Taxes on profits and investments in Germany
Kapitalertragsteuer – tax on capital income

What is Kapitalertragsteuer?

Kapitalertragsteuer is a tax in Germany on income from capital investments, such as:

• Dividends (Dividenden) from shares

• Interest (Zinsen) from bank accounts, savings and bonds

• Capital gains (Veräußerungsgewinne) from selling shares or bonds at a profit

• Income from investment funds (Fonds)

In practice, this tax is usually called the Abgeltungsteuer (“withholding tax on capital income”), because it is intended to settle most tax obligations on capital income in one go.

How high is the tax?

The total burden generally consists of:

In practice this leads to an overall tax burden of roughly 26.375 % up to about 28 % on capital income.

How is the tax collected?

• The tax is withheld automatically by your bank or financial institution.

• You receive your interest or dividends net of tax, i.e. after Kapitalertragsteuer, solidarity surcharge and possibly church tax have been deducted.

• In many cases you do not need to file an income tax return for this income, as the tax is already treated as final.

• However, submitting a voluntary tax return can be beneficial if you want to use allowances or offset losses.

Is there a tax-free allowance (Sparerpauschbetrag)?

Yes. There is a statutory allowance for investors called Sparerpauschbetrag:

• If your total annual capital income does not exceed this amount, you do not pay tax on it.

• In order for the bank to apply this allowance automatically, you must submit a Freistellungsauftrag (exemption order) to your bank and indicate the allowance amount to be used there.

Practical example

• Capital income during the year (e.g. dividends): 3,000 €

• You have filed a Freistellungsauftrag of 1,000 € with your bank

Taxable amount:

3,000 € – 1,000 € = 2,000 €

Total tax at approx. 26.375 %:

2,000 € × 26.375 % ≈ 527.50 € in tax on capital income

Can investment losses be offset?

Yes.

• If you make losses on an investment (for example, selling shares below purchase price), these losses can be set off against other capital gains.

• Losses from capital investments cannot be offset against employment income or other types of income.

• Within the same bank, this is usually done automatically via loss offset accounts.

• If you have depots at different banks, you can use your income tax return to have losses offset across institutions.

When is it worth filing a tax return despite Abgeltungsteuer?

A tax return can still be worthwhile if:

• you have not used the full Sparerpauschbetrag,

• you want to offset losses from other years or banks,

• you invest via foreign bank accounts or depots,

• some of your capital income has not been taxed at source.

Key terms

The editorial team of this website aims to provide accurate information based on thorough research and multiple sources. Nevertheless, errors or incomplete details cannot be ruled out. This article should therefore be seen only as an initial guide. For binding, up-to-date and personalised advice, please consult a tax adviser or the competent tax authorities in Germany.