Investing in Germany
Tax rules, best brokers, and ETF considerations for Germany
Tax System
Abgeltungsteuer (Flat Tax on Capital Income)
Capital gains: 26.375% (25% + 5.5% solidarity surcharge) on realised gains
Key Rule
Teilfreistellung + Vorabpauschale
Dividends: 26.375% on dividends (same flat rate)
Teilfreistellung + Vorabpauschale Explained
Germany applies a flat 26.375% tax on investment income (capital gains + dividends). However, equity ETFs with 51%+ equity content receive a Teilfreistellung (partial exemption) of 30%, reducing the effective rate to about 18.5%. The Vorabpauschale is a prepaid tax on unrealised gains, calculated annually based on the ECB base rate. It ensures accumulating ETFs don't defer all taxation indefinitely. Your German broker handles both calculations automatically. You get a €1,000 annual tax-free allowance (Sparerpauschbetrag, €2,000 for couples) via a Freistellungsauftrag that you file with your broker.
Best Brokers for Germany
How to File Your Investment Taxes
Set up a Freistellungsauftrag with your broker (€1,000 single / €2,000 couple)
German brokers (Trade Republic, Scalable Capital) automatically withhold Abgeltungsteuer
Teilfreistellung is applied automatically for equity ETFs
Vorabpauschale is calculated and deducted in January each year
Non-German brokers (DEGIRO, Interactive Brokers) do NOT withhold — you must declare via Anlage KAP
Tips for Germany Investors
Use a German-domiciled broker for automatic tax handling — saves significant time
Set up a Sparplan (savings plan) for automatic monthly ETF purchases at no or minimal cost
Maximise your Freistellungsauftrag before using non-German brokers
Equity ETFs with 51%+ stock content get the 30% Teilfreistellung automatically
Watch Out For
Using a non-German broker means manual tax declaration via Anlage KAP — error-prone and time-consuming
The Vorabpauschale can create a tax liability even if you made no trades
Kirchensteuer (church tax) adds 8-9% on top of Abgeltungsteuer if you are a registered church member
ETF Considerations for Germany
Both accumulating and distributing ETFs work well in Germany thanks to the Vorabpauschale system. Accumulating ETFs are slightly preferred for compounding efficiency. The Teilfreistellung makes equity ETFs more tax-efficient than bond ETFs. Popular choice: VWCE or FTSE All-World via a Sparplan at Trade Republic or Scalable Capital.
Germany Investing FAQ
Germany applies a flat 26.375% tax on investment income (capital gains + dividends). However, equity ETFs with 51%+ equity content receive a Teilfreistellung (partial exemption) of 30%, reducing the effective rate to about 18.5%. The Vorabpauschale is a prepaid tax on unrealised gains, calculated annually based on the ECB base rate. It ensures accumulating ETFs don't defer all taxation indefinitely. Your German broker handles both calculations automatically. You get a €1,000 annual tax-free allowance (Sparerpauschbetrag, €2,000 for couples) via a Freistellungsauftrag that you file with your broker.
Our top recommendation is Trade Republic: Bank licence, automatic German tax handling, best Sparplan offering. Alternatives include Scalable Capital and XTB.
Both accumulating and distributing ETFs work well in Germany thanks to the Vorabpauschale system. Accumulating ETFs are slightly preferred for compounding efficiency. The Teilfreistellung makes equity ETFs more tax-efficient than bond ETFs. Popular choice: VWCE or FTSE All-World via a Sparplan at Trade Republic or Scalable Capital.
Capital gains tax: 26.375% (25% + 5.5% solidarity surcharge) on realised gains. Dividend tax: 26.375% on dividends (same flat rate).
Official Resources
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