What is the Abgeltungsteuer (capital gains withholding tax) in Germany?

Abgeltungsteuer is Germany's flat-rate withholding tax on investment income, introduced in 2009. It applies to interest, dividends, and capital gains from the sale of financial assets such as shares, bonds, and funds. The rate is a flat 25%, to which the Solidaritätszuschlag (5.5% of the tax) is added, bringing the total to approximately 26.375%. Church tax members pay slightly more.

The key feature is that this tax is withheld directly at source by German banks and brokers, so in most cases you do not need to declare investment income on your tax return unless you have foreign accounts, carry losses to offset, or want to apply the Günstigerprüfung. The Günstigerprüfung allows you to request taxation at your lower personal marginal rate if it is below 25%, which can benefit lower-income investors.

Gains and losses within the same asset class can be netted. German banks maintain a loss pool (Verlustverrechnungstopf) automatically. Losses from shares can only offset gains from shares; losses from other investment income can offset other investment income. If you switch brokers mid-year, you can request a Verlustbescheinigung (loss certificate) from your old bank to carry the loss to your new bank or claim it on your return. The €1,000 Sparer-Pauschbetrag applies to all investment income and can be allocated via a Freistellungsauftrag to avoid withholding on the first €1,000.

This is general information only, not professional tax advice. Consult a qualified tax professional for your specific situation.