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You invest in shares, funds or savings accounts

Taxing and declaring investment income

Understand the flat-rate withholding tax, compute the tax and the saver's allowance, the partial exemption and the advance lump sum of your funds, loss offsetting and whether the most-favourable assessment pays, and declare your investment income: 7 steps.

Start here: Taxing German investment income

Understand: flat-rate withholding tax and investment income

  1. Step 1 of 7
    CoursePaid individually37 min

    Taxing German investment income

    Investment income has a tariff of its own: 25 % instead of progression. The price sits in section 20(9) — the saver's allowance of 1,000 € replaces actual related expenses, whose deduction is excluded. Plus the distribution of the joint 2,000 € between spouses and the exemption order, without which the bank withholds from the first euro. The second module covers the three loss pots, in which share losses stand alone, and the favourability test, which can only be applied for uniformly across all income. Two modules with case studies worked on the statute itself.

Compute: withholding tax, partial exemption, advance lump sum, loss offsetting, favourable assessment

  1. Step 2 of 7
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    German flat tax on investment income — with the saver's allowance

    The German flat tax is 25 % — but not on gross income: the saver's allowance of EUR 1,000 is deducted first, or EUR 2,000 under joint assessment.
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    German partial exemption on investment funds — 30, 60 or 80% tax-free

    For equity funds, 30% of income is tax-free, 60% for individuals holding the units as business assets, 80% for corporations. Mixed funds get half of that. Real-estate funds are 60% tax-free whoever holds them, foreign real-estate funds 80%.
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    German advance lump sum (Vorabpauschale) on accumulating funds and ETFs

    The advance lump sum is the amount by which a fund's distributions for the year fall short of the base return. The base return is the start-of-year value times 70 percent of the base rate, but never more than the year's gain plus distributions. A losing year produces no lump sum.
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    German investment losses — share losses, derivatives and carry-forward

    Investment losses offset investment income only, never salary or rent. Losses on selling shares reduce only gains on selling shares. The former EUR 20,000 caps on derivatives and bad-debt losses no longer apply in any open case.
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    German investment income: flat tax or personal rate? (Günstigerprüfung)

    On application, investment income net of the saver's allowance is added to your other income and taxed at the ordinary rates, provided this lowers income tax including surcharges. That only pays while your marginal rate stays below 25 per cent.

File: income tax return

  1. Step 7 of 7
    FormFree75 min

    German income tax return (ESt 1 A)

    The calendar year is what gets assessed: why the self-employed and traders MUST file electronically, when spouses file one joint return, and from when the objection period runs. Guide, deadlines and worked example.

The other paths

A different procedure, the same principle: the three pillars in order.

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