The answer is a rule called the Vorabpauschale. German law calculates a deemed amount of investment income for certain funds each year. That amount can be taxable even if you got no cash payout and sold nothing. One thing to get straight first: the Vorabpauschale is not the tax itself. It's a calculated amount that may become part of your taxable capital income. Whether you actually pay anything depends on the fund, how it performed, its distributions, the partial exemption, your allowance and a few other tax factors. Often the answer is a small amount, and sometimes it's zero.
The short answer
- Germany can tax a calculated yearly amount on certain investment funds, even when you don't sell.
- The official Basiszins for 2026 is 3.20%. The statutory baseline uses 70% of that rate: 2.24% of the relevant fund value at the beginning of the year, before limits and adjustments.
- The amount is capped by the fund's relevant increase in value plus distributions and reduced by distributions for the year. It can be zero.
- For the 2026 investment year, the Vorabpauschale is deemed received on 4 January 2027.
- A qualifying equity ETF typically benefits from the 30% Teilfreistellung, so only 70% of the resulting Vorabpauschale enters the taxable calculation for a private investor.
- The Sparer-Pauschbetrag can reduce the amount actually taxed. It counts for the year of deemed receipt, not the investment year.
- Vorabpauschalen already taken into account are deducted from your gain when you sell later, so they aren't counted twice.
Why does Germany do this?
An accumulating ETF (German: thesaurierender ETF) generally reinvests income within the fund. It pays out little or nothing to you as cash. Germany's investment tax system distinguishes three relevant types of fund income: distributions, the Vorabpauschale and gains on sale (§ 16 InvStG).
The Vorabpauschale is a kind of yearly advance taxation in qualifying situations. It doesn't mean the tax office assumes every ETF earns a guaranteed return, and it isn't a prediction of future performance.
One way to picture it: a yearly tax check-in before you sell. The law compares a limited baseline amount with the distributions you already received. What's left over may be taxed, after the exemptions and allowances that apply.
Alex's €10,000 ETF, step by step with the 2026 rate
Alex holds a €10,000 accumulating equity ETF
Alex is a hypothetical investor. Here's what we assume:
- Alex is a private investor and German tax resident.
- He owns a qualifying equity ETF throughout 2026 in an ordinary investment account.
- Its relevant value at the beginning of the year is €10,000.
- The value at year-end is €11,000; there were no distributions.
- There are no mid-year acquisitions, sales or fund-specific complications.
- The fund meets the conditions for the 30% equity-fund partial exemption (Teilfreistellung).
Step 1: calculate the statutory baseline (Basisertrag) before the performance limit.
| Calculation | Amount |
|---|---|
| Fund value at start of 2026 | €10,000.00 |
| Official Basiszins for 2026 | 3.20% |
| Statutory factor | 70% |
| Preliminary Basisertrag | €224.00 |
€10,000 × 3.20% × 70% = €224.00.
Step 2: apply the performance limit.
The increase in the example is €1,000 and there are no distributions. The preliminary €224 is below the allowed cap, so the capped Basisertrag remains €224.00.
Step 3: subtract distributions.
No distributions were made, so the Vorabpauschale is €224.00.
Step 4: apply the equity-fund Teilfreistellung.
30% of €224 is exempt for an eligible private investor. The amount remaining before personal allowances is:
€224 × 70% = €156.80.
Step 5: check the savings allowance and work out the tax.
If Alex has at least €156.80 of unused Sparer-Pauschbetrag for 2027 available for this income, the simplified taxable amount is €0 and the example produces no withholding tax on this Vorabpauschale.
If Alex has no remaining allowance, no offsetting losses, no church tax and no other adjustments, the simplified withholding estimate is:
| Component | Amount |
|---|---|
| Amount after Teilfreistellung | €156.80 |
| Capital income tax (25%) | €39.20 |
| Solidarity surcharge (5.5% of tax) | €2.16 |
| Estimated tax | €41.36 |
So Alex would potentially pay €41.36 in tax. Not €224, and not 3.20% of his €10,000. The actual withholding depends on his circumstances and on how his bank processes it.
Wait, why does the 2027 allowance matter for 2026?
The calculation is about the 2026 investment year, but legally the amount counts as received on 4 January 2027. So it's your 2027 allowance and tax situation that matter when the tax is withheld.
The general Sparer-Pauschbetrag is currently €1,000 per individual or €2,000 for spouses jointly assessed. We will confirm the 2027 amounts once the year begins.
Want the nerdy details?The rules, the exact numbers and the edge cases. Open it whenever you're curious.- The formula, without the jargon
- The official rates and dates
- What if you bought during the year?
- Teilfreistellung, Sparer-Pauschbetrag, Freistellungsauftrag: which is which?
The formula, without the jargon
For a simple full-year holding, the legal logic works like this:
- Preliminary Basisertrag = relevant fund value at the start of the year × 70% of the official Basiszins.
- Limit the Basisertrag to the relevant positive difference between the year-end and year-start fund values plus distributions.
- Vorabpauschale = the amount by which distributions fall short of the limited Basisertrag, but never a negative amount.
- Apply any relevant acquisition-year adjustment, fund classification, partial exemption, allowances and tax rules to determine the amount that is taxable and whether tax is payable.
For this simplified teaching case:
Preliminary base = 0.70 × Basiszins × beginning fund value
Limited base = min(preliminary base, max(0, ending value − beginning value + distributions))
Vorabpauschale = max(0, limited base − distributions)
Keep in mind: this simplified formula is for a holding you kept all year. It can't replace your broker's calculation per purchase. The law works at the level of individual fund units and has special rules for the year you buy.
Example B: the fund grew, just not by much
Suppose an accumulating fund's relevant value rose from €10,000 to €10,120 in 2026 with no distributions.
The preliminary €224 baseline is limited to the €120 gain, so the Vorabpauschale is €120, not €224. For a qualifying equity fund, the amount after 30% Teilfreistellung is €84, before allowances and other tax considerations.
Example C: a distributing ETF
The Vorabpauschale isn't only for accumulating ETFs.
Suppose a fund has a preliminary and permitted Basisertrag of €224 and pays €100 in distributions during 2026. The remaining Vorabpauschale is €124. The distributions count as investment income on their own. The €124 is the extra advance amount, not a second tax on the €100 distribution.
If distributions are at least as high as the limited Basisertrag, the Vorabpauschale is zero. Tax on the distributions may still be due.
Example D: a flat or falling year
If the fund's performance and distributions do not support a positive limited Basisertrag, the Vorabpauschale can be zero. So it's not true that every ETF triggers this amount every January.
The official rates and dates
The German Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) announces the annual Basiszins.
| Investment year | Official Basiszins | 70% of Basiszins | Date the Vorabpauschale is deemed received |
|---|---|---|---|
| 2025 | 2.53% | 1.771% | 2 January 2026 |
| 2026 | 3.20% | 2.24% | 4 January 2027 |
These percentages are not personal income-tax rates and are not guaranteed fund returns. The exact Vorabpauschale is limited by the fund's circumstances. The BMF announcement is published annually, so a 2027 investment-year calculation must use the rate announced for 2027. The 2026 figure cannot be copied.
What if you bought during the year?
Under § 18(2) InvStG, a relevant Vorabpauschale in the year of acquisition is reduced by one twelfth for every full calendar month before the acquisition month.
Say you buy in July. Six full months (January to June) come before that month, so the amount for those units is reduced by 6/12 in the year you bought them.
If you contribute monthly through an ETF Sparplan, different purchases can have different acquisition months. A reliable calculator or tax report must handle each purchase with its own acquisition month. Treating the whole account as held since January overstates the amount.
Teilfreistellung, Sparer-Pauschbetrag, Freistellungsauftrag: which is which?
Three German words, three different things:
- Teilfreistellung is a fund-related partial exemption. A qualifying equity fund generally has a 30% exemption on relevant fund income for ordinary private investors. A qualifying mixed fund generally has 15%.
- Sparer-Pauschbetrag is your personal annual capital-income allowance. Its current statutory amount is €1,000 individually, or €2,000 for spouses assessed jointly.
- A Freistellungsauftrag is an instruction to an institution that handles German withholding to use an allocated portion of that allowance there.
A full Freistellungsauftrag is not an extra allowance on top of the Sparer-Pauschbetrag. Across participating institutions, you cannot allocate more than the applicable total allowance.
Wait, does this mean I pay tax twice?
No. Say you pay tax on Vorabpauschalen for several years and then sell the ETF. Germany doesn't just forget those earlier amounts.
Under § 19(1) InvStG, the gain on the sale of private investment-fund units is reduced by the Vorabpauschalen already taken into account during the holding period. The law explicitly states that these amounts are taken into account in full, regardless of an applicable Teilfreistellung.
This adjusts the tax calculation when you sell. It isn't a euro-for-euro refund of the tax withheld in earlier years. Keep your tax statements, especially if you move your account or use a broker abroad.
Who does the paperwork: your broker or you?
If your broker applies German withholding tax
A German bank or broker normally works out the amount, takes the exemption, your Freistellungsauftrag and any offsetting losses into account, and withholds the tax according to its own procedures.
Practical tip: the tax can be taken from your linked cash account even though you didn't sell anything. Check your broker's instructions and keep enough money there around January. The legal deemed-receipt date and the actual debit date aren't always the same day.
If your broker does not handle German withholding
Then you may need to work out or report the fund income yourself. Official ELSTER guidance describes Anlage KAP-INV for investment-fund income not subject to German domestic withholding, such as fund units held at a foreign custodian, and points to Anlage KAP for related allowance information. Check the forms for the relevant filing year and your broker's actual German tax handling.
Do not rely on a broker's country of origin alone. The contracting entity and German tax service can change. Confirm whether your own account has German tax withholding. International platforms differ.
Six myths about the Vorabpauschale
“The Basiszins is the tax rate.”
No. It's an input to the statutory baseline. Tax is calculated afterward on the taxable portion of the Vorabpauschale.
“I must sell ETF shares to trigger the Vorabpauschale.”
No. That's the whole point of this advance mechanism: it can arise without a sale.
“Only accumulating ETFs are affected.”
No. Distributing funds can have a Vorabpauschale if relevant distributions are below the limited Basisertrag.
“I owe money every year even if my investment goes down.”
Not automatically. The Basisertrag is capped and the resulting Vorabpauschale can be zero.
“The 2026 rate means tax is due in January 2026.”
No. The 2026 investment-year Vorabpauschale is deemed received on 4 January 2027. A tax charge appearing in January 2026 generally relates to the 2025 investment year.
“Paying Vorabpauschale means I pay the same income tax again on sale.”
No. Previously taken-into-account Vorabpauschalen reduce the later taxable disposal gain under § 19 InvStG.
Questions we hear about the Vorabpauschale
Do I have to do anything if my German broker handles the tax?
Check your Freistellungsauftrag, read the broker's statement and ensure any required cash balance. Keep your tax records. Individual filing obligations can still depend on your circumstances.
What if I have a Freistellungsauftrag but paid tax anyway?
The institution may not have had an available allowance allocation, or your total eligible capital income may already have used it up. Depending on your circumstances, excess withholding may be reconciled through your German income-tax return.
Is the Vorabpauschale relevant for individual shares?
The rule covered here concerns investment-fund units under the InvStG, not simply shares in an individual company that you own directly.
What if I leave Germany?
Your tax residency, the date you move, your broker's status and possible tax treaty rules all matter. Don't assume the same German rules apply in all future years. Check your own situation before you move.
So, how much should this worry you?
It's an advance tax with clear limits. It never taxes your whole ETF balance, and the amount may be small or zero. The exact treatment depends on the official year's Basiszins, the fund's returns and distributions, eligibility for Teilfreistellung and your capital-income allowance.
Check yourself
You paid tax on a Vorabpauschale. What happens when you sell later?
Video lesson · In the makingThe Vorabpauschale, step by step
Official sources
- § 18 InvStG: Vorabpauschale, calculation and acquisition-year reduction
- BMF: Basiszins as of 2 January 2026: 3.20%; deemed receipt on 4 January 2027 (13 January 2026)
- BMF: Basiszins as of 2 January 2025: 2.53%; deemed receipt on 2 January 2026 (10 January 2025)
- § 16 InvStG: Investment-fund income categories
- § 19 InvStG: Vorabpauschalen considered when calculating gains on sale
- § 20 InvStG: Teilfreistellung
- § 20(9) EStG: Sparer-Pauschbetrag
- ELSTER: Official guidance on Anlage KAP-INV and Anlage KAP
- § 32d EStG: Capital income tax
- § 4 SolzG: Solidarity surcharge
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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.