Capital gains tax in Germany Confirm the cited source.

01What framework governs capital gains in Germany?

Germany applies two distinct frameworks depending on the asset type. Investment income --- dividends, interest, fund distributions, and gains from selling shares or bonds --- falls under the Abgeltungsteuer (withholding tax) at a flat 25%, established under Section 32d of the Einkommensteuergesetz (EStG). Private-disposal transactions --- notably real estate and cryptocurrency --- follow a separate holding-period regime under Section 23 EStG, where gains become fully tax-free once a defined period expires. Which framework applies is the threshold question for any German capital-gains analysis.

02How does the Abgeltungsteuer work on investment income?

The Abgeltungsteuer (literally: "settlement tax") is a final flat withholding tax of 25% on capital income (Kapitalertrage), as set out in Section 32d EStG. German banks and brokers deduct it automatically at source via the Kapitalertragsteuer (KapESt) mechanism, so most investors with German custody accounts receive net proceeds without needing to file a separate capital-income return.

On top of the 25% base, a Solidaritatszuschlag (solidarity surcharge) of 5.5% applies to the tax amount itself --- not to the underlying income. This brings the effective combined rate to approximately 26.375% (25% x 1.055). Members of tax-levying religious communities additionally pay Kirchensteuer (church tax) at 8% of the base tax in Bavaria and Baden-Wurttemberg, or 9% in all other federal states, raising the total effective burden to roughly 27.82% or 27.99% respectively. Germany's Federal Constitutional Court upheld the solidarity surcharge in a ruling dated 26 March 2025, leaving approximately six million taxpayers still subject to it.

The Sparer-Pauschbetrag (saver's allowance) under Section 20(9) EStG shields the first EUR 1,000 of annual capital income per individual (EUR 2,000 for married couples assessed jointly) from any withholding. This allowance was increased from EUR 801 / EUR 1,602 effective 1 January 2023. To apply it at source, investors submit a Freistellungsauftrag (exemption order) to each bank; the combined total across all institutions cannot exceed the annual cap.

A Gunstigerprufung (lower-rate check) election under Section 32d(6) EStG is available to taxpayers whose personal marginal income-tax rate falls below 25%. They may elect via Anlage KAP in their annual return to have capital income taxed at the progressive personal rate instead, which can produce a lower overall bill for pensioners or low-income individuals.

03What are the Section 23 EStG private-sale holding-period rules?

Section 23 EStG governs private-disposal transactions (Spekulationsgeschafte) on assets held outside a business. Two holding-period rules determine taxability.

Real estate (Grundstucke): Gains from selling privately held real estate are fully tax-free if the property was held for more than 10 years between acquisition and disposal. Within that 10-year Spekulationsfrist, gains are added to ordinary income and taxed at the taxpayer's progressive marginal rate, which reaches 45% at the top band plus the solidarity surcharge. An important exception applies to owner-occupied residential property: if the property served as the owner's own residence in the year of sale and during the two preceding calendar years, any gain is exempt regardless of how long the property was held --- a provision under Section 23(1) Nr. 1 EStG.

Cryptocurrency and other private assets: Digital assets (including Bitcoin, Ether, and other tokens) are treated as private movable assets under Section 23(1) Nr. 2 EStG. Gains are fully exempt when the holding period exceeds one year. Within one year, gains are taxed at the personal marginal income-tax rate. Note that the Abgeltungsteuer flat rate does not apply to crypto --- the personal rate applies, which can reach 45% plus soli on large gains.

A Freigrenze (exemption threshold) of EUR 1,000 per year applies to total Section 23 EStG private-sale gains: if aggregate gains from all private disposals fall below EUR 1,000 in a calendar year, no tax is owed. This threshold was raised from EUR 600 effective 2024 under the Wachstumschancengesetz (Growth Opportunities Act). Critically, this is a Freigrenze not a Freibetrag: exceeding EUR 999.99 makes the entire gain taxable, not just the amount above the threshold. Section 23 losses from private disposals can only offset other Section 23 gains --- they cannot reduce wages, investment income, or other income categories.

04How are investment funds taxed in Germany?

Since the Investment Tax Reform Act of 2018, German investment funds (including ETFs) are subject to a Vorabpauschale --- a notional minimum annual return that investors must recognize as taxable income even without a distribution. The Vorabpauschale equals 70% of the annual base interest rate multiplied by the fund's opening value; for 2025 the base rate was 2.53%. Cumulative Vorabpauschale amounts previously taxed are credited against the final gain on sale to prevent double-counting.

Partial-exemption rates (Teilfreistellung) reduce the taxable base by fund type: equity funds (51%+ equities) receive a 30% exemption, mixed funds (25%+ equities) receive 15%, bond and money-market funds receive none, and real estate funds receive 60% or 80% depending on geographic focus. These exemptions apply to distributions, Vorabpauschale, and disposal gains alike.

For a broader view of how Germany handles cross-border investment income and treaty-reduced withholding rates, see the Germany country overview. Cryptocurrency-specific analysis of staking, mining, and disposal timing is covered in the Germany crypto taxation crossover.

Determining which framework applies to a specific asset, calculating the Vorabpauschale correctly for multi-year fund positions, and claiming Section 23 exemptions via Anlage SO all involve fact-specific analysis. Readers seeking to apply these rules to their own circumstances should consult a qualified Steuerberater (tax consultant) registered with the Steuerberaterkammer.