Interest on a savings account, dividends, gains from selling shares or ETF units: for German tax purposes all of these count as income from capital assets. Since 2009 they have been taxed at a single flat rate, the Abgeltungsteuer (flat withholding tax). Your bank deducts the tax directly and pays it to the tax office, which is why it is also called Kapitalertragsteuer (capital gains tax). This guide explains how high the tax is in 2026, which allowances exist, how church tax, partial exemption and loss offsetting work, and when you can reclaim money through your tax return.
Flat tax and capital gains tax: two names, one tax
Legally, the flat tax is a special form of income tax. It is set out in § 32d of the German Income Tax Act (EStG) and amounts to 25 %. “Flat” and “final” go together here: once the bank has deducted the tax, the tax on your capital income is usually settled, and you do not need to declare it again in your tax return. The term Kapitalertragsteuer describes the collection method: the bank withholds the tax at source, much like an employer withholds wage tax.
Capital income includes, among other things:
1. Interest from savings accounts, fixed deposits and bonds
2. Dividends from shares
3. Distributions and sale gains from investment funds and ETFs, plus the advance lump sum
4. Gains from selling shares, bonds, certificates and from derivatives
How high is the tax in 2026?
The taxable amount is subject to 25 % capital gains tax. On top comes the solidarity surcharge of 5.5 % of the tax. Unlike wages, the flat tax has no surcharge threshold: the surcharge is always charged. Together that makes 26.375 %. If you are a member of a church that levies church tax, 8 % (Bavaria, Baden-Württemberg) or 9 % church tax is added.
Example without church tax
A single investor receives €3,000 in dividends. After deducting the saver's allowance of €1,000, €2,000 is taxable. The bank withholds €500 capital gains tax and €27.50 solidarity surcharge, €527.50 in total. The net amount is €2,472.50.
Church tax: the reduced formula
Church tax is deductible for income tax purposes. For the flat tax this benefit is built in directly: capital gains tax is not 25 % but e / (4 + k), where e is the income and k the church tax rate. With 9 % church tax this gives €2,000 / 4.09 = €489.00 capital gains tax, plus €26.90 surcharge and €44.01 church tax, €559.91 in total. Without the formula it would have been €572.50. The total burden is about 27.99 % with 9 % church tax and about 27.82 % with 8 %.
Once a year your bank automatically asks the Federal Central Tax Office about your church membership. If you do not want your bank to know, you can file a blocking notice. You must then declare your capital income in your tax return so that the tax office can assess the church tax later.
Saver's allowance and exemption order
Every person has a saver's allowance (Sparer-Pauschbetrag) of €1,000 per year; jointly assessed married couples and civil partners have €2,000 (§ 20 (9) EStG). Capital income up to that amount remains tax-free. Actual costs such as custody fees or loan interest cannot be deducted instead.
For the bank to apply the allowance, you file an exemption order (Freistellungsauftrag). If you have accounts at several banks, you split the €1,000 according to where you expect the income. The total of all exemption orders must not exceed the allowance. How best to split it is explained in the post Exemption order.
If your total income is below the basic allowance (2026: €12,348), you can apply to the tax office for a non-assessment certificate (Nichtveranlagungsbescheinigung). With it, the bank pays out all capital income without deduction, even above €1,000. This is particularly relevant for students, trainees and pensioners with a small pension.
Partial exemption: less tax on funds and ETFs
Investment funds already pay tax on some income themselves, for example on German dividends. To compensate, a fixed share of fund income is tax-free for private investors (§ 20 InvStG): 30 % for equity funds with at least 51 % equities, 15 % for mixed funds with at least 25 % equities, 60 % for real estate funds and 80 % for funds focusing on foreign real estate. Bond ETFs, money market funds and commodity funds get no partial exemption.
An example shows the difference: if you make a €10,000 gain with an equity ETF, only €7,000 is taxed. After the allowance, €6,000 remains taxable and the tax is €1,582.50. The same €10,000 as interest costs €2,373.75 in tax. More in the post Partial exemption for ETFs and funds.
The advance lump sum for accumulating funds
Accumulating funds reinvest their income instead of distributing it. To make sure tax is still paid regularly, there is the advance lump sum (Vorabpauschale, § 18 InvStG). It equals the fund value at the start of the year × base rate × 70 % and is capped at the actual gain in value during the year plus distributions. For 2026 the base rate is 3.20 %. An equity ETF worth €50,000 produces an advance lump sum of €1,120, of which €784 is taxable after partial exemption. If your allowance is already used up, the bank debits about €206.78 in early January 2027. When you later sell, the advance lump sum already taxed is deducted from the gain, so you do not pay twice.
Offsetting losses: two pots
Losses from investments reduce your tax, but under fixed rules. Your bank keeps two loss pots. Losses from selling individual shares go into the share pot and may only be offset against gains from selling shares, not against dividends or interest. All other losses, for example from bonds, funds, ETFs, certificates or derivatives, go into the general pot and are offset against all positive capital income.
The Annual Tax Act 2024 brought an important change: the former cap of €20,000 per year for losses from derivatives and from bad debts was abolished, for all cases still open. Details are in the post Offsetting capital losses.
Favourability test: when your tax rate is below 25 %
The flat tax benefits people with high incomes, whose personal tax rate is well above 25 %. Those who earn little, however, pay too much with the flat rate. For them there is the favourability test (Günstigerprüfung) under § 32d (6) EStG: on application, the tax office includes your capital income in the regular income tax tariff and applies whichever option is cheaper, including surcharge and church tax.
Example: a pensioner has taxable income of €15,000 and €3,000 in dividends. The bank withholds €527.50. Under the tariff, the €2,000 taxable income costs only €414, so she gets €113.50 back. If her income is €8,000, she gets the full €527.50 back. Without church tax, the favourability test pays off in 2026 for single people up to a taxable income of about €25,000 including capital income, and for couples up to about €50,000. More in the post Favourability test. You can work out your personal tax rate with the income tax calculator.
When is a tax return worthwhile despite the flat tax?
Although the tax is settled at source, filing Annex KAP can pay off. Typical cases are:
1. The saver's allowance was not fully used because the exemption order was missing or badly split.
2. Losses at one bank should be offset against gains at another. For this you request a loss certificate by 15 December.
3. Your personal tax rate is below the flat tax (favourability test).
4. Foreign withholding tax was not fully credited, or church tax is missing because you filed a blocking notice.
How to use the calculator
The capital gains tax calculator applies these rules for tax year 2026. You enter interest, dividends, fund income with fund type, share gains and losses, choose your filing status and church tax and see immediately: the tax per income type, surcharge and church tax separately, the allowance used, loss carryforwards, your yield before and after tax and whether the favourability test pays off. With the ETF savings plan calculator and the compound interest calculator you can plan how your wealth grows over the years.
Conclusion
The flat tax is simple in principle but full of details. By using the saver's allowance in full, choosing equity ETFs with partial exemption, offsetting losses wisely and applying for the favourability test on a low income, you can reduce your tax burden considerably. The calculations here are a non-binding estimate and not tax advice. Your bank's annual tax certificate and your tax assessment are authoritative.