Investing in ETFs in Germany is popular for a reason: low-cost brokers, free savings plans and a tax system that, once you understand it, is fairly predictable. The main rules are a flat tax on investment income, a yearly tax-free allowance, a partial exemption for equity funds and a small advance tax on accumulating ETFs called the Vorabpauschale.
In short
- Investment income pays a flat 26.375% (25% plus solidarity surcharge), plus church tax if it applies.
- The first €1,000 a year is tax-free (€2,000 for married couples filing jointly).
- Only 70% of gains on equity ETFs is taxed, thanks to the 30% Teilfreistellung.
- Accumulating ETFs pay a small yearly Vorabpauschale, which you get back when you sell.
The flat tax: Abgeltungsteuer
Dividends, interest and capital gains are taxed at a flat 25%. A 5.5% solidarity surcharge is added on top of that tax, which gives 26.375%. If you pay church tax, it adds 8% or 9% of the tax, depending on your federal state.
If you use a German broker, such as Trade Republic, Scalable Capital or a German bank, the broker withholds the tax automatically. You usually do not need to report anything in your tax return. If you use a foreign broker, nothing is withheld, and you must declare your investment income yourself in the Anlage KAP.
The Sparerpauschbetrag and the Freistellungsauftrag
Every taxpayer has a Sparerpauschbetrag of €1,000 a year. Married couples and civil partners filing jointly get €2,000. Investment income up to that amount is tax-free.
To use it at a German broker, give the broker a Freistellungsauftrag. This is a simple online form that tells the broker how much of your allowance it should apply. You can split the allowance between several banks, but the total cannot exceed €1,000 (or €2,000). Without it, the broker withholds tax from the first euro and you have to reclaim it through your tax return.
Teilfreistellung: why only 70% is taxed
Equity funds that hold at least 51% in shares get a partial exemption of 30%. In practice, only 70% of your dividends and gains from a global equity ETF are taxed. Mixed funds get 15%, and bond ETFs get no exemption.
This exemption exists because the fund itself may already have paid tax on dividends from the companies it holds. It applies automatically at German brokers.
The Vorabpauschale on accumulating ETFs
Accumulating ETFs reinvest their dividends, so in theory there is nothing to tax each year. To avoid indefinite deferral, Germany taxes a notional minimum return called the Vorabpauschale.
For 2026 the base interest rate (Basiszins) is 3.20%. The calculation works like this:
- Take the value of your ETF on 1 January.
- Multiply it by the Basiszins and by 0.7: 3.20% × 0.7 = 2.24%.
- Subtract any distributions paid during the year.
- Cap the result at the real gain of the year. If the ETF lost value, there is no Vorabpauschale.
- Apply the 30% Teilfreistellung for equity ETFs.
The tax is charged at the start of the following year. For 2026, your broker debits it in early January 2027, so keep a little cash in your account.
A worked example
You hold €10,000 in an accumulating world ETF on 1 January 2026, and it rises by more than 2.24% during the year.
| Step | Amount |
|---|---|
| Basisertrag: €10,000 × 2.24% | €224.00 |
| After 30% Teilfreistellung | €156.80 |
| Tax at 26.375% (allowance already used) | €41.36 |
If your €1,000 allowance is not used up, the Vorabpauschale simply uses part of it and you pay nothing. And it is not a loss: when you sell, the Vorabpauschale already taxed is deducted from your gain, so you are not taxed twice.
Accumulating or distributing in Germany?
Both work. Accumulating ETFs keep the paperwork simple and keep more money invested. Distributing ETFs pay out dividends that use up your allowance each year, which some investors like because it makes the allowance useful even before they sell. For a deeper comparison, read accumulating vs distributing ETFs.
Which brokers to use for ETFs in Germany
German neobrokers offer free ETF savings plans from €1 and handle the tax for you. If you are choosing between the two biggest, see our comparison of Trade Republic vs Scalable Capital, or browse the wider list of brokers for ETF investors.
A simple plan for ETFs in Germany
- Open an account with a German broker so tax is handled automatically.
- Submit a Freistellungsauftrag for your €1,000 allowance.
- Choose one global equity ETF, for example one of the best all-world ETFs.
- Start a monthly savings plan.
- Keep a small cash balance for the Vorabpauschale each January.
To compare Germany with other countries, see how ETFs are taxed in Europe.
Sources
This article is for educational purposes only and is not financial or tax advice. Rules and prices change; check official sources or a qualified adviser before making decisions.