How the Calculations Work

Overview

German tax residents who hold investment funds (ETFs, mutual funds) through foreign brokers are responsible for reporting their investment income to the German tax authorities. Unlike German brokers, foreign brokers do not automatically withhold taxes or provide German tax documents.

This tool calculates the values needed for your annual tax return, specifically for the ELSTER forms Anlage KAP-INV (investment funds) and Anlage KAP (other capital income).

The following sections explain the tax concepts and formulas used in the calculations.

Vorabpauschale (Advance Lump Sum)

What it is

The Vorabpauschale is a deemed annual income on investment funds, introduced in 2018 as part of the Investment Tax Reform Act (Investmentsteuerreformgesetz). It ensures that fund investors pay some tax each year, even on accumulating funds that don't distribute dividends.

The Vorabpauschale for a given year (e.g., 2024) is considered received on January 2nd of the following year (e.g., January 2, 2025), and is reported in the tax return for that following year (e.g., filed in 2026 for tax year 2025).

The formula

The calculation follows these steps:

The Mehrbetrag (§ 18 Abs. 1 Satz 3 InvStG) represents the total return of the fund for the year: price change plus any distributions received. The Basisertrag is capped at this Mehrbetrag, and then distributions are subtracted. The Vorabpauschale cannot be negative.

Basiszins (Base Interest Rate)

The Basiszins is published annually by the German Federal Ministry of Finance (Bundesfinanzministerium). It is derived from long-term government bond yields. When the Basiszins is zero or negative, no Vorabpauschale is charged for that year.

Pro-rata for mid-year purchases

According to § 18 Abs. 2 InvStG, if fund shares are acquired during the year, the Vorabpauschale is reduced proportionally. The reduction is 1/12 for each full month before the purchase month.

Examples: January purchase = 12/12 (full year), June purchase = 7/12, December purchase = 1/12.

Multiple purchases and savings plans

For investors with monthly savings plans (Sparplan) or multiple purchases throughout the year, each purchase should technically be calculated separately with its own pro-rata factor.

The precise calculation requires knowing the fund's NAV (Net Asset Value) on January 1st and multiplying by the number of shares from each purchase. This tool uses an approximation: the invested amount is used as a proxy for the January 1 value.

Teilfreistellung (Partial Exemption)

To avoid double taxation (funds already pay taxes at the fund level), a portion of the income from investment funds is tax-exempt. The exemption rate depends on the fund type:

A fund qualifies as an equity fund (Aktienfonds) if it continuously holds at least 51% equities. Mixed funds (Mischfonds) require at least 25% equities. The fund's documentation (KIID/KID) typically states the applicable Teilfreistellung rate.

Capital Gains Tax Rate

Germany applies a flat tax (Abgeltungsteuer) on capital income:

Church tax (Kirchensteuer) may apply additionally (8-9% of the capital gains tax, depending on the state). This tool does not include church tax in its calculations.

Selling Fund Shares

Basic calculation

When selling fund shares, the taxable gain is:

Vorabpauschale credit

Any Vorabpauschale already paid during the holding period can be deducted from the taxable gain upon sale. This prevents double taxation—you don't pay tax twice on the same gains.

If you have sold portions of a fund previously, the VP credit used in earlier sales is no longer available for subsequent sales.

ELSTER Form References

Anlage KAP-INV

This form is for reporting income from investment funds. Distributions and the Vorabpauschale are reported in different lines depending on the fund type:

Report the Vorabpauschale before applying Teilfreistellung. The tax office applies the exemption automatically.

Anlage KAP

This form is for other capital income (interest, dividends, stock sales) from foreign sources:

Limitations and Considerations

This tool provides calculations based on the formulas and rates described above. The following limitations apply:

• Mid-year purchase approximation: For purchases made during the year, the invested amount is used as an approximation rather than the exact January 1 NAV multiplied by shares.
• Church tax not included: The calculations do not include Kirchensteuer, which varies by state and religious affiliation.
• Freistellungsauftrag not factored: The tax-free allowance (Sparerpauschbetrag) of €1,000 (single) or €2,000 (married) is not deducted. This allowance is typically used at German banks first.
• Loss offsetting: The tool does not handle loss carryforwards or offsetting between different types of capital income.
• Currency conversion: All values should be entered in EUR. Currency conversion from foreign currencies must be done separately using appropriate exchange rates.

Summary

German investment taxation involves the annual Vorabpauschale on fund holdings and capital gains tax on sales. The key formulas are:

• Vorabpauschale = min(Jan 1 value × Basiszins × 0.7, Mehrbetrag) − distributions, where Mehrbetrag = price change + distributions
• Pro-rata reduction for mid-year purchases: (13 − month) / 12
• Teilfreistellung reduces taxable amounts by 15-80% depending on fund type
• Tax rate: 26.375% (25% + solidarity surcharge)
• Accumulated Vorabpauschale is credited against gains when selling

The calculated values can be entered into ELSTER forms Anlage KAP-INV and Anlage KAP as part of your annual tax return.