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Vorabpauschale — Advance ETF Tax

Vorabpauschale is a notional fund income on which your broker withholds an advance tax every January, even if you haven't sold anything. It mainly affects accumulating ETFs. For 2026, with a Basiszins (base rate) of 3.20%, the tax on €50,000 in an equity ETF is about €207 once your tax-free allowance is used up; it is deducted in January 2027 [1]. When you sell, these amounts are subtracted from your gain.

Tax Mechanics​

Vorabpauschale (literally "advance flat-rate amount") mainly affects accumulating funds — thesaurierend ETFs (reinvesting dividends). The state taxes presumed income, even if the fund distributed nothing. A distributing fund also triggers a Vorabpauschale when its payouts for the year are below the base return: for 2026 that is 70% × 3.20% = 2.24% of the fund's value at the start of the year, and the difference is taxed (§ 18 InvStG) [2]. How accumulating and distributing funds differ in tax terms is covered in the ETF article.

The tax is deducted in early January. The law treats the Vorabpauschale as received on the first working day of the following year (§ 18 Abs. 3 InvStG) [2]. The broker takes the tax from the Verrechnungskonto (the cash account linked to your Depot) [4].

Calculation Formula​

Vorabpauschale is calculated using this formula:

Tax base = ETF value at the start of the year × Basiszins × 0.7
Tax = Base × (1 - Teilfreistellung) × 26.375%

Key elements:

ElementWhat it is2026 value
BasiszinsThe interest rate used for the calculation. The BMF publishes it in January; it is derived from the yield on 15-year government bonds that the Bundesbank calculates for the first trading day of the year (§ 18 Abs. 4 InvStG)3.20% (as of 2 January 2026) [1]
0.7 coefficientLegislatively fixed multiplierFixed value
TeilfreistellungPartial tax exemption (depends on fund type)30% for stocks, 15% for mixed, 60–80% for real estate funds, 0% for bonds [2][5]
Tax rateAbgeltungsteuer (flat tax on capital income) + Solidaritätszuschlag (solidarity surcharge)26.375% (25% + 5.5% of 25%), without church tax [3]

Example calculation for 2026:

Portfolio of €50,000 on 1 January 2026, equity ETF (Teilfreistellung 30%), Sparerpauschbetrag (tax-free allowance) already used up:

Base = 50,000 × 3.20% × 0.7 = €1,120
Tax = 1,120 × (1 - 0.30) × 26.375% = €207

Deduction timing: The Vorabpauschale for a given year is deducted at the start of the following year. The January 2026 deduction covered 2025 and used the 2025 Basiszins of 2.53% [1]. The January 2027 deduction covers 2026 and uses 3.20%.

Limits and Exceptions​

Vorabpauschale cannot exceed the fund's actual value increase for the year plus its payouts. If your ETF grew by €500 during the year but the calculated Vorabpauschale is €800, the Vorabpauschale is €500; for an equity ETF, €350 is taxed after the Teilfreistellung (§ 18 Abs. 1 InvStG) [2].

If the fund declined in value during the year — no tax is charged [4].

In the year you buy, the Vorabpauschale is reduced by 1/12 for each full month before the month of purchase (§ 18 Abs. 2 InvStG) [2]. Shares bought in December carry 1/12 of the annual amount.

Your Sparerpauschbetrag is used first. If you have given your broker a Freistellungsauftrag (exemption order), the Vorabpauschale after Teilfreistellung counts against the allowance: €1,000 per person, €2,000 for married couples (2026) [3]. Tax is due once the allowance is used up.

What Happens When You Sell​

When selling ETF shares, you pay tax on the gain minus the Vorabpauschale amounts counted as income in all years of ownership, even if your Sparerpauschbetrag covered them (§ 19 Abs. 1 InvStG). The same income is not taxed twice [2].

Example:

  • Bought ETF for €10,000
  • Sold after 5 years for €15,000 (€5,000 gain)
  • Vorabpauschale over 5 years totalled €600: these are amounts counted as income, not the tax itself
  • At sale, €5,000 − €600 = €4,400 is taxed, for an equity ETF after the 30% Teilfreistellung

How Much Cash to Keep​

By January, your Verrechnungskonto needs the amount from the table below. If it's empty, the broker may collect the tax from another account you hold with it, and, if your contract allows, sell fund shares. If there is no money anywhere, the broker reports this to the Finanzamt, and the tax is settled through your Steuererklärung (tax return) for the year of the deduction: the Vorabpauschale for 2026 goes in the 2027 return [3][4].

Tax for 2026 (deducted in January 2027):

Value on 1 January 2026Vorabpauschale tax (2026)
€10,000€41
€25,000€103
€50,000€207
€100,000€414

Calculated for an equity ETF: Basiszins 3.20%, Teilfreistellung 30%, Sparerpauschbetrag used up, and the fund grew by at least 2.24% during the year. For a bond ETF with no Teilfreistellung, the tax is about 1.4 times higher.

Psychological Dimension​

Vorabpauschale often causes frustration: "I didn't sell anything, why should I pay tax?"

This is normal. The mechanism contradicts the logic of "pay tax when you receive money." But it reflects the German approach to taxation: prevent indefinite tax deferral through reinvestment.

Important for immigrants: If you're used to tax systems where tax is paid only upon sale, Vorabpauschale looks like another "hidden trap." It is an open rule of law with a public formula. For €10,000 in an equity ETF it is about €41 for 2026, and the amounts are credited when you sell.

Checklist​

  • German broker: it withholds the tax itself. A foreign broker does not withhold German tax; you declare the Vorabpauschale in your tax return (Anlage KAP-INV)
  • Check that Freistellungsauftrag is set to the correct amount
  • Keep about €41 in cash by January for every €10,000 in an equity ETF (2026)
  • Save your annual tax statement (Jahressteuerbescheinigung) — it lists all Vorabpauschale amounts

When to Seek Professional Help​

Consult a Steuerberater (tax adviser) if:

  • You have a portfolio over €100,000 and want to optimize taxes
  • You own multiple fund types (stocks, bonds, mixed) and don't understand the calculation
  • You're leaving Germany and don't know how to account for past Vorabpauschale amounts
  • Your broker sold fund shares or reported unpaid tax to the Finanzamt

FAQ​

This is not legal or financial advice.

Is there a Vorabpauschale on a distributing ETF?​

Yes, if the fund's payouts for the year are below the base return. For 2026 the base return is 2.24% of the fund's value at the start of the year (70% × 3.20%). The difference between it and the payouts is taxed. If the fund paid out more, there is no Vorabpauschale for that year [2].

Do I have to report the Vorabpauschale in my tax return?​

Not with a German broker: it withholds the tax itself, and that tax is final. You need a tax return in two cases. First, the broker could not collect the tax and reported it to the Finanzamt. Second, the fund sits with a foreign broker that does not withhold German tax [3][4].

Does buying ETFs in December reduce the Vorabpauschale?​

The tax for the year of purchase is lower, but it is a deferral. Shares bought in December carry 1/12 of the year's Vorabpauschale (§ 18 Abs. 2 InvStG) [2]. For €10,000 in an equity ETF in 2026, that is about €3.45 of tax instead of €41. From the next year on, the shares count in full, and the smaller Vorabpauschale now raises the taxable gain when you sell: a one-off deferral of about €38, not a saving.

Sources​

  1. Bundesministerium der Finanzen — BMF-Schreiben vom 13.01.2026: Basiszins zur Berechnung der Vorabpauschale gemäß § 18 Abs. 4 InvStG (3.20% for 2026), 2026. https://www.bundesfinanzministerium.de/Content/DE/Downloads/BMF_Schreiben/Steuerarten/Investmentsteuer/2026-01-13-basiszins-berechnung-vorabpauschale.html; BMF-Schreiben vom 10.01.2025: Basiszins zum 2. Januar 2025 (2.53% for 2025), 2025. https://www.bundesfinanzministerium.de/Content/DE/Downloads/BMF_Schreiben/Steuerarten/Investmentsteuer/2025-01-10-basiszins-vorabpauschale-zum-2-1-2025.pdf?__blob=publicationFile&v=2
  2. Investmentsteuergesetz (InvStG, as of 2026): § 18 — Abs. 1 (base return minus payouts, distributing funds included; capped at the actual value increase), Abs. 2 (minus 1/12 per month in the year of purchase), Abs. 3 (deemed received on the first working day of the following year), Abs. 4 (Basiszins); § 19 Abs. 1 (sale gain minus earlier Vorabpauschale amounts); § 20 (Teilfreistellung). https://www.gesetze-im-internet.de/invstg_2018/__18.html, https://www.gesetze-im-internet.de/invstg_2018/__19.html, https://www.gesetze-im-internet.de/invstg_2018/__20.html
  3. Einkommensteuergesetz (EStG, as of 2026): § 20 Abs. 9 (Sparerpauschbetrag €1,000/€2,000), § 32d (25% rate), § 44 Abs. 1 (the broker collects missing tax from the client's account or reports to the Finanzamt). https://www.gesetze-im-internet.de/estg/__20.html, https://www.gesetze-im-internet.de/estg/__44.html
  4. Finanztip — Vorabpauschale einfach erklärt: Fälligkeit, Berechnung & Beispiele, 2026. https://www.finanztip.de/indexfonds-etf/etf-steuern/was-ist-die-vorabpauschale/; BVI — FAQ Vorabpauschale (deduction, missing cash, report to the Finanzamt), 2026. https://www.bvi.de/faq/faq-vorabpauschale/
  5. Bundesministerium der Finanzen — Anwendungsschreiben zum Investmentsteuergesetz (Teilfreistellung by fund type), 2018, as amended, as of 2026. https://www.bundesfinanzministerium.de/Content/DE/Downloads/BMF_Schreiben/Steuerarten/Investmentsteuer/2018-05-21-anwendungsschreiben-zum-investmentsteuergesetz.html