Dividend and Investment Tax in Germany Confirm the cited source.

01What is the Abgeltungsteuer and who does it apply to?

The Abgeltungsteuer (literally: "settlement tax") is Germany's final flat withholding tax on private capital income (Kapitalertrage), established under Section 32d of the Einkommensteuergesetz (EStG) with effect from 1 January 2009. It covers dividends paid by domestic and foreign companies, interest from savings accounts and bonds, distributions from investment funds, and capital gains arising from the disposal of shares or other securities. German residents -- including expatriates who meet the habitual-residence test -- are subject to the tax on their worldwide investment income under this regime. The Abgeltungsteuer is a final tax at source: once withheld by the bank or broker, the capital income is fully settled for most private investors and does not need to be declared again, unless specific elections or foreign-income situations arise. For a wider view of how Germany treats personal income across categories, see the Germany country overview.

02How is the Abgeltungsteuer rate calculated, including the solidarity surcharge?

The base Abgeltungsteuer rate is 25% of gross capital income, as set by Section 32d EStG. On top of this, the Solidaritatszuschlag (solidarity surcharge) adds 5.5% of the tax itself -- not 5.5% of the underlying income. This produces a combined effective rate of approximately 26.375% (25% x 1.055). An important distinction from the income-tax Soli reform of 2021: while most wage earners were relieved of the solidarity surcharge at lower income levels, the Solidaritatszuschlag on capital income subject to Abgeltungsteuer continues to apply at the full 5.5% rate regardless of the investor's overall income level, because the flat-rate mechanism operates separately from the progressive income-tax exemption thresholds.

Registered members of a state-recognised church (Roman Catholic, Protestant, or Jewish communities) additionally pay Kirchensteuer (church tax) on their capital income. This equals 8% of the base Abgeltungsteuer in Bavaria and Baden-Wurttemberg, or 9% in all other federal states. German banks retrieve church-membership status automatically each year from the Bundeszentralamt fur Steuern (BZSt) via the electronic KiStAM procedure, so church tax is typically withheld at source without any action from the investor. The total effective rate including church tax is approximately 27.82% (8% Kirche) or 27.99% (9% Kirche).

03What is the Sparer-Pauschbetrag and how does the Freistellungsauftrag work?

The Sparer-Pauschbetrag (saver's allowance) under Section 20(9) EStG shields the first EUR 1,000 per year of an individual's capital income from any withholding. For married couples or registered civil partners who file jointly (zusammenveranlagte Ehegatten), the combined allowance is EUR 2,000 per year. These amounts were raised from EUR 801 and EUR 1,602 respectively with effect from 1 January 2023 under the Jahressteuergesetz 2022. The allowance applies to the combined total of interest, dividends, fund distributions, and realised securities gains -- it is not per-income-type. Actual expenses incurred in earning investment income (such as custody fees or subscription costs) are generally not deductible under the Abgeltungsteuer regime; the Sparer-Pauschbetrag replaces itemised deductions entirely.

To apply the allowance at source -- preventing the bank from withholding unnecessarily -- investors submit a Freistellungsauftrag (exemption order) directly to their bank or broker. The exemption order specifies a euro amount that the institution may treat as tax-free in the current calendar year. An investor using multiple institutions can split the EUR 1,000 across them, but the total allocated across all Freistellungsauftrage must never exceed the annual cap. Without a Freistellungsauftrag, the bank withholds Abgeltungsteuer on all capital income; investors may later reclaim any excess withholding via Anlage KAP in an annual tax return. Alternatively, individuals with very low overall income may obtain a Nichtveranlagungsbescheinigung (NV-Bescheinigung) from the Finanzamt, which instructs banks to apply zero withholding in full.

04How are equity funds, mixed funds, and bond funds taxed under the Teilfreistellung rules?

Since the Investmentsteuergesetz 2018 (InvStG 2018) came into force on 1 January 2018, investment funds -- including exchange-traded funds (ETFs) -- are subject to a reformed opaque-fund taxation system. The central feature for private investors is the Teilfreistellung (partial exemption), which reduces the taxable portion of fund returns by fund type.

For private investors holding fund units as private assets, the Teilfreistellung rates under Section 20 InvStG are:

• Equity funds (Aktienfonds) -- funds maintaining at least 51% in equities on a continuous basis: 30% exempt, meaning only 70% of returns (distributions, realised gains, and Vorabpauschale) are subject to Abgeltungsteuer. The effective rate on equity-fund income is therefore approximately 18.46% (26.375% x 70%).
• Mixed funds (Mischfonds) -- funds maintaining at least 25% in equities: 15% exempt, meaning 85% of returns are taxable (effective rate approximately 22.42%).
• Domestic real estate funds -- funds maintaining at least 51% in German real property: 60% exempt, so only 40% is taxable.
• Foreign/global real estate funds -- maintaining at least 51% in foreign real property: 80% exempt, so only 20% is taxable.
• Bond funds and money-market funds -- equity share below 25%: 0% exempt (full 26.375% applies).

The Teilfreistellung applies equally to distributions, to gains on disposal of fund units, and to the annual Vorabpauschale.

05What is the Vorabpauschale and how is it calculated for accumulating funds?

The Vorabpauschale (advance lump-sum) is a notional minimum annual return that investors in accumulating (thesaurierende) investment funds must recognise as taxable income each year, even though the fund makes no actual cash distribution. It was introduced by the InvStG 2018 to prevent indefinite tax deferral through the use of accumulating fund structures.

The Vorabpauschale for a given calendar year is calculated as:

Basisertrag = Fund value on 1 January x Basiszins x 0.70

The Basiszins is an annual base interest rate derived from the yield on long-dated German government bonds, published each January by the Bundesministerium der Finanzen (BMF) pursuant to Section 18(4) InvStG. For calendar year 2025, the Basiszins was 2.53% (effective deduction in January 2026). For calendar year 2026, the BMF confirmed a Basiszins of 3.20% on 13 January 2026 (effective deduction in January 2027; BMF-Schreiben IV C 1 -- S 1980/00230/012/001). The Basisertrag is capped at the fund's actual positive gain over the year: if the fund's net asset value falls, the Vorabpauschale is zero. Actual distributions already paid during the year reduce the Vorabpauschale by the same amount.

The resulting Basisertrag is then reduced by the applicable Teilfreistellung (e.g. 30% for an equity ETF), and Abgeltungsteuer at 26.375% applies to the remaining 70%. Under Section 18(3) InvStG, the Vorabpauschale is deemed received on the first business day of the following calendar year (for 2026, this is 4 January 2027), and custodian banks typically debit cash from the investor's account on that date to settle the tax. Vorabpauschale amounts taxed in prior years are credited against the final disposal gain when units are sold, preventing double taxation.

For further detail on the Section 23 EStG private-disposal rules that apply to real estate and cryptocurrency (distinct from the Abgeltungsteuer securities regime), see the Germany capital gains tax crossover. A qualified Steuerberater registered with the Steuerberaterkammer can advise on optimising your Freistellungsauftrag allocation, assessing whether the Gunstigerpufung election is beneficial, and correctly reporting foreign-source dividend income on Anlage KAP.