Taxes on stocks

You do not pay tax on the money you invest, only on what it earns. That mostly means two things: dividends a company pays out, and capital gains when you sell a share for more than you paid. As long as you simply hold a stock, its rise in value does not matter for tax. The bill only comes when you sell. In Germany, all of this income is taxed at one flat rate, the Abgeltungsteuer, or flat-rate withholding tax.

The flat-rate tax is 25 percent. On top comes the solidarity surcharge of 5.5 percent, charged on the tax, not on your gain. 5.5 percent of 25 percent is 1.375 percent, which adds up to 26.375 percent. If you belong to a church that levies church tax, another 8 or 9 percent of the flat-rate tax is added, depending on the federal state. Because church tax slightly reduces the flat-rate tax, you end up just under 28 percent overall, 27.82 or 27.99 percent to be exact. The good news: with a Depot in Germany, your bank deducts all of this automatically and pays it to the tax office.

Each year, part of your investment income stays tax-free. This saver's allowance, the Sparerpauschbetrag, is 1,000 euros per person, or 2,000 euros for married couples and registered partners filing jointly. To have your bank apply it, you give it an exemption order, the Freistellungsauftrag. It is a short form, usually done in a few clicks. If you have accounts at several banks, you split the amount between them, but the total cannot exceed your allowance. Without an exemption order, the bank deducts tax right away and you only get it back through your tax return.

Say you sell shares in one year for a gain of 1,500 euros, and you have filed an exemption order for 1,000 euros. The first 1,000 euros stay tax-free. The remaining 500 euros are taxed at 26.375 percent, about 132 euros. Of your 1,500 euro gain, roughly 1,368 euros are left. The bank offsets losses automatically, but only within its own accounts. There is a special rule: losses from selling stocks can only be offset against gains from selling stocks, not against dividends or interest. Germany's Federal Constitutional Court has been reviewing whether this rule is constitutional for years. Until it rules, the rule applies.

Equity ETFs come with a small break called partial exemption, or Teilfreistellung. For funds that invest more than half in stocks, 30 percent of the income is tax-free, so you only pay tax on the other 70 percent. Accumulating ETFs, which reinvest their income, also trigger the Vorabpauschale, an advance lump sum. It makes sure a small amount is taxed every year even when nothing is paid out. Roughly: value at the start of the year times a base rate times 0.7, but no more than the actual gain that year. The finance ministry announces the base rate each year: 3.20 percent for 2026. The bank collects the tax on it early the following year, and often your allowance covers it entirely. When you sell later, whatever was already taxed is credited, so you do not pay twice.