How do we manage Taxes in Germany for Stocks and ETFs?

In Germany, you need to pay taxes on your earnings - but no stress — we’ll automatically withhold and transfer this tax percentage to the authorities.

The following taxes are supported by our Stocks and ETFs services for German tax residents:

All capital gains are taxed according to capital gains tax (25 %), solidarity surcharge (5.5 % of 25 %), church tax (8 % or 9 % of 25 %), if applicable (e.g. not applicable in case of a loss).

Across Europe some countries charge a tax on buying financial securities. The tax is applicable to instruments originated in the respective countries (e.g. stocks from France or Spain). Two examples for financial transaction taxes currently supported and withheld by our Stocks and ETFs:

1. French FTT (0.3%) on top of the buy order amount. FFTT applies to shares of French companies with a market capitalization of more than EUR 1 billion on 1st of December.
2. Spanish FTT (0.2%) on top of the buy order amount. SFTT applies to shares of Spanish companies with a market capitalization of more than EUR 1 billion on 1st of December.
3. Italian FTT (0.1%) on top of the buy order amount. IFTT applies to shares of Italian companies with an average market capitalization of less than EUR 500 million in the month of November.

The Vorabpauschale or preliminary lump-sum tax is a German tax on future income from accumulating funds like ETFs, based on factors such as the central bank interest rate and the accumulated profits within the fund. This tax is charged once a year, typically between January and February, for the previous year. It is only applicable to German tax-resident investors and unfortunately, it can’t be paid from your cash balance. 

As we do this process for you, we will notify you once this tax is deducted by sending you a statement detailing the ETFs or funds affected and the amount deducted, with all the necessary information.

The preliminary lump-sum tax is based on the value of your ETFs at the start of the year, minus any distributions (if applicable). It’s then adjusted based on a fixed interest rate and exemptions depending on the type of ETF.

For example, if you invest in an ETF that holds only stocks and doesn’t make any distributions, here’s how it works:

• The value of your investment is multiplied by a set interest rate.
• The result is then adjusted by a fixed factor, depending on the ETF type.
• If you bought the ETF partway through the year, the tax is adjusted for the number of months you’ve owned it.
• A special exemption applies if it’s an equity ETF.

The tax is paid by selling part of your ETFs to cover the amount owed. Typically, the sale will be made from the ETF that is subject to the preliminary lump-sum tax. However, if that ETF has already been sold or its value isn’t enough to cover the tax, another ETF from your account may be used instead.

The final amount is your taxable unrealized income, which can either be offset by any existing tax exemptions or taxed at the standard rate.

If the value of your ETF goes down during the year, no preliminary lump-sum tax is due.

No, we take care of the entire process for you. The Vorabpauschale tax will be automatically paid to the tax authorities by us, and our partner Upvest will sell a fraction of your ETFs to cover the amount due. This is the simplest way to handle it, so you don’t need to worry about reporting it to the tax authorities or ensuring you have enough funds in your balance. By doing this, you can keep track of both your investments and tax obligations in one place. If, for any reason, the tax cannot be paid, the tax authorities will be notified and will individually claim the amount due from you.

If your ETFs increased in value in 2024, the tax will be due. If the value remains stable in early 2025, we can typically cover the tax by selling a small portion of your ETFs. If that’s not enough, we will sell another security from your account, usually the largest position. If still insufficient, we will notify the tax authorities, who will contact you directly for payment.