Germany · Investing

Vorabpauschale explained: Germany’s yearly tax on ETFs

By Leonard Chioveanu · Updated 22 October 2026 · 6 min read

Every January, German brokers take a small amount of tax from many ETF accounts, even if you never sold anything. That is the Vorabpauschale, an advance tax on accumulating funds. For most small and medium portfolios it is zero or a few euros, and you get it back when you sell.

Why it exists

Accumulating ETFs reinvest dividends instead of paying them out, so without a rule you would pay no tax until you sold, perhaps decades later. Since 2018 Germany taxes an assumed minimum return each year instead. It is a prepayment, not an extra tax: whatever you pay is deducted from the gain when you sell.

How it is calculated

1. Base return = fund value on 1 January × base rate (Basiszins) × 0.7. The base rate for 2026 is 3.20%, so the base return is 2.24% of your starting value.
2. Cap: the base return can never be higher than the fund's real gain in the year (including any payouts). In a year when the fund falls, the Vorabpauschale is zero.
3. Partial exemption: for equity ETFs (at least 51% shares) 30% of the amount is tax-free. Mixed funds get 15%.
4. Saver’s allowance: the first €1,000 of capital income a year (€2,000 for couples) is tax-free if you have given your bank an exemption order (Freistellungsauftrag).
5. Tax: 25% plus solidarity surcharge, which is 26.375%, plus church tax if you pay it.

Examples for 2026

Assumes the fund rose by more than the base return during 2026, no other capital income, no church tax, and a full exemption order. The amount is charged in early January 2027.

Things to know

• Keep cash in the account. The broker debits the tax from your clearing account in January. If it is empty, they may sell fund units or ask you to pay.
• Set up your Freistellungsauftrag. Without it the broker cannot apply your €1,000 allowance and withholds tax from the first euro. You can split the allowance across several banks.
• Distributing ETFs pay out dividends, which are taxed as they arrive. The Vorabpauschale is then often zero, because the payouts already cover the base return.
• Higher base rate, more tax. When interest rates were near zero, the Vorabpauschale disappeared. With a base rate of 3.20% it matters again for larger portfolios.

Project your ETF plan with German tax →

This guide is general information based on the tax rules we could verify for 2026, not tax or financial advice. Rules change and personal situations differ, so check with the tax authority or a qualified adviser before you act. Spotted a mistake? Email [email protected].