Capital gains on investment funds in Germany are taxed at a flat 25%, plus a 5.5% solidarity surcharge on that tax, for a combined rate of 26.375%. Church tax, if it applies to you, pushes the effective rate to roughly 27.8% or 28.6% depending on your state. What most investors actually pay is lower, because the Investmentsteuergesetz (InvStG) grants a partial exemption tied to the fund’s asset mix, and every investor gets an annual saver’s allowance of €1,000 (€2,000 for joint filers) before any tax is calculated at all.1Bundesverband Alternative Investments e.V. Investment Taxation
The Flat Rate on Fund Gains
Realized gains on fund shares fall under the Abgeltungsteuer, Germany’s flat withholding tax on capital income.2Gesetze im Internet. EStG 32d – Gesonderte Besteuerung von Kapitaleinkuenften The base rate is 25%. The solidarity surcharge of 5.5% is calculated on the tax itself, not on the gain, which brings the combined charge to 26.375%. The 2021 Soli reform that removed the surcharge for most wage earners does not apply here; capital income taxed at the flat rate still carries it in full.
Church tax adds 8% of the Abgeltungsteuer in Bavaria and Baden-Württemberg and 9% in the other states. Your bank collects it automatically unless you have filed a blocking notice (Sperrvermerk) with the Federal Central Tax Office.
Partial Exemption by Fund Type (Teilfreistellung)
Because the fund itself pays 15% on certain domestic income before you see any gain, the InvStG shields part of your gain from being taxed again at the investor level.1Bundesverband Alternative Investments e.V. Investment Taxation The exempt share depends on what the fund holds:
- Equity funds with at least 51% in equities: 30% of the gain is tax-free.
- Mixed funds with at least 25% equity quota: 15% exempt.
- Domestic real estate funds: 60% exempt.
- Foreign real estate funds: 80% exempt.
- Bond and money market funds (equity quota below 25%): no exemption.
Your German bank applies the right percentage automatically when it calculates the withholding on a sale. The impact is real. On an equity fund, 30% off the taxable base drops the effective rate on the gain from about 26.4% to roughly 18.5%.3Gesetze im Internet. InvStG 2018 – Investmentsteuergesetz The same exemption applies to distributions from the fund during the holding period.
The €1,000 Saver’s Allowance
Before any tax is calculated, you get the Sparer-Pauschbetrag: €1,000 per year for individuals and €2,000 for married couples filing jointly.4Sparkasse. Abgeltungssteuer auf Kapitalertraege It covers all capital income combined: fund gains, distributions, dividends, interest.
To actually use it, you have to file a Freistellungsauftrag (exemption order) with each bank or broker where you hold investments. Without it, your bank withholds tax from the first euro of gain. You can split the allowance across several institutions, but the total cannot exceed the €1,000 or €2,000 cap. If you paid tax you shouldn’t have, you can reclaim it through your annual return on the Anlage KAP form, though that means waiting months to get the money back.
How the Taxable Gain Is Calculated
The gain on a sale is your sale proceeds minus your original purchase price, with two adjustments that matter.
First, any Vorabpauschale amounts you have already been taxed on during the holding period (an annual minimum-return prepayment charged on accumulating funds) get subtracted from the gain before the Abgeltungsteuer is applied.5Association of German Banks. Understanding the Pre-Determined Tax Basis (Vorabpauschale) That prevents double taxation between the annual prepayment and the final sale.
Second, if you sell only part of a position, Germany uses the FIFO rule: the shares you bought first are treated as sold first. Older lots typically have a lower purchase price and therefore a larger gain, so you cannot cherry-pick newer, higher-cost shares to reduce the taxable amount. Holding separate purchase lots at different brokers is the only common workaround, because each account runs its own FIFO chain.
Once the gain is fixed, the Teilfreistellung reduces the taxable base, the Sparer-Pauschbetrag absorbs the next slice up to your remaining allowance, and the 26.375% (plus church tax) applies to what’s left.
Offsetting Losses Against Fund Gains
German banks keep two loss pots for each investor, and the distinction matters when you plan a sale.
- The stock loss pot (Aktienverlusttopf) holds only losses from selling individual stocks, and those losses can only be offset against gains from selling individual stocks.
- The general loss pot (Sonstiger Verlusttopf) holds losses from fund and ETF sales, bonds, and expired options, and offsets other gains of that same broader type.
Fund losses land in the general pot. That means a loss on selling a stock will not reduce the tax on a profitable fund sale, even though the reverse pairing (stock gains offset by general-pot losses) is not similarly restricted. Losses that exceed gains in a year carry forward with no expiration inside your bank’s records.6BVAI. Investmentsteuergesetz – Bilingual Text If you want losses at one bank to offset gains at another, you have to request a Verlustbescheinigung (loss certificate) from the first bank by December 15 of the tax year and claim the offset yourself on Anlage KAP.
A separate €20,000 annual cap applies to losses from derivative transactions such as options and futures. It does not touch ordinary investment fund losses.
When the Personal Rate Beats the Flat Rate
The 25% flat rate is a ceiling, not a floor. If your overall taxable income is low enough that your personal marginal rate sits below 25%, you can request the Günstigerprüfung when you file, and the tax office applies whichever rate is lower.2Gesetze im Internet. EStG 32d – Gesonderte Besteuerung von Kapitaleinkuenften You tick the box on Anlage KAP. The election covers all your capital income for the year rather than selected gains, and for jointly assessed couples it applies to both spouses’ capital income together. Retirees on modest pensions, students, and anyone in a low-income year should check this every filing.
German Broker vs. Foreign Broker
At a German bank or broker, most of this happens without you doing anything. The institution calculates the gain, applies the Teilfreistellung, drains your remaining Sparer-Pauschbetrag, runs the loss pots, credits prior Vorabpauschale amounts, and withholds what’s owed. If your exemption order is set correctly, you often have no reason to report the gain on your tax return at all.
Foreign brokers do none of it. Platforms based outside Germany do not withhold Abgeltungsteuer, do not track the saver’s allowance, and do not apply the partial exemption. You report and calculate everything yourself on Anlage KAP, including cumulative Vorabpauschale amounts across years and your own loss pots. Errors are common, and a Steuerberater familiar with the InvStG is worth the fee for the first year at least. The one upside is that your capital stays invested rather than being withheld through the year; whether that outweighs the paperwork depends on portfolio size.
Legacy Shares Bought Before 2009
Fund shares purchased before January 1, 2009 sit under a separate regime. When the InvStG took effect on January 1, 2018, existing positions were treated as sold and repurchased at their December 31, 2017 value, and any pre-2018 gain was set aside to be taxed only on actual sale. For shares originally bought before 2009, a lifetime tax-free allowance of €100,000 per person applies to the portion of the eventual gain attributable to the pre-2018 period. It sits on top of the annual Sparer-Pauschbetrag and is consumed as you sell those old positions.