What is the Abgeltungssteuer?
The Abgeltungssteuer is Germany's flat tax on investment income, introduced in 2009. It applies to capital gains, dividends, and interest income from most financial investments.
Unlike many countries that tax capital gains at progressive rates or distinguish between short-term and long-term holdings, Germany uses a simple flat rate system. This makes tax planning straightforward - you always know exactly what percentage you'll pay.
Key Advantage of German Tax System
There's no distinction between short-term and long-term capital gains for stocks and ETFs. Whether you hold for 1 day or 10 years, the tax rate is the same 26.375%.
Tax Rate Breakdown
The headline Abgeltungssteuer rate is 25%, but the actual rate you pay is higher due to additional surcharges:
| Component | Rate | Notes |
|---|---|---|
| Base Abgeltungssteuer | 25.00% | Flat rate on capital income |
| Solidarity Surcharge (Solidaritätszuschlag) | 1.375% | 5.5% of the base tax (25% x 5.5% = 1.375%) |
| Total (without church tax) | 26.375% | Standard rate for most investors |
| Church Tax (Kirchensteuer) - Optional | ~1.4-1.5% | 8-9% of base tax depending on state |
| Total (with church tax) | ~27.8-28% | For church members |
Church Tax Consideration
If you're a registered church member in Germany, your broker will automatically withhold church tax. You can opt out of church membership to save approximately 1.4-1.5% on investment taxes, but this affects all church-related services.
The Sparerpauschbetrag (Tax-Free Allowance)
Every German tax resident receives a Sparerpauschbetrag - a tax-free allowance for investment income:
- EUR 1,000 per person for singles
- EUR 2,000 for married couples filing jointly
This allowance covers all capital income combined: dividends, interest, AND capital gains. The first EUR 1,000 (or 2,000) you earn from investments each year is completely tax-free.
How to Use Your Allowance
To use your tax-free allowance, you must submit a Freistellungsauftrag to your broker(s). This tells them not to withhold tax on your investment income up to the specified amount.
Don't Exceed Your Total Allowance
If you have multiple brokers, you can split your Freistellungsauftrag between them, but the total cannot exceed EUR 1,000 (single) or EUR 2,000 (married). Exceeding this is a tax offense.
What's Taxed Under Abgeltungssteuer
- Stock capital gains
- ETF capital gains
- Fund distributions
- Dividends
- Bond interest
- Savings account interest
- Certificate gains
- Cryptocurrency (special rules)
- Real estate gains
- Private lending interest
- Business income
- Self-employment income
Special Rules for ETFs (Vorabpauschale)
Since 2018, accumulating ETFs are subject to the Vorabpauschale - an annual tax on a portion of unrealized gains. This ensures the tax authority collects some tax even if you don't sell.
The Vorabpauschale is calculated based on the fund's value and a base interest rate set by the German Federal Bank. In years with low or negative base rates, the Vorabpauschale may be zero.
Cryptocurrency Tax Rules in Germany
Germany's Crypto Tax Advantage
Cryptocurrency held for more than 1 year is completely tax-free in Germany! This makes Germany one of the most crypto-friendly countries in Europe.
Unlike stocks and ETFs, cryptocurrency is treated as a "private sale" (privates Veraeusserungsgeschaeft) in Germany, not as a capital asset. This leads to different tax treatment:
- Holding period < 1 year: Gains taxed at your personal income tax rate (up to 45%)
- Holding period > 1 year: Gains are 100% tax-free
- Additional tax-free amount: EUR 1,000 per year for short-term private sales (separate from Sparerpauschbetrag)
Staking and Lending Can Extend the Holding Period
If you stake, lend, or use crypto for DeFi activities that generate income, the holding period for tax-free treatment was historically extended to 10 years. However, recent guidance has relaxed this - consult a tax advisor for your specific situation.
Reporting Requirements & Anlage KAP
German Brokers (Automatic Withholding)
If you use a German broker like Trade Republic, Scalable Capital, or comdirect, taxes are automatically withheld at source. You generally don't need to file Anlage KAP unless:
- You want to claim unused Sparerpauschbetrag from another broker
- You want to offset losses against gains
- Your total tax rate is below 25% (you can claim a refund)
Foreign Brokers (Manual Reporting Required)
If you use foreign brokers like Interactive Brokers, DEGIRO, or Trading 212, no German tax is withheld. You must report all income on Anlage KAP and pay the tax yourself.
AllInvestView Makes Reporting Easy
AllInvestView automatically generates tax reports compatible with German requirements, calculating your realized gains, dividends, and providing the numbers you need for Anlage KAP.
Tax Optimization Strategies
1. Maximize Your Sparerpauschbetrag
Ensure you use your full EUR 1,000 (or 2,000) tax-free allowance every year. If you have unused allowance, consider realizing some gains before year-end.
2. Loss Harvesting
Sell losing positions before year-end to offset gains. In Germany:
- Stock losses can only offset stock gains (not ETF or bond gains)
- Other losses (ETFs, bonds) can offset any capital income
- Unused losses carry forward indefinitely
3. Consider Accumulating ETFs
Accumulating (thesaurierend) ETFs defer tax on dividends until you sell, potentially allowing more compound growth.
4. Hold Crypto Long-Term
If you're investing in cryptocurrency, holding for at least 1 year makes gains completely tax-free.
5. Günstigerprüfung (Better-Deal Check)
If your personal income tax rate is below 25%, you can request a "Günstigerprüfung" on your tax return to have investment income taxed at your lower personal rate instead.
Frequently Asked Questions
Track Your German Investment Taxes
AllInvestView automatically calculates your Abgeltungssteuer, tracks your Sparerpauschbetrag usage, and generates Anlage KAP-ready reports.
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