Savings book, stocks, cryptocurrency – or ETF? The latter is currently in vogue and is no longer an insider tip in this country. The topic of taxes, on the other hand, remains for many a book with seven seals. What is now important for the tax return, we show in this article.Short & concise
- The 2018 investment tax reform simplifies the tax treatment of ETFs
- Taxes apply to all income and profits
- With the saver lump sum you get a part of the return tax-free
- A tax return is also worthwhile for ETFs
ETF – How does it work with taxes?
Anyone who wants to build up a financial cushion with investments is certainly familiar with them: the Exchange Traded Funds or ETF for short. These are exchange-traded index funds that track a specific stock index, such as the DAX or MSCI World. The ETF savings model is popular because the fees for it are cheaper than with classic Investmentfonds.Au In addition, ETFs are easy to use.New rules thanks to reform
How this works with taxes is regulated by the Investment Tax Act, which was readjusted in 2018. This results in some innovations in the taxation of ETFs.
- Equality: All ETFs and funds foreign or domestic, whether distributing or accumulating, are treated equally for tax purposes.
- Same tax rules: Tax is based on the same system with the final withholding tax and advance lump sum.
- Less effort: The custodian banks take care of the taxation and pay the tax themselves to the tax office.
What taxes do I have to pay on ETFs?
If income is generated somewhere, the state also wants to have a part of it. Therefore, a tax is levied on all capital gains from interest, dividends, price gains and sales of securities – the capital gains tax, also called withholding tax. The new advance lump sum will later be offset against the final withholding tax.
The tax on ETFs is only due if the profits exceed the annual allowance:
801 euros for singles and 1,602 euros for married couples or registered life partners. Read more Saver lump sum.
When does the tax on ETFs become due? Distributing ETF Savings Plan
With a distributing ETF savings plan, the return is distributed to investors. At the time of distribution, the final withholding tax is withheld directly by the bank and paid to the tax office. The regularity of the distribution, i.e. quarterly, semi-annually or once a year, depends on the respective ETF. Accumulating ETF Savings Plan
With an accumulating ETF savings plan, the income is not distributed, but immediately automatically reinvested. Here, your custodian bank pays the tax on the annual advance lump sum to the tax office before (beginning of the year). In the case of sale at a profit, the final withholding tax is then due, which is offset against the advance lump sum. How high is the tax?
In principle, the following applies: Taxes are only due on profits. If you couldn’t make a profit, you don’t have to pay taxes. This is how taxes for ETFs are composed:
- 25 percent flat-rate withholding tax
- 5.5 percent solidarity surcharge in addition and
- 8 to 9 percent church tax
The withholding tax is the so-called withholding tax, because it is levied directly where the income arises – usually this is your custodian bank (or broker). The following applies to German capital gains: The bank then deducts the capital gains tax of 25 percent from your profits and transfers it to the tax office.
This covers the tax and you no longer have to provide information about your income in the tax return. However, it is worthwhile to check by means of a tax return whether the tax deduction is correct. Foreign depots
However, foreign custodian banks are not obliged to take care of the German withholding tax. If you invest in ETFs that are based abroad, the withholding tax applicable there will also be charged. In order to avoid double taxation, there is the double taxation agreement (DTA).
Germany has a DTA with many countries. As a result, a certain maximum limit applies to the withholding tax rate, which is usually 15 percent. Often, the withholding tax can also be credited to the final withholding tax. As a rule, your custodian bank takes care of this, otherwise you can do it with your tax return. You can find the amount that can be credited in the annual tax certificate.What is the advance lump sum?
In the case of distributing ETFs, only the withholding tax is usually paid on profits. For accumulating ETFs, there is the advance lump sum beforehand. This imposes a tax on fictitious returns before the ETFs are sold. From a tax point of view, distributing and accumulating ETFs are equated with this.
The custodian bank also takes care of the advance lump sum. However, it does not pay the lump sum itself to the tax office, but the withholding tax calculated on its basis.Why is there the advance lump sum?
Since accumulating ETFs reinvest the profits immediately, the holding period can extend – possibly to decades. During this time, no tax would flow to the state. In order to eliminate this deferral effect, the advance lump sum was introduced.
It closes the “gap” and ensures that the state receives part of the future tax – in advance – over the term. And even the investor does not get a big bill in the end, but pays the tax on the profit in “installments”.
The custodian bank may take into account the exemption order, your NV certificate or the loss set-off pot.
Attention: If your remaining exemption order or the loss set-off pot is not sufficient to cover the advance lump sum, the bank will debit the tax due from your account.
The bank calculates the advance lump sum according to a formula that takes into account the performance of your ETF and the base interest rate determined annually by the Deutsche Bundesbank. It is the basis of assessment for the final withholding tax and is offset against the realisation of the profits. You can read the amount of the advance lump sum in your tax certificate. Advance flat rate no longer applicable for 2022
Income from 2021 will remain tax-free in 2022: For 2021, the Deutsche Bundesbank has for the first time determined a negative base rate of –0.45 percent. This eliminates the advance lump sum for the coming year, according to the BMF letter of 29.01.2020.What applies to ETF old shares?
Do you own ETFs that you bought before 2009? Profits accrued up to the end of 2017 are tax-free as so-called “fictitious capital gains”. Since the tax reform of 2018, however, the price gains of these ETFs have been subject to the advance lump sum.
In return, however, there is an allowance of 100,000 euros per person for income collected after 2018. This means that if you sell your old ETFs, there is no tax up to this amount. Partial exemption for ETFs
Following the reform of the Investment Tax Act, fund companies will also be taxed. In addition, they pay corporation tax directly from their fund assets – so less income flows into the account of the investors.
As compensation, there is therefore the so-called “partial exemption”. This means that parts of the distribution, the advance lump sum and the sales profit remain tax-free. How much this is determined by the partial exemption ratio, which varies depending on the type of fund:Type of fundShare share Amount of exemptionShare funds over 50 %30 %Mixed funds at least 25 %15 %Real estate funds over 50 %60 %Real estate funds with an investment focus abroad over 50 %80 %When should I declare ETFs in my tax return? Foreign depots
The custodian banks based in Germany pay the final withholding tax directly to the tax office. However, foreign custodian banks are not obliged to take care of the German withholding tax. This means that you have to declare your profits yourself on your tax return using your bank’s annual tax certificate. In these cases, the check by the tax return is worthwhile:
The German custodian banks withhold the withholding tax directly and pay it to the tax office – so does it mean for investors to put their feet up and not waste any thought on the tax return?
Not quite: If you prefer to check whether you have not paid too much tax, you should specify the capital gains including the annual tax certificate in the tax return.