<h2>ETF Taxation 2026: What You Need to Know</h2>
<p>The taxation of ETFs in Germany is complex -- but manageable once you understand the three pillars: Vorabpauschale (annual advance tax), Teilfreistellung (partial exemption), and Abgeltungssteuer (capital gains tax upon sale). In this article, we explain all regulations as of 2026 and show how much tax you actually pay on your ETF gains.</p>
<h2>The Tax-Free Allowance: EUR 1,000 Tax-Free</h2>
<p>Every person in Germany has a Sparerpauschbetrag (saver's lump sum) of EUR 1,000 per year (EUR 2,000 for jointly assessed married couples). Capital income up to this amount is completely tax-free. To use it, you must set up a Freistellungsauftrag (exemption order) with your broker. Tip: If you have accounts at multiple banks/brokers, you can split the exemption order.</p>
<h2>The Advance Lump Sum: Annual Advance Tax Explained</h2>
<p>Since 2018, the Investment Tax Reform Act has been in effect. At its core: The Vorabpauschale taxes unrealized gains during the holding period -- not just upon sale. Here's how the calculation works: The base return is calculated as fund value on January 1st multiplied by the base interest rate (2025: 2.29%) multiplied by 0.7.</p>
<p>The advance lump sum is capped at the actual gain for the year. If the ETF ends the year in negative territory, no advance lump sum applies. Concretely: For EUR 50,000 in fund value, the base return is 50,000 x 0.0229 x 0.7 = EUR 801.50. After partial exemption (30% for equity funds): EUR 561.05. Less tax-free allowance (EUR 1,000): EUR 0 taxable. For larger portfolios, correspondingly more applies.</p>
<h2>The Partial Exemption: 30% Less Tax</h2>
<p>The partial exemption (Teilfreistellung) is a major advantage for ETF investors: Equity funds (at least 51% stock share): 30% of returns are tax-free. Mixed funds (25-50% stock share): 15% tax-free. Other funds: 0% partial exemption. Most ETFs tracking major stock indices (MSCI World, FTSE All-World, S&P 500) qualify for the 30% partial exemption.</p>
<p>What does this mean concretely? With EUR 10,000 in capital gains from an equity fund, only EUR 7,000 is taxed. At 26.375% Abgeltungssteuer (including solidarity surcharge), this results in an effective tax burden of EUR 1,846 instead of EUR 2,638 -- a saving of EUR 792.</p>
<h2>Capital Gains Tax Upon Sale</h2>
<p>When selling ETF shares, capital gains tax applies to the gain. The tax rate is: 25% capital gains tax plus 5.5% solidarity surcharge on the capital gains tax, resulting in an effective 26.375%. With church tax obligation, the calculation changes: Capital gains tax is reduced to 25% / (1 + church tax rate), but church tax is added on top.</p>
<p>Important: Advance lump sum taxes already paid are credited upon sale. So you don't pay double.</p>
<h2>Base Interest Rate: How It Changes and What It Means</h2>
<p>The base interest rate (Basiszins) used to calculate the Vorabpauschale is set annually by the Bundesbank. It's based on the yield of long-term government bonds. During the zero-interest phase (2018-2021), the base rate was negative or zero -- so no Vorabpauschale was due. Since 2022, it has been positive again: 2023 it was 2.55%, 2024 and 2025 both at 2.29%. A higher base rate means a higher Vorabpauschale and thus more annual tax burden. However, this amount is credited upon later sale -- it's a tax prepayment, not an additional tax.</p>
<h2>Example Calculation: Tax Burden on EUR 100,000 ETF Portfolio</h2>
<p>Let's take a concrete example: You have EUR 100,000 in an equity fund ETF. The price rises by EUR 10,000 in the year. Base return: 100,000 x 2.29% x 0.7 = EUR 1,603. Vorabpauschale: min(1,603, 10,000) = EUR 1,603. After partial exemption (30%): EUR 1,122. Less tax-free allowance (EUR 1,000): EUR 122 taxable. Tax (26.375%): approximately EUR 32. In this example, you pay only EUR 32 in tax on EUR 10,000 in gains -- thanks to partial exemption and the tax-free allowance. Without a Freistellungsauftrag, it would be EUR 296.</p>
<h2>Accumulating vs. Distributing: Tax Differences</h2>
<p>With accumulating ETFs, dividends are automatically reinvested. For tax purposes, the Vorabpauschale is assessed as advance taxation. With distributing ETFs, dividends flow to your settlement account and are taxed immediately. For long-term investing, accumulating ETFs have a slight tax advantage: You only pay the full tax upon sale (tax deferral effect). The money you keep longer in the portfolio through tax deferral continues working for you -- an additional compound interest effect.</p>
<h2>Loss Offsetting: Optimizing Taxes Through Smart Timing</h2>
<p>If you sell ETF shares at a loss, these losses are stored in your broker's loss offsetting pool. They are automatically offset against future gains. This can be tax-efficient: For example, if you have one ETF position that's EUR 2,000 in the red and another that's EUR 3,000 in the green, you could sell both and only pay taxes on EUR 1,000 in gains. Note: Losses from individual stock sales can only be offset against stock gains, not ETF gains. ETF losses, however, can be offset against all capital income.</p>
<h2>Tax Optimization: Practical Tips</h2>
<p>Set up a Freistellungsauftrag (use the EUR 1,000 / EUR 2,000 allowance). Prefer accumulating ETFs (no annual hassle with dividend taxation, tax deferral effect). Be aware of FIFO: First purchased shares are sold first. Through multiple depots, you can control which shares you sell first. Realize losses to offset against gains (loss offsetting pool). Your broker's tax software handles most of the work automatically -- you mainly need to set up the Freistellungsauftrag and fill in the Anlage KAP in your tax return.</p>
<p>Test the tax effect on your ETF wealth with our <a href="/en/etf-savings-plan-calculator">ETF Savings Plan Calculator</a>.</p>