Self-directed investing with professionals

Taxes on investments in Germany: what you need to know

That is the part people only remember after receiving their first tax bill. Let’s break it down briefly and to the point.

Vorabpauschale: a tax that is deducted even if you haven’t sold anything

The most common surprise. If a fund has grown in value but has not paid out dividends, the state still levies tax on the notional minimum return: the value of the unit at the start of the year is multiplied by the base rate and by 70 %.

Example. €10,000 in a share fund at the 2026 standard rate: notional income of €224, minus a partial exemption of 30 % — €156.80 is subject to tax, tax of approximately 41 €. If the tax-free allowance has not been exhausted, there will be no tax at all.

Keep the money in the current account at the beginning of January. The bank is entitled to write off this tax without your consent and even use your unused overdraft if you haven’t objected in advance. If the debit is unsuccessful, the bank notifies the tax office, and the amount will be assessed through a tax return.

Good news about the losses

The previous limit of €20,000 on the offset of losses from derivative transactions abolished — and retroactively, for all unresolved cases. A separate “bucket” for stock losses is maintained: they are offset only against stock profits.

If the broker is a foreign one

A German bank or broker withholds the tax itself. A foreign one does not, and you will need to declare the income yourself in the Anlage KAP form. Foreign tax deducted at source is credited, but only up to the German limit of 25 %.

What protects your money and what doesn’t

Three different protection mechanisms are often confused with one another. They cover different things, and none of them compensates for a drop in the exchange rate.

What no scheme covers: market losses. If a portfolio drops by 20 percent, that is an investment risk, not an insurance event. That is precisely why the investment horizon is more important than the choice of a specific provider.

What to look for when choosing a robo-advisor

Comparing providers by a single management fee line is the most common mistake. Six parameters create the real difference in returns.

1. The total cost, not just the service charge. The provider’s fee is supplemented by the TER of the funds within the portfolio itself and the purchase spread. Two strategies with the same service charge can differ in total costs by almost double — due to the fact that one contains cheap index ETFs, while the other contains active funds.
2. How rebalancing works. There are two approaches: calendar-based (quarterly or annually) and threshold-based (when an asset class share deviates from the target by more than a set limit). The second option usually means fewer trades in a calm market and reacts faster to sharp movements.
3. German depository or foreign. This is purely a tax matter, and it is more important than it seems. The German custodian bank withholds the capital gains tax itself, applies the partial exemption itself, and takes your tax exemption order into account itself. With a foreign broker, all of this falls on you and the KAP schedule in your tax return.
4. Minimum amount and minimum contribution. The entry threshold and the minimum for regular top-ups are different things. Check both: sometimes you can get in with a small amount, but the monthly plan requires noticeably more.
5. Sign out. How many days does the sale and transfer of money to the account take, is there a fee for early withdrawal, can the units be transferred to another bank instead of being sold. Unlike a sale, a transfer of units (Depotübertrag) does not create taxable income.
6. Supervision. The provider must hold a BaFin licence or operate under the responsibility of a licensed partner. This can be verified in the public BaFin company database using the legal entity name rather than the brand name.

Three mistakes that cost more than commissions

• There is no tax exemption statement. Until a Freistellungsauftrag is submitted to the provider, tax is withheld from the first euro of income. The overpayment can only be reclaimed via the tax return and only for the past year.
• The horizon is too short. A portfolio with a high proportion of equities for a period of two to three years is not investing, it is a bet. Fixed-income instruments are suitable for short-term goals.
• Exit on the drawdown. Automatic rebalancing only works if it is not interrupted. Selling at the bottom locks in your loss and deprives you of the recovery.

You may also want to read

• easyInvesto or ComfortInvest — platform comparison and videos summarising three years of running parallel accounts.
• ComfortInvest – managed portfolio: opening, exemption declaration, loss offset.
• Whitebox – another platform with automatic portfolio management and cost analysis.
• What is an ETF in simple terms — how the funds invested in by the platform are structured and the criteria used to select them.
• ETF taxes in Germany — Abgeltungsteuer (flat-rate withholding tax), Sparer-Pauschbetrag (saver’s allowance) and Vorabpauschale are calculated in the same way as for a self-managed portfolio.
• Accumulation plan for ETFs – alternative for those who want to build the portfolio themselves.
• Investor taxes in Germany – detailed analysis of taxation.
• Gold as an investment – different tax regime and when it makes sense.

Sources

• Investment Code, Section 92 — segregated fund assets: gesetze-im-internet.de
• Income Tax Act, Section 20 — investment income: gesetze-im-internet.de
• Investmentsteuergesetz, § 18 — advance lump-sum amount: gesetze-im-internet.de
• Federal Ministry of Finance — base rate for calculating the preliminary lump-sum income: bundesfinanzministerium.de
• BaFin — database of licensed financial companies: bafin.de
• Investor Compensation Act, Section 4 — limits of compensation: gesetze-im-internet.de
• Deposit Guarantee Act — protection of cash balances: gesetze-im-internet.de