Capital Gains Tax in Germany: Why It Is 26.375 %, Not 25 %

Why the rate is 26.375%, not 25%

The statute itself is short. Section 32d (1) sentence 1 of the German Income Tax Act (Einkommensteuergesetz, EStG) sets the tax on investment income at 25%. Most guides quote that and stop there.

On top of it comes the solidarity surcharge of 5.5% (section 4 SolzG 1995). It was abolished in 2021 for most wage earners, but not for private investment income. If you belong to a church that levies tax in Germany, church tax of 8% (Bavaria and Baden-Württemberg) or 9% (all other federal states) is added – again on the tax, not on the income.

Church tax then works in two directions at once. It raises the total, but it also reduces the tax it is calculated from: section 32d (1) sentence 3 EStG lowers the capital gains tax “by 25 per cent of the church tax attributable to the investment income”. Sentence 4 states the formula as (e − 4q) : (4 + k), where e is investment income, q is creditable foreign tax and k is the church tax rate.

The saver’s allowance only works with an exemption order

Germany grants a yearly allowance on private investment income, the Sparer-Pauschbetrag: €1,000 per person, double that for jointly assessed spouses (section 20 (9) EStG). It has been €1,000 and €2,000 since 1 January 2023; before that it was €801 and €1,602.

The amount does nothing on its own. A bank may only refrain from withholding if it holds an exemption order (Freistellungsauftrag) on the officially prescribed form (section 44a (2) sentence 1 no. 1 EStG). Without one it deducts 26.375% from the first euro of income, and you recover the money through the annual tax return (Anlage KAP) – a year later, and only if you file.

• Splittable, but capped. You may spread the allowance across several banks, as long as the total stays within the Sparer-Pauschbetrag.
• Your tax ID is mandatory. Without a German tax identification number the exemption order is invalid (section 44a (2a) EStG). New arrivals therefore have to wait for the tax ID before the allowance can take effect.
• Old orders were raised proportionally. Exemption orders filed before 2023 had to be increased by 24.844% by law (section 52 (43) EStG). That turns €801 into exactly €1,000 – but only if the full old amount was entered. An order over €400 now stands at €499.38.
• It cannot create a loss. The allowance may not exceed the investment income it is applied to (section 20 (9) sentence 4 EStG).

What is left of your investment income

The 26.375% only apply above the allowance. The effective burden is therefore much lower on small amounts and approaches the full rate only gradually.

Tax always applies to the income, never to the capital behind it. At 2.5% interest, €40,000 produces exactly €1,000 – nothing is withheld up to that point if an exemption order is in place. The compound interest calculator shows how a balance develops over time.

Which income is taxed

Section 20 EStG covers, among other things:

• dividends from shares and comparable distributions (section 20 (1) no. 1 EStG)
• gains from selling shares, bonds and other securities
• income from funds and ETFs, including the advance lump sum (Vorabpauschale) on accumulating funds – see the ETF savings plan calculator
• interest from current accounts, savings and fixed-term deposits, and from bonds

Two adjustments matter before you compare figures. Equity funds are 30% tax-exempt at investor level, mixed funds 15% (section 20 InvStG) – so only part of a fund distribution reaches the tax base. And gains on shares bought before 1 January 2009 remain tax-free: section 52 (28) EStG applies the taxation of sale proceeds only to holdings acquired after 31 December 2008. Dividends from those same shares are taxed normally.

Foreign brokers and foreign withholding tax

The automatic deduction described above is a service of German paying agents. If you hold your securities with a broker outside Germany, nobody withholds German tax for you – the income still has to be declared in your German return, and the responsibility for getting it right is yours. This is the most common blind spot for people who keep an account in their previous country of residence.

Foreign dividends usually carry withholding tax in the company’s home country. Germany credits at most 25% foreign tax per individual item of investment income, and only up to the amount of German tax due on it (section 32d (5) EStG). Anything above that has to be reclaimed from the foreign tax authority – an effort that rarely pays off on small amounts.

Everything on this page describes the rules for German tax residents. If you are not resident for tax purposes in Germany, a double taxation treaty may allocate the taxing right differently. Which broker suits which situation is a separate question – the online broker comparison covers it.

Offsetting losses: two buckets, one deadline

Losses from investments may not be set against other types of income such as salary. They do reduce investment income in following years, with no time limit (section 20 (6) sentences 1 and 2 EStG). Two rules apply on top:

• The share bucket is closed. Losses from selling shares may only be offset against gains from selling shares (section 20 (6) sentence 4 EStG). Dividends, interest and fund gains do not enter this bucket.
• Across banks you need a certificate. To offset a loss at one bank against a gain at another, you must request a loss certificate (Verlustbescheinigung). The request is irrevocable and has to reach the bank by 15 December of the current year (section 43a (3) sentences 4 and 5 EStG).

When your personal tax rate is better

A flat rate is a bad deal for anyone whose own rate is lower. On request, the tax office therefore adds investment income to your other income and applies the normal progressive rate “if this results in a lower income tax including surcharges” (section 32d (6) EStG). This is the Günstigerprüfung, and it costs nothing: the office applies whichever version leaves you better off.

Two conditions come with it. The request applies uniformly to all investment income of that year, and for jointly assessed spouses to both partners‘ income – you cannot cherry-pick. And it is generally worthwhile only below a marginal rate of roughly 25%. Anyone whose income stays under the basic tax-free amount can instead apply for a non-assessment certificate (Nichtveranlagungs-Bescheinigung), after which the bank withholds nothing at all, even above the allowance.

What the calculator does not cover

The calculator takes four inputs: investment income before tax, whether the allowance applies, which allowance (€1,000, €2,000 or a custom part of it) and the church tax rate. It returns capital gains tax, solidarity surcharge, church tax, the total burden and the income after tax – all to the cent.

Three things sit outside the calculation: the partial exemption for funds, foreign withholding tax and losses carried forward from earlier years. Enter the already adjusted, taxable amount if any of them applies to you.

The rules described here do not replace individual tax advice.

Sources

• German Income Tax Act: section 32d EStG (rate, church tax reduction, exceptions, Günstigerprüfung, credit for foreign tax) – retrieved 2 September 2026, German only
• German Income Tax Act: section 20 EStG (investment income, saver’s allowance, loss offsetting) – retrieved 2 September 2026, German only
• German Income Tax Act: section 44a EStG (exemption order, tax ID), section 43a EStG (loss certificate, 15 December deadline) and section 51a EStG (church tax query, blocking notice) – retrieved 2 September 2026, German only
• Section 52 EStG (24.844% increase of older exemption orders, pre-2009 holdings), section 4 SolzG 1995 (5.5% surcharge) and section 20 InvStG (partial exemption) – retrieved 2 September 2026, German only

Frequently asked questions