Key takeaways
- The partial exemption (Teilfreistellung) makes a fixed share of your fund and ETF income tax-free - for equity ETFs that is 30%.
- It applies to distributions, the advance lump sum (Vorabpauschale) and gains on sale, and your broker factors it in automatically.
- The rate depends on the type of fund: equity funds 30%, mixed funds 15%, pure bond funds 0%.
What is the partial exemption?
Since the 2018 investment tax reform (Investmentsteuerreform), funds and ETFs already pay part of the tax at fund level - on German dividends held in the fund, for example. So that the same income is not taxed in full a second time when it reaches you as an investor, a fixed share of your income stays tax-free. That is exactly what the partial exemption is: a flat-rate compensation for the tax already paid inside the fund.
In concrete terms, for an equity ETF: 30% of your income is tax-free, and only the remaining 70% is subject to the flat-rate withholding tax (Abgeltungssteuer).
Which rate applies to which fund?
What matters is the type of fund - that is, the minimum share the fund permanently invests in equities according to its investment terms (Anlagebedingungen):
| Type of fund | Equity share according to investment terms | Partial exemption |
|---|---|---|
| Equity fund / equity ETF (Aktienfonds) | at least 51% | 30% |
| Mixed fund (Mischfonds) | at least 25% | 15% |
| Real estate fund (Immobilienfonds) | mainly real estate | 60% (80% for mainly foreign real estate) |
| Bond and money market funds | below 25% equities | 0% |
These rates apply to private investors. What counts is the fixed ratio set out in the investment terms, not the equity share on any given day. A classic world ETF on a broad equity index is therefore an equity fund and gets the full 30%.
What exactly does it apply to?
The partial exemption applies to every kind of fund income:
- to distributions from a distributing ETF,
- to the advance lump sum of an accumulating ETF,
- to the gain from selling your units.
What does this mean for your tax?
Worked example
Capital income is subject to 25% flat-rate withholding tax plus a 5.5% solidarity surcharge (Solidaritätszuschlag) on top of that, around 26.375% in total. With an equity ETF, however, only 70% is taxable - which makes an effective rate of about 18.46%. On a €1,000 gain you therefore pay around €185 in tax instead of around €264. An example calculation without church tax (Kirchensteuer) and before the saver's allowance (Sparerpauschbetrag), not a guarantee.
Do you need to do anything?
No. The bank that holds your securities account takes the partial exemption into account automatically as soon as it withholds the tax. You do not have to apply for anything or enter anything. What is worth doing, though, is using the saver's allowance through an exemption order (Freistellungsauftrag) - it works on top of the partial exemption and exempts a further €1,000 of capital income per year (€2,000 with joint assessment).
The partial exemption in Talantor
The tax overview in Talantor sums up your realised gains, dividends and the tax withheld by your broker per year - from your real activities. It deliberately does not work out the partial exemption itself, because your broker already does that. If, on the other hand, you want to play through how much difference the rate makes over the years, you can pick the 30% for equity ETFs (effectively around 18.46%) directly as the tax rate in the compound interest calculator.
How losses can be offset for tax purposes is explained in Understanding loss offset pots.
Not tax advice
This article explains the basics as they currently stand. Tax rules and rates can change and depend on your personal situation. For binding advice, contact a tax advisor.