What is the Freistellungsauftrag and how does it work in Germany?

The Freistellungsauftrag (tax exemption order) instructs your bank or broker not to withhold Abgeltungsteuer on your investment income up to the Sparer-Pauschbetrag (saver's allowance). For 2024, this allowance is €1,000 per person (€2,000 for jointly assessed couples).

You submit a Freistellungsauftrag to each financial institution where you hold investments. You can split the €1,000 allowance across multiple banks, but the total across all institutions cannot exceed €1,000. If you do not submit one, your bank will withhold 25% Abgeltungsteuer from the first euro of investment income. If you forget to set one up, you can reclaim the excess withholding via your annual tax return.

The Freistellungsauftrag covers dividends, interest, and capital gains from share sales. If your investment income is expected to be under €1,000, you will pay no tax on it provided you have allocated enough of your allowance to that institution. For amounts above €1,000, the bank automatically withholds on the excess. To set one up, log in to your banking or brokerage account and look for the Freistellungsauftrag section, or complete the form in a branch. The exemption remains in place until you revoke or amend it.