As an Expat living in Germany, if you invest in ETFs, then at some point you will hear this scary German word: Vorabpauschale or ETF Tax in Germany.

And honestly, the word sounds more complicated than the actual concept.

The Vorabpauschale is basically a small advance tax on ETFs and investment funds in Germany. It mostly affects accumulating ETFs, also called thesaurierende ETFs, because these ETFs do not pay dividends into your bank account. Instead, the dividends are reinvested inside the ETF.

So the German tax office says:

Even if you did not receive the money directly, your ETF may have grown in value, so a small part of this growth can be taxed in advance.

This does not mean that you are being taxed twice. When you sell your ETF later, the Vorabpauschale that was already taxed should be taken into account by your broker.

In this guide I will explain what ETF Tax in Germany is, how the Vorabpauschale is calculated, and how you can use my Vorabpauschale Calculator to estimate your tax.

What you will learn

1. What is ETF Tax in Germany?
2. What is Vorabpauschale?
3. Who has to pay Vorabpauschale?
4. How is Vorabpauschale calculated?
5. Example calculation
6. What is Teilfreistellung?
7. What happens if you invest monthly?
8. How to use the ETF Tax Calculator
9. FAQ

What is ETF Tax in Germany?

In Germany, profits from ETFs, stocks, dividends, interest, and other capital income are generally taxed as Kapitalerträge.

The standard tax is:

• 25% capital gains tax or Abgeltungssteuer
• 5.5% solidarity surcharge on the tax amount
• Church tax if applicable

So without church tax, the effective tax is usually around 26.375%.

But ETFs have a few special rules. Since 2018, Germany uses the Investmentsteuergesetz, or Investment Tax Act, for funds and ETFs. Under this system, ETF investors can be taxed in three main situations:

1. When the ETF pays distributions
2. When you sell the ETF with profit
3. Through the Vorabpauschale

The third one is the one that confuses most people.

What is Vorabpauschale?

Vorabpauschale means something like “advance lump sum”.

It is not a new extra tax. It is more like an advance taxation of possible ETF gains.

This is especially relevant for accumulating ETFs. Let’s say your ETF does not pay you dividends because everything is reinvested inside the fund. Without Vorabpauschale, you could hold this ETF for 20 years and pay no tax until you sell.

The German tax system does not like waiting that long.

So it calculates a small theoretical return every year. If your ETF has increased in value and did not distribute enough income, then a part of that theoretical return becomes taxable.

According to §18 of the Investment Tax Act, the Vorabpauschale is based on the difference between the fund’s distributions and the so-called Basisertrag. The Basisertrag itself is limited by the actual increase in value of the fund during the year.

In simple words:

Germany calculates a small expected return on your ETF. But you are not taxed on more than the ETF actually gained in that year.

Who has to pay Vorabpauschale?

You may have to pay Vorabpauschale if:

1. You own ETFs or investment funds
2. The ETF increased in value during the year
3. The ETF did not distribute enough dividends
4. Your Sparerpauschbetrag or Freistellungsauftrag is already used up

This means accumulating ETFs are usually more affected than distributing ETFs.

However, distributing ETFs can also be affected if the distributions are lower than the calculated Basisertrag.

If your ETF went down in value during the year, then usually no Vorabpauschale is due.

When is Vorabpauschale paid?

The Vorabpauschale for one calendar year is considered received at the beginning of the next year.

For example:

• Vorabpauschale for 2025 is taxed at the beginning of 2026
• Vorabpauschale for 2026 is taxed at the beginning of 2027

If you use a German broker, the broker normally calculates and deducts this automatically. You may simply see a tax booking in your depot account in January.

If you use a foreign broker, things can become more complicated because you may need to declare it yourself in your German tax return.

How is Vorabpauschale calculated?

The simplified formula is:

Basisertrag = ETF value at start of year × Basiszins × 70%

But this is only the first step.

The Vorabpauschale is then limited by the actual gain during the year:

Growth cap = ETF value at end of year - ETF value at start of year + distributions

Then:

Vorabpauschale = min(Basisertrag, Growth cap) - distributions

If the result is negative, then the Vorabpauschale is zero.

So the tax office first calculates a theoretical return. Then it checks if your ETF actually made enough profit. Then it subtracts distributions because those may already have been taxed.

Basiszins for Vorabpauschale

The Basiszins is published by the German Federal Ministry of Finance.

For example:

Year	Basiszins
2026	3.20%
2025	2.53%
2024	2.29%

The important thing to understand is that the Basiszins is not your ETF return.

It is only a number used by the tax office to calculate the theoretical return. The formula also uses only 70% of this Basiszins.

So for 2026:

3.20% × 70% = 2.24%

This means the maximum Basisertrag for 2026 is roughly 2.24% of your ETF value at the beginning of the year, before other limits and tax rules.

Example Calculation

Let’s say you have an accumulating World ETF.

Your values are:

Item	Amount
ETF value at start of year	€25,000
ETF value at end of year	€28,000
Distributions	€0
Basiszins	3.20%
ETF type	Aktienfonds
Teilfreistellung	30%
Remaining Sparerpauschbetrag	€0

First we calculate the Basisertrag:

€25,000 × 3.20% × 70% = €560

Now we check the actual growth:

€28,000 - €25,000 + €0 = €3,000

The ETF gained €3,000, which is higher than the Basisertrag of €560.

So the Vorabpauschale before Teilfreistellung is:

€560

If this is an Aktienfonds, then 30% is tax-free due to Teilfreistellung.

€560 × 70% = €392 taxable amount

Now the tax is roughly:

€392 × 25% = €98 capital gains tax Soli = €98 × 5.5% = €5.39 Total without church tax = €103.39

So in this example, your estimated Vorabpauschale tax is around €103.39.

What is Teilfreistellung?

Teilfreistellung means that part of your ETF income is tax-free.

This exists because funds may already pay some tax internally, so Germany gives private investors a partial exemption depending on the type of fund.

For private investors, common values are:

Fund type	Teilfreistellung
Aktienfonds / equity fund	30%
Mischfonds / mixed fund	15%
Immobilienfonds / real estate fund	60%
Foreign real estate fund	80%
Other funds	0%

Most World ETFs like MSCI World or FTSE All-World are usually equity funds, so they often have 30% Teilfreistellung.

This means only 70% of the Vorabpauschale is taxable.

What about the Sparerpauschbetrag?

Every person in Germany has a tax-free allowance for capital income called Sparerpauschbetrag.

Currently it is:

Person	Tax-free capital income
Single person	€1,000
Married couple filing together	€2,000

If you still have unused allowance, the Vorabpauschale can use this allowance first.

For example, if your taxable Vorabpauschale after Teilfreistellung is €392 and you still have €500 Sparerpauschbetrag left, then you may pay no tax.

This is why it is important to set a Freistellungsauftrag at your German broker.

What if I invest monthly?

This is where many simple calculators become inaccurate.

Let’s say you invest €500 every month into your ETF. Your end value is higher not only because the ETF grew, but also because you added new money.

That new money is not profit.

So if your ETF value increased from €10,000 to €17,000, but you invested €6,000 during the year, your real growth is not €7,000. It is more like:

€17,000 - €10,000 - €6,000 = €1,000

This is why my calculator has a Monthly Investment field.

The tool subtracts your yearly contributions from the growth cap, so your monthly savings plan is not incorrectly treated as ETF profit.

It also weights the monthly investments based on when they were made. A January investment was held longer during the year than a December investment, so it has a higher effect on the estimated Basisertrag.

This is still an estimate, because exact broker calculations can work with actual fund prices, exact purchase dates, and individual tax lots. But for planning, this gives a much better result than ignoring monthly investments completely.

How to use the Vorabpauschale Calculator

I created this tool to make the calculation easier, especially for Expats in Germany who invest in ETFs but do not want to manually read German tax law.

You can use the calculator as follows.

1. Select the tax year

Choose the year for which you want to calculate the Vorabpauschale.

For example, if you want to estimate the Vorabpauschale for 2026, select 2026. This tax would normally be charged at the beginning of 2027.

The calculator automatically uses the Basiszins for that year.

2. Enter ETF value at start of year

This is the value of your ETF position at the beginning of the year.

For example, if your ETF was worth €25,000 on 1 January, enter €25,000.

If you bought the ETF during the year, then select the correct acquisition month as well.

3. Enter ETF value at end of year

This is the value of your ETF position at the end of the year.

For example, if your ETF was worth €28,000 at the end of December, enter €28,000.

4. Enter distributions

If your ETF paid dividends or distributions during the year, enter the amount here.

For accumulating ETFs, this is usually €0.

For distributing ETFs, enter the total distributions received during the year.

5. Enter monthly investment

If you invest monthly through a savings plan, enter the monthly amount.

For example, if you invest €500 per month, enter €500.

The calculator will include this in the calculation so that your own contributions are not counted as ETF profit.

6. Select acquisition month

If you already owned the ETF before January, select January or earlier.

If you bought the ETF during the year, select the month in which you bought it.

The later you bought the ETF, the lower the Vorabpauschale usually becomes for that year.

7. Select fund type

Select the correct fund type:

• Equity fund / Aktienfonds
• Mixed fund / Mischfonds
• Real estate fund
• Foreign real estate fund
• No exemption

For most broadly diversified stock ETFs, the correct option is usually Aktienfonds with 30% Teilfreistellung.

8. Enter remaining Sparerpauschbetrag

If you still have unused tax-free allowance, enter it here.

For example, if you are single and have not used any of your €1,000 allowance, enter €1,000.

If your allowance is already fully used, enter €0.

9. Enter tax settings

The standard capital gains tax is 25%.

The solidarity surcharge is 5.5% of the tax.

If you pay church tax, select 8% or 9% depending on your federal state.

10. Click calculate

The calculator will show:

• Estimated Vorabpauschale tax
• Basisertrag
• Growth cap
• Monthly contributions
• Taxable amount after Teilfreistellung
• Allowance used
• Capital gains tax
• Solidarity surcharge
• Church tax if selected

Important Things to Remember

The Vorabpauschale is not paid every time your ETF goes up.

It depends on:

1. The Basiszins
2. Your ETF value at the start of the year
3. Your ETF value at the end of the year
4. Distributions
5. Monthly investments
6. Teilfreistellung
7. Your remaining Sparerpauschbetrag

If your ETF makes no positive return during the year, the Vorabpauschale can be zero.

If your Sparerpauschbetrag is still available, the tax can also be zero.

If you use a German broker, the process is usually automatic. If you use a foreign broker, you should be more careful and may need to include this in your German tax return.

FAQ

Do I have to calculate Vorabpauschale myself?

If you use a German broker, usually no. The broker normally calculates it and deducts the tax automatically.

If you use a foreign broker, then you may need to calculate and declare it yourself.

Is Vorabpauschale only for accumulating ETFs?

No. It can also apply to distributing ETFs if the distributions are lower than the calculated Basisertrag. However, accumulating ETFs are usually more affected.

Do I pay Vorabpauschale if my ETF went down?

Usually no. The Basisertrag is limited by the actual increase in value. If there is no positive growth, the Vorabpauschale is normally zero.

Is this double taxation?

No. The Vorabpauschale is an advance taxation. When you later sell the ETF, the amounts already taxed should be considered by the broker.

Does Teilfreistellung apply to Vorabpauschale?

Yes, the Teilfreistellung can apply to Vorabpauschale depending on the fund type. For many equity ETFs, 30% of the income is tax-free.

What if I have a monthly ETF savings plan?

Then you should include your monthly investment in the calculator. Otherwise, your contributions may look like growth, which can make the estimate too high.

Sources

• §18 Investmentsteuergesetz: Vorabpauschale
• §20 Investmentsteuergesetz: Teilfreistellung
• BMF Basiszins 2026
• BMF Basiszins 2025

Disclaimer: None of the content in this article is meant to be considered tax or investment advice. I am not a tax advisor and am only sharing information based on my own research. Tax rules can change, and your personal situation can be different, so please consult a tax advisor if you are unsure.