Withholding tax on dividends: tax credit, refunds and fund domicile

In depth10 min read · updated 20 October 2026 · 7 sources

A country deducts withholding tax from dividends before the money flows abroad; for US stocks, for example, 15% with the usual form. In Germany, the dividend is then taxed again. So that this does not amount to full double taxation, double taxation agreements cap the foreign rate, and the bank credits the foreign tax against the German flat-rate withholding tax (Abgeltungsteuer). Here you will learn exactly how this works, when the credit lapses, what you can reclaim and why the fund domicile matters for ETFs. This is not tax advice; in individual cases, the tax office (Finanzamt) decides.

The basic principle: tax at source

When a foreign company pays a dividend, the country where it is based deducts the tax directly on payment, i.e. at source. Under national law, this is often 25% to 35%. Germany taxes the same dividend with the flat-rate tax of 25% plus solidarity surcharge (see Abgeltungsteuer and Teilfreistellung). Without relief, you would therefore pay twice.

Two rules largely prevent this. A double taxation agreement (DTA) limits how much the source country may keep, for dividends from ordinary portfolio holdings usually to 15%. And Germany credits the foreign tax up to this limit against its own tax. Anything the source country withholds above the treaty rate can only be recovered through an application in that country.

Double taxation agreements: who may levy how much

Germany has agreements with almost all major stock market countries. Which rate is ultimately creditable is published by the Federal Central Tax Office (BZSt) every year as of 1 January in an overview for each country: the rate under national law, the maximum rate under the DTA and the resulting rate up to which banks credit the tax. Only foreign tax that has been assessed and paid, and for which there is no entitlement to a reduction in the source country, is creditable (BZSt 2026).

This leads to three cases. If the national rate is above the treaty rate, as in Switzerland (35% versus 15%), only the treaty rate is credited; the rest has to be reclaimed in the source country. If it is equal, as in the Netherlands (15%), everything fits. If it is below, as in France for private investors (12.8%) or in the UK (no withholding tax on dividends), only what was actually withheld is credited. For some countries, such as Belgium, Ireland and Norway, the overview lists 0% as creditable, because the source country itself provides for an exemption or refund. There, only an application abroad helps (BZSt 2026).

Credit against the flat-rate tax

For a brokerage account in Germany, the bank handles the credit automatically. The legal basis is § 32d(5) of the Income Tax Act (EStG 2009): the foreign tax reduces the flat-rate tax, by at most 25% of the individual income item and at most up to the German tax on the year's investment income. The solidarity surcharge and, where applicable, church tax are then calculated on the reduced tax. The law puts it into a formula:

The bank books the creditable withholding tax on the payment date and offsets it against the flat-rate tax of the same year. It appears on the annual tax certificate (Jahressteuerbescheinigung) as credited foreign tax. The dividend itself counts gross, i.e. before deduction of withholding tax, as taxable income.

The trap: allowance and losses

The credit can only be applied against German tax that is actually due. If your investment income stays within the saver's allowance of €1,000 (€2,000 for couples) or is offset against losses, there is no German tax, and the foreign withholding tax goes to waste.

For this purpose, banks keep a separate pot for withholding tax not yet credited during the current year: if taxable income arises later in the year, it is still credited. Whatever remains at the end of the year is shown on the tax certificate. In the tax return (Anlage KAP, the annex for investment income), it can be offset against taxable investment income of the same year, for example at another bank. Carrying it forward to later years is not provided for. This mainly affects small portfolios whose income stays entirely within the allowance, and years with high realised losses.

Refunds: what was withheld in excess

If the source country withholds more than the treaty rate, you can reclaim the difference there. The procedure differs from country to country, often requires confirmation from the German tax office and takes time; some banks handle it for a fee. For small amounts, the costs can exceed the refund. The best-known case is Switzerland: it levies 35% withholding tax (Verrechnungssteuer). Residents of Germany apply for the refund online with Form 85, within three years after the end of the year in which the dividend became due (ESTV 2026).

Key countries at a glance

The table shows the rates for dividends from portfolio holdings paid to private investors in Germany, according to the Federal Central Tax Office's overview as of 1 January 2026 (BZSt 2026). The last column is the portion you can only recover in the source country if the full national rate was withheld.

Rates as of 1 January 2026. For investors from countries with exchange of information and holdings below 10%, Denmark's national rate is 15%, but it initially withholds 27%; the difference is refunded on application (PwC 2026). France levies 12.8% on private investors; if more is withheld, the excess has to be reclaimed in France. Rates change. Check the current overview before applying.

Withholding tax on ETFs: fund level and domicile

With a fund, the dividend does not flow to you but to the fund. The source country withholds the tax at the fund, and the loss is reflected in the unit price. You cannot credit any of it. The legislator compensates for taxes inside the fund on a flat-rate basis through the partial exemption (Teilfreistellung): for equity funds, 30% of the income is tax-free (InvStG 2016). The Investment Tax Act (InvStG) taxes German dividends received by investment funds at 15% including solidarity surcharge; foreign withholding taxes depend on the fund domicile.

US dividends make the biggest difference. Thanks to the treaty between Ireland and the US, funds domiciled in Ireland pay 15%, while ETFs from Luxembourg and other European countries pay 30% (Crowley 2023). According to Fitzpatrick (2023), Ireland is the only European fund domicile with such a rule for ETFs. This is one reason why most ETFs on US and global equities traded in Germany are domiciled there.

With synthetic ETFs (swap ETFs), the fund does not hold the index stocks itself but receives the index return from the swap counterparty; which tax is priced in there is set by the contract. Many net return indices use the rates for investors without treaty benefits. An Irish ETF on US equities can therefore beat its net return index, which shows up as a positive tracking difference. Whether a fund distributes or accumulates makes no difference to withholding tax (see accumulating or distributing).

For advanced readers: church tax, maximum amounts, special cases

• Church tax: with k = 9%, the formula gives €97.80 flat-rate tax, €5.38 solidarity surcharge and €8.80 church tax for a €1,000 US dividend, €261.98 in total including the US tax. A German dividend costs €279.95 with church tax.
• Maximum per income item: nobody credits more than 25% of an income item. This only matters for countries without a treaty or where a treaty allows higher rates, for example for certain profit-participating income for which the overview lists full taxing rights for the source country.
• Notional withholding tax: some older treaties allow more to be credited than was actually withheld. Where this applies without further evidence, it is already included in the BZSt overview (BZSt 2026).
• ADRs and secondary listings: what matters is the company's registered office, not the stock exchange. A US stock traded in Frankfurt remains a US stock.
• Currency conversion: the dividend and withholding tax are converted into euros at the exchange rate on the payment date; you bear any exchange rate changes until the refund yourself.

Limitations and common mistakes

• Forgetting the refund: with Swiss, Danish or Austrian stocks, part of the dividend stays abroad permanently unless you apply. The deadlines are limited: three years in Switzerland.
• Underestimating the allowance: small portfolios with many foreign dividends lose the withholding tax if no German tax is due.
• Missing Form W-8BEN: without the form, the US withholds 30%; only 15% is credited.
• Confusing funds with single stocks: with ETFs, there is no credit and no refund application by the investor, because the tax arises inside the fund.
• Outdated rates: national rates and treaties change. The figures here are as of 1 January 2026.
• Not tax advice: church tax, the most-favourable assessment (Günstigerprüfung), accounts abroad or special securities change the result. If in doubt, a tax adviser can help.

How Portfolio Lab calculates it

In the Backtest with taxes, you can optionally have the dividends of single stocks taxed. Portfolio Lab determines the stock's country of domicile from the ISIN, otherwise from the master data or the stock exchange. It deducts the rate usual at German custodian banks and credits at most the creditable rate from the BZSt overview and at most 25% per income item, and only against the year's flat-rate tax after loss offsetting and the saver's allowance. Any excess lapses at the end of the year. Optionally, the portion above the treaty rate is treated as reclaimed. The dividend is already reinvested in the prices; the backtest only deducts the taxes from the portfolio.

For funds, the backtest continues to calculate as for accumulating funds: their withholding tax is reflected in the price. The “Withholding tax” tab in the Look-through estimates roughly how large it is: equity share per country times the country's dividend yield times the rate for the fund domicile. For comparison, it shows the same fund domiciled in Ireland, Luxembourg, Germany and France. This is an estimate: sector and dividend funds deviate from the country's dividend yield, and the app does not know about refund applications by individual 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.