The short answer
- German banks and brokers that keep your account withhold the tax on your investment income automatically. 1
- With them you can set up a Freistellungsauftrag, so your yearly allowance is applied straight away. 2
- A foreign broker usually doesn't withhold German tax. You then report the income in your tax return. 3
- What counts is the legal entity that holds your account, not the brand name or the app.
- Fees differ more from broker to broker than between German and foreign ones. Compare them separately.
Why German banks collect the tax
German tax law turns domestic banks and brokers into tax collectors. When they pay or credit your investment income, they take off the tax and send it to the tax office. 1 A foreign institution isn't part of that system, so nobody takes the tax off. You still owe it.
Mia and Jonas, same gain, different homework
Two hypothetical investors, Mia and Jonas, each sell ETF units with a €3,000 gain in 2026.
- Mia's German broker applies the 30% partial exemption and her €1,000 allowance from the Freistellungsauftrag, then withholds the rest of the tax. She sees the net amount in her account and the details on her annual tax certificate.
- Jonas's foreign broker pays out the full €3,000 and sends a yearly report. Jonas has to declare the income in his German tax return, including the partial exemption. He pays the tax after his assessment.
In the end the tax is the same. The work and the timing aren't.
Want the nerdy details?The rules, the exact numbers and the edge cases. Open it whenever you're curious.- How it works behind the scenes
- The fees worth comparing
- What happens to your money if a broker fails?
How it works behind the scenes
The withholding system
Capital income tax is withheld by the paying agent. For securities, that's the domestic credit, financial services or securities institution that keeps or manages your units and pays or credits the income. 1 It applies the 25% flat tax, the solidarity surcharge and, if you're a member, church tax.
The Freistellungsauftrag
With a Freistellungsauftrag you tell a German institution not to withhold tax on investment income up to an amount you choose. In total it can't exceed your €1,000 allowance (€2,000 for spouses assessed jointly). You can split it between banks. 24
With a foreign broker
Investment fund income that wasn't taxed at source goes in your tax return, on the form Anlage KAP-INV, with allowance details on Anlage KAP. Germany's tax portal notes that capital income without withholding can make a tax return necessary. 3
The fees worth comparing
| Fee | What it is |
|---|---|
| Account fee | Yearly fee for keeping the Depot. Often €0 online. |
| Order fee | Per buy or sell order, fixed or a percentage. |
| Savings-plan fee | Per automatic purchase. From €0 to a fixed amount. |
| Venue fee | Charged by some exchanges, passed on by the broker. |
| Spread | Gap between buy and sell price. Not a broker fee, still a cost. |
| Currency conversion | When money is changed into another currency. |
Our Broker Comparison works these fees out from each provider's own price list for the same scenario, and tells you when a value couldn't be verified.
What happens to your money if a broker fails?
Securities in your Depot remain your property. If the bank fails, you can ask for them to be handed back or moved to another bank. Cash is different: eligible deposits are protected up to €100,000 per person and bank. A separate investor compensation scheme covers 90% of certain claims, up to €20,000. 5
Myths we'd like to retire
"My broker is foreign, so I don't pay German tax." You still owe it. You just pay it through your tax return.
"I got a PDF tax report, so the tax is paid." Not necessarily. Check whether tax was actually withheld.
"I'll give each bank a full €1,000 Freistellungsauftrag." The total across all banks has to stay within your allowance.
Questions about switching and mixing brokers
Can I switch brokers?
Yes. A Depotübertrag moves your units to another institution without selling them. Make sure your purchase data moves too.
Can I use both a German and a foreign broker?
Yes. Keep good records, and remember the foreign income goes into your tax return.
Which one suits you?
If you want taxes handled automatically, pick a provider whose account is held by a German institution and set up your Freistellungsauftrag. If you go with a foreign broker, plan for the extra tax-return work each year.
Check yourself
With a foreign broker that doesn’t withhold German tax, what do you do?
Video lesson · In the makingGerman or foreign broker?
Official sources
- § 44 EStG: who withholds capital income tax (paying agent)
- § 44a EStG: Freistellungsauftrag
- ELSTER: guidance on Anlage KAP-INV and Anlage KAP
- § 20 (9) EStG: Sparer-Pauschbetrag
- BaFin: deposit protection and investor compensation
Last checked:
We explain how the German rules work in general. This isn't personal tax, legal or financial advice, and your bank, employer or tax office may treat your own case differently.