Taxes on Investments in Germany

Taxes on Investments in Germany

As an expat living in Germany, understanding how your investments are taxed is essential for building wealth efficiently and avoiding surprises at tax time. Germany’s investment taxation system may seem complex at first, but with the right structure, you can significantly reduce your tax burden while staying compliant with local laws.

Investment Taxation in Germany: The Basics

Germany taxes most investment income at a flat rate known as the Abgeltungsteuer — or final withholding tax. Introduced in 2009, this system simplifies the process by applying a flat 25% tax rate to income from capital gains, dividends, and interest. On top of that, there’s a solidarity surcharge of 5.5% on the tax amount and, where applicable, church tax (8–9% depending on the state).

The effective tax rate for most expats is approximately:

• 26.375% (if not subject to church tax)
• 27.82% – 27.99% (if subject to church tax)

Fortunately, you can reduce this burden through various tax exemptions, investment structures, and treaty benefits.

Capital Gains Tax (Abgeltungsteuer)

Capital gains tax applies to profits from selling shares, ETFs, bonds, mutual funds, and even cryptocurrencies. Unlike in some countries, Germany does not differentiate between short-term and long-term capital gains — the same flat tax applies regardless of how long you hold the investment.

The Sparer-Pauschbetrag (Tax-Free Allowance)

Each individual investor is entitled to an annual tax-free allowance of €1,000 on investment income (or €2,000 for married couples filing jointly). You can activate this exemption by submitting a Freistellungsauftrag (exemption order) with your bank or broker. This ensures the tax is not deducted automatically up to your allowance limit.

Loss Offsetting (Verlustverrechnung)

Capital losses from stock or ETF sales can be used to offset gains within the same category, reducing your overall taxable income. German brokers typically handle this automatically through a so-called loss pot (Verlustverrechnungstopf).

If you switch brokers, make sure to request a transfer of your loss balance to avoid losing this benefit.

Dividend and Interest Taxation

Dividends and interest are also subject to the same flat 25% capital income tax. However, depending on the type of investment, certain parts may be tax-exempt:

• Equity funds and ETFs: 30% of distributions are tax-free (Teilfreistellung).
• Mixed funds: 15% tax-free portion.
• Bond funds: 0% exemption.

This rule is particularly beneficial for investors in accumulating ETFs, where reinvested dividends are only partially taxed annually under the German Investment Tax Reform.

Use the ETF Saving Plan Calculator to estimate your after-tax returns when investing through different fund types.

How Foreign Income and Expats Are Taxed

If you’re an expat living in Germany, you are generally considered tax-resident if you have a permanent address or stay longer than 183 days per year. As a tax-resident, you must declare your worldwide income, including foreign dividends or capital gains.

Germany has signed over 50 double-taxation treaties (DBAs) with other countries to prevent the same income from being taxed twice. These agreements determine which country has the primary right to tax your investment income and often allow foreign taxes to be credited against your German tax liability.

For more information, refer to the official double-tax treaty list published by the Federal Ministry of Finance.

Practical Example for Expats

Imagine Sarah, a UK citizen living in Berlin, who holds ETFs and dividend-paying stocks both in Germany and abroad. Her German bank automatically withholds Abgeltungsteuer on domestic investments, while her UK dividends are taxed under UK law. However, under the UK–Germany double-taxation treaty, she can credit the UK withholding tax against her German liability — avoiding double taxation.

ETF Taxation for Expats in Germany

Since 2018, ETFs and investment funds have been governed by Germany’s Investment Tax Reform Act. This reform simplified taxation by ensuring that both distributing and accumulating funds are treated consistently. If you invest through a German broker, taxes are usually deducted automatically — you rarely need to file manually unless you have international accounts.

Key ETF Tax Concepts to Know

• Partial Tax Exemption (Teilfreistellung): A portion of ETF income is tax-free, depending on the fund type: 30 % for equity ETFs, 15 % for mixed funds, and 0 % for bond funds.
• Accumulating vs. Distributing: Accumulating ETFs reinvest income automatically. You are taxed annually on a small calculated amount known as the Vorabpauschale.
• Foreign ETFs: If your ETF is domiciled outside Germany but UCITS-compliant (e.g., Ireland or Luxembourg), it is taxed identically to a German-domiciled fund.

The Vorabpauschale ensures that even accumulating ETFs contribute some annual tax revenue. It’s calculated using the official base interest rate (Basiszins) published each January by the German Ministry of Finance. In years of negative interest, this pre-tax may be zero.

Use the ETF Saving Plan Calculator to estimate the impact of taxation on long-term returns.

Crypto Taxation in Germany

Cryptocurrency investments are treated differently from ETFs or shares. Private crypto transactions are governed by §23 of the German Income Tax Act (Einkommensteuergesetz).

Key Rules for Crypto Investors

• Holding period: Gains from crypto held longer than one year are tax-free.
• Short-term sales: If you sell within twelve months, profits are taxed at your personal income-tax rate.
• Staking and lending: Extending the holding period to ten years if rewards are received (per BMF letter, 2022).
• Tax-free threshold: Up to €600 per year of total private trading gains is tax-exempt.

For expats trading on global exchanges, always maintain detailed records of transactions, purchase prices, and sale dates. Finanz2Go can help analyze crypto portfolios and integrate them into your broader financial plan.

Real-Estate Investment and REIT Taxation

Real-estate investments in Germany — either directly or through REITs (Real Estate Investment Trusts) — are subject to the same capital-income tax regime. REIT dividends are treated as investment income, taxed at 25 % plus surcharges, while capital gains from direct property sales follow separate rules.

For private individuals, selling a property after ten years of ownership is tax-free. However, if you rent out or sell within ten years, the gain is considered taxable income.

Tax Optimization Strategies for Expats

Tax optimization is about working within the rules — not avoiding them — to maximize returns. Here are key strategies every expat investor should consider:

1. Use Your Allowances Efficiently

Activate your Sparer-Pauschbetrag allowance (€1,000 per person) through a Freistellungsauftrag. If you’re married, submit separate orders for each account to reach €2,000 combined.

2. Choose Tax-Efficient ETF Structures

Accumulating ETFs compound more efficiently over time, while distributing funds provide annual income. Combine both if you want a balance between growth and liquidity.

3. Plan Around Double-Tax Treaties

Germany’s network of treaties can significantly reduce taxes for expats with cross-border income. You can claim foreign withholding taxes as credits or exemptions when filing your return.

4. Consider a Long-Term Perspective

Switching funds frequently creates taxable events. Keeping ETFs for the long term minimizes realized gains and reduces paperwork.

5. Use Professional Advice

Working with English-speaking financial and tax advisors helps optimize your portfolio structure and ensures compliance. Book a consultation with Finanz2Go to analyze your personal situation and uncover available exemptions or deductions.

Tools and Resources for Tax-Efficient Investing

To help expats manage investments and taxes more confidently, Finanz2Go offers several practical online calculators:

• Pension Gap Calculator – understand your future pension needs.
• Investment Goal Calculator – project how much you need to reach your objectives.
• ETF Saving Plan Calculator – visualize compounding and tax impact.
• Portfolio Risk Calculator – evaluate your risk tolerance.

All tools are designed for expats living in Germany, available in English, and free to use. Integrating these calculators into your investment planning helps you make data-driven decisions with real tax insight.

Double-Taxation Agreements (DBA) for Expats

Double-taxation agreements ensure you don’t pay income tax twice on the same investment earnings. Germany has signed treaties with over 50 countries, including the United Kingdom, United States, Canada, Australia, and most EU members. These treaties define where specific income types—dividends, interest, or capital gains—are taxable and how to offset foreign withholding taxes.

Typical Treaty Benefits

• Reduced withholding tax rates: For example, U.S. dividends to German residents are usually taxed at 15 % instead of 30 %.
• Tax-credit method: Foreign taxes paid can be credited against your German tax bill.
• Exemption method: Certain foreign income is completely exempt in Germany but may influence your tax rate (Progressionsvorbehalt).

Always check your treaty’s specific articles on dividends (Article 10), interest (Article 11), and capital gains (Article 13). You can find official English versions on the German Federal Ministry of Finance website.

Real-Life Examples for Expats

Example 1 – John from the USA

John moved to Munich in 2022 and invests in a global ETF domiciled in Ireland. His broker automatically withholds 26.375 % capital-income tax in Germany. Because his fund is UCITS-compliant, Ireland does not levy extra tax, and John’s total tax burden remains limited to Germany’s flat rate.

Example 2 – Maria from Spain

Maria works in Frankfurt but maintains a small investment portfolio in Spain. Under the Germany–Spain DBA, she pays withholding tax in Spain and receives a credit in Germany. By consolidating all income in her German tax return, she avoids double taxation while staying compliant in both countries.

Example 3 – Liam from Australia

Liam invests in cryptocurrencies through an international exchange. He sells Bitcoin after 14 months—his gains are tax-free in Germany due to the one-year holding rule. Had he sold earlier, the profit would have been taxed at his personal income-tax rate.

Common Tax-Filing Requirements for Investors

Most German brokers automatically withhold and remit your taxes. However, you still need to file a tax return if you:

• Receive investment income from foreign brokers or platforms.
• Have multiple income sources in different countries.
• Want to offset capital losses or reclaim foreign withholding taxes.
• Earn interest or dividends above your Sparer-Pauschbetrag.

These are reported in the Anlage KAP section of your annual tax return. If you’re new to the German tax system, a certified tax advisor (Steuerberater) can simplify the process and ensure all credits are claimed correctly.

Frequently Asked Questions (FAQ)

Take Action: Build a Tax-Efficient Investment Plan

Understanding Germany’s investment-tax framework is the first step. Applying it to your personal situation is where you gain real value. Whether you’re investing in ETFs, real estate, or crypto, Finanz2Go helps expats structure portfolios that respect tax rules while maximizing returns.

Explore more guides in our Financial Hub for Expats or related topics:

• Investing in Germany for Expats
• ETF Investing for Expats
• Retirement & Pension Planning