains up to the allowance cost nothing.

Taxes also influence the choice of strategy. Barber and Odean (2000) studied 66,465 households at a US discount broker: the households that traded the most earned 11.4% a year, the market 17.9%. Even before taxes, frequent trading cost a lot of return; with flat-rate tax on every realised gain, the gap becomes even wider.

If, alongside your brokerage account, you have tax-advantaged contracts (such as an occupational pension), you can also consider which investments belong where. Dammon et al. (2004) show for the US that tax-inefficient investments such as interest-bearing bonds preferably belong in the tax-advantaged part, and equities in the taxable part, because that is where they benefit most from tax deferral.

Taxes in the backtest

Taxes change the ranking of strategies: frequent rebalancing or tactical switching triggers taxes continuously, while buy-and-hold defers them until the sale. A fair comparison includes taxes, including the tax on the final sale at the end. Otherwise the strategy with the most unrealised gains looks too good.

How Portfolio Lab calculates it

In the Backtest you can switch on German taxes: 25% flat-rate tax with solidarity surcharge, optionally 8 or 9% church tax with the statutory reduction, a saver's allowance of €1,000 or €2,000 per calendar year, partial exemption per security (equity funds 30%, mixed funds 15%, real estate funds 60 or 80%, other funds 0%), Vorabpauschale, FIFO per security, general loss offset pot and stock loss pot with loss carryforward. Gold with a delivery claim and cryptocurrencies held directly are tax-free after one year. Taxes are taken from the portfolio pro rata; if you wish, everything is sold and taxed at the end. Distributions are contained in the prices and are treated as for accumulating funds. More in the tax methodology.

This article explains a method; it is not investment or tax advice. Worked examples are simplified and rounded. All terms in the glossary.