Introduction

From bank withholding to final taxation

German banks/brokers usually withhold tax at source. For many investors this “settles” the tax; however, filing can still be useful to aggregate losses across banks, apply treaty credits, or invoke the optional assessment if your personal rate is lower.

What counts as investment income

Dividends, interest, distributions from funds/ETFs, and gains from selling securities generally fall under §20 EStG. A separate regime applies to disposals of significant shareholdings (≥1% within five years) under §17 EStG—covered elsewhere in this guide. :contentReference[oaicite:1]{index=1}

Why funds are different

Since 2018, German fund taxation operates with partial exemptions and a deemed annual yield (Vorabpauschale) for accumulating funds. This ensures taxation even without cash distributions and approximates equal treatment across vehicles. :contentReference[oaicite:2]{index=2}

1) Legal Basis & Key Sources

• §20 EStG — Investment income. :contentReference[oaicite:3]{index=3}
• §32d EStG — Separate tariff (flat tax) & options. :contentReference[oaicite:4]{index=4}
• §43 EStG — Capital withholding & finality rule. :contentReference[oaicite:5]{index=5}
• Saver’s allowance €1,000/€2,000. :contentReference[oaicite:6]{index=6}
• BZSt — Church tax on investment income (KiStAM). :contentReference[oaicite:7]{index=7}
• §20 InvStG — Partial exemptions (funds). :contentReference[oaicite:8]{index=8}
• BMF — Base interest for Vorabpauschale 2025 (2.53%). :contentReference[oaicite:9]{index=9}
• BMF — FAQ/Guidance on Abgeltungsteuer (05/14/2025). :contentReference[oaicite:10]{index=10}

2) Scope of §20 EStG

§20 covers dividends, interest, certain insurance yields, gains from selling shares, bonds and other securities, as well as fund distributions and deemed yields. Some items are re-routed to other categories (e.g., significant share disposals under §17 EStG). :contentReference[oaicite:11]{index=11}

3) Flat tax & withholding mechanics

• Rate: Abgeltungsteuer at 25% on net §20 income, plus solidarity surcharge and (if applicable) church tax. Withholding by domestic payers/banks generally finalizes taxation. :contentReference[oaicite:12]{index=12}
• Solidarity surcharge: 5.5% of the 25% tax (effective 26.375% without church tax).
• Church tax: If registered, church tax is withheld via KiStAM; the income tax is correspondingly reduced → effective income-tax rate becomes ~24.51% (8% states) or 24.45% (9% states). :contentReference[oaicite:13]{index=13}
• Finality & assessment: Despite the “final” nature, filing can still lower your burden (e.g., to use losses from another bank, apply the saver’s allowance if not fully used, or opt for personal-rate taxation in limited cases). :contentReference[oaicite:14]{index=14}

4) Saver’s allowance (Sparer-Pauschbetrag)

Per §20(9) EStG, the allowance is €1,000 per person (€2,000 for joint filers). Provide a Freistellungsauftrag to your bank(s) or reclaim via assessment if not fully used in-year. :contentReference[oaicite:15]{index=15}

5) Investment funds: partial exemptions & Vorabpauschale

• Partial exemptions (Privatvermögen): Equity funds: 30%; mixed funds: 15%; real estate funds: 60% (domestic) / 80% (foreign real estate focus). :contentReference[oaicite:16]{index=16}
• Vorabpauschale: Accumulating funds trigger a deemed distribution each year, based on the BMF base interest (2.53% for 2025) and the fund’s opening value, capped by actual performance; deemed paid on the first working day of the following year. :contentReference[oaicite:17]{index=17}
• Practical effect: Your bank usually withholds the tax for the Vorabpauschale; it reduces the taxable gain on a later sale.

6) Loss offsets & restrictions

• General: Banks maintain separate loss pots (e.g., for shares vs. other capital income). Year-end certificates allow cross-bank offset via assessment.
• Derivatives/forwards (term transactions): Since 2021, losses were limited to €20,000/year for netting against similar gains; 2025 updates discuss easing—check current BMF status and bank handling.