1. What Is Capital Gains Tax?
The capital gains tax (Kapitalertragsteuer / Abgeltungsteuer) is a tax imposed on income generated from capital, including:
Dividend distributions
Bank account interest
Profits from selling stocks, bonds, and investment funds (capital gains)
It is also known as the withholding tax (Abgeltungsteuer).
When is it paid?
The tax becomes due immediately when the profit is generated, meaning at the moment your earnings are credited to your account.
| Situation | Is tax due? | When? |
|---|---|---|
| You receive dividends | Yes | At the moment of credit |
| You receive interest from a German bank | Yes | Automatically upon payout |
| You sell stocks at a profit | Yes | During settlement |
| You incur investment losses | No | Losses can be deducted later |
How is the tax paid?
It is automatically withheld by the financial institution managing your account:
| Institution | What happens? |
|---|---|
| German bank | Deducts 25% tax + surcharge automatically |
| German broker (e.g., Trade Republic, ING) | Withholds and transfers the tax to the Finanzamt |
| Foreign brokerage account | No automatic deduction → You must report and pay through your tax return |
How much is the tax?
| Type of tax | Rate |
|---|---|
| Capital gains tax | 25% |
| Solidarity surcharge (5.5% of capital gains tax) | 1.375% |
| Church tax (optional) | 8–9% of the tax |
| Total effective rate | 26.375% – 28% |
When must you file a tax return?
| Situation | Tax return required? |
|---|---|
| Your German bank already deducted the tax | Not mandatory |
| You did not use your annual allowance | Yes |
| You have a foreign investment account | Yes |
| You want to offset investment losses | Yes |
How to use the annual tax allowance
The annual allowance is called Sparerpauschbetrag:
€1,000 for individuals
€2,000 for married couples
To activate it, you must submit a Freistellungsauftrag (exemption order) to your bank or broker.
Key terms
| German term | Meaning |
|---|---|
| Kapitalertragsteuer | Capital gains tax |
| Abgeltungsteuer | Flat-rate withholding tax |
| Sparerpauschbetrag | Annual tax allowance for investors |
| Freistellungsauftrag | Exemption order for tax-free capital income |
| Steuererklärung | Annual tax return |
Note:
Our editorial team conducts extensive research to provide accurate information. However, errors or uncertainties may occur. Please treat this article as a preliminary reference and consult official authorities for verified guidance.
