Capital Profit Taxation Explained
In Germany, a 25% flat withholding tax applies to capital gains from various investment products, including bank deposits, private pension and capital life insurance, stocks, bonds, and ETFs. This tax also applies to gains from financial innovations such as securities and guaranteed certificates, certificates without capital guarantee, open-ended real estate funds, and capital gains earned at a bank with a foreign seat [1][2][3].
This withholding tax is accompanied by a 5.5% solidarity surcharge, making the effective rate 26.375% for non-church members. Church members, however, pay a lower effective tax rate due to the church tax deduction. In Bavaria and Baden-Württemberg, church members pay an additional 8% church tax, while members in other federal states pay 9% [1].
Banks automatically remit the withholding tax, Soli, and church tax to the tax office. For fixed-term deposits, which generate interest income, the bank deducts 25% withholding tax from the interest paid. There is an annual tax allowance of €1,000 for singles (€2,000 for married couples), and interest income below this threshold is exempt from withholding tax [2].
For other investment products such as stocks, bonds, and ETFs, the same flat 25% withholding tax applies to the gains, plus the solidarity surcharge and possibly church tax. Banks and brokers deduct this tax automatically at the time of sale or by applying an "advanced flat rate" on gains from ETFs annually—even if you haven't sold them yet [1][3].
If you have incurred a loss with one bank, you should request a loss certificate to enable the tax office to offset the loss against gains with another bank, if applicable. Losses from securities transactions can be offset against gains, but only securities gains [2].
There is an option for taxpayers whose personal income tax rate is below 25% to apply for a favorable review. The tax office will compare the following two options: Income tax on annual income plus withholding tax on capital gains, and Income tax on (annual income plus capital gains). The option that is most beneficial for you will be implemented by the tax office, resulting in lower overall tax deductions and more money for you in the end [3].
The exact amount of tax deducted depends on the interest earned and the applicable tax rates. The church tax is considered a special expense and is tax-deductible, reducing the withholding tax rate for church members to 24.45% [1].
In summary, the current withholding tax rate in Germany on capital gains from fixed-term deposits and other investment products is a flat 25% plus a 5.5% solidarity surcharge on that tax amount. If applicable, church tax is added on top of this [1][2][3].
In the context of personal-finance and investment, the withholding tax rate in Germany for capital gains from fixed-term deposits and other products like stocks, bonds, and ETFs is a flat 25% plus a 5.5% solidarity surcharge, with the potential for a church tax for non-church members (effectively 26.375%). However, for taxpayers with a personal income tax rate lower than 25%, there's an option to request a favorable review, potentially resulting in lower overall tax deductions.
