The German flat tax of 25 % plus surcharge is favourable for many investors. But if your income is low, the flat rate makes you pay more than necessary. The favourability test (Günstigerprüfung) gets this money back. We show who benefits and how to apply.
What is the favourability test?
Under § 32d (6) EStG you can apply to have your capital income taxed at your personal income tax rate instead of the flat rate. The tax office calculates both options and applies the cheaper one. According to the law, what counts is the lower income tax “including surcharge taxes”, i.e. with solidarity surcharge and church tax. There is no risk: if the tariff is more expensive, the flat tax stays.
Who benefits?
The German income tax tariff is progressive. Up to the basic allowance of €12,348 (2026) no tax is due at all; after that, the marginal rate rises slowly from 14 %. There is also a detail that is often overlooked: for normal incomes, no solidarity surcharge is charged on regular income tax anymore because the threshold is high. For the flat tax, however, the surcharge is always charged. This is why the break-even is higher than many people think.
For single people without church tax, the favourability test pays off in 2026 up to a taxable income of about €25,000 including capital income. For jointly assessed couples the limit is about €50,000. With church tax it is slightly lower. Typical winners are pensioners, students, part-time workers and people on parental leave.
Worked examples for 2026
A single person receives €3,000 in dividends; after the saver's allowance, €2,000 is taxable. The bank withholds €527.50. Depending on the rest of their taxable income, the favourability test gives:
1. €8,000: even with the dividends, income stays below the basic allowance. Refund €527.50.
2. €12,000: tariff tax on the dividends €256. Refund €271.50.
3. €15,000: tariff tax €414. Refund €113.50.
4. €20,000: tariff tax €502. Refund €25.50.
5. €30,000: tariff tax €570. The flat tax is cheaper, so it stays at €527.50.
You will find the rest of your taxable income in your last tax assessment, or you can calculate it with the income tax calculator.
Points to note
The application always covers all capital income of a year, and for married couples both partners jointly. You cannot pick just the dividends. Actual expenses remain excluded under the favourability test as well; only the saver's allowance applies. Partial exemption for funds and the loss offsetting rules also stay unchanged.
Also consider side effects: with the favourability test, capital income counts towards your income. This can matter, for example, for income-related benefits or voluntary health insurance contributions, although in many cases capital income under the flat tax is taken into account there anyway.
How to apply
You apply in Annex KAP of your income tax return by ticking the relevant box and entering your capital income from the annual tax certificate. The deadline is the normal filing deadline; if you file voluntarily, you have four years. For 2026 you can therefore claim a refund until the end of 2030.
If your income is permanently below the basic allowance, a non-assessment certificate is more convenient. With it the bank withholds no tax at all and you do not have to wait for a refund.
Check with the calculator
The capital gains tax calculator runs the favourability test automatically. Enter your taxable income excluding capital income and you will see the tax under the tariff, your marginal rate and the expected refund. The calculation is simplified, for example regarding child allowances, and is not tax advice. The basics are in the main guide.