This guide is for informational purposes only. Reach out to your tax advisor for any consulting or advice.
For private investors, the German withholding tax rate on investment income from funds is 25% plus an additional 5.5% solidarity surcharge, so 26.375%.
Income from investment funds can be in the form of:
advance lump sums (“Vorabpauschale”); and
realised gains from the redemption or sale of fund units.
These income forms may be subject to a partial tax exemption (“Teilfreistellung”) depending on the investment scope of the investment fund.
The following partial exemption rates are to be applied on all income from the respective funds of German tax residents: For example, 30% of the income arising from an equity fund investment would be exempt from tax. Distributions are taxable upon receipt in the year of the payment day.
|Partial tax exemption rate
|Domestic real estate funds
|Foreign real estate funds
The advance lump-sum (“Vorabpauschale”) reflects deemed income from a fund in the case where minimal or no distributions have been made from the fund. This ensures that a de-minimis level of tax applies to a fund investment, taking the basic interest rate and performance of the fund into account. This is only relevant where the value of the fund has increased, and no distributions have been made. For example, if the fund's performance was negative, the advance lump-sum isn't applicable.
Realised gains/losses from funds arise on:
a sale or redemption of existing holdings in funds units; or
fictitious sales of investment funds due to fund mergers, fund liquidation or changes in applicable partial tax exemptions.
The realised gain or loss is calculated as the difference between the proceeds from the sale; after deducting expenses directly related to the sale transaction; and the acquisition cost, including any expenses directly related to the purchase. In addition, already taxed advance lump-sums are deducted from the taxable realised gain or loss, and any applicable partial tax exemption is applied.
There's no difference between how interest held in the different fund types is taxed (for example, equity vs. fixed income vs. MMFs). The only difference in taxation would be based on the partial tax exemption rate.