Overview: What the pre-tax rule (Vorabpauschale) means for ETF investors
The Vorabpauschale is a yearly minimum taxation rule that affects accumulating (thesaurierende) ETFs in Germany. It is calculated using a fixed base interest (Basiszins) and is normally debited automatically from your settlement or tax account in January of the year following the fund year. The rule ensures a minimum taxable amount even if the fund did not distribute cash during the year.
How the Vorabpauschale is calculated
The basic calculation takes the fund value at the beginning of the year, multiplies it by the applicable Basiszins, and then multiplies that result by 0.7. The resulting amount is the theoretical base return (the Vorabpauschale). This amount is capped at the actual positive performance of the fund for the year (value increase) minus any distributions. If the fund lost value or performance is lower than the calculated base return, no Vorabpauschale applies.
The formula and limits
The authorities set the Basiszins annually. For the calculation relevant to 2026 (fund year 2025) the Basiszins used is 2.53 percent. For the following reference (fund year 2026, collected in 2027) the Basiszins is 3.20 percent. Overall the trend in the Basiszins has risen in recent years (for example from around 2.29 percent in 2024 up toward 3.20 percent), which increases the potential Vorabpauschale for large holdings.
Which Basiszins applies?
Example: How the tax can look for a €10,000 equity ETF
Using the common example to make the effect concrete: for a €10,000 equity ETF and the Basiszins of 2.53% (used for the 2026 charge relating to fund year 2025), the base calculation is:
| Step | Calculation | Amount |
|---|---|---|
| Start value × Basiszins | €10,000 × 2.53% | €253.00 |
| Apply 0.7 factor | €253.00 × 0.7 | €177.10 (base return) |
| 30% partial exemption (equity ETF) | €177.10 × (1 − 0.30) | €123.97 (taxable) |
| Income tax at 26.375% (incl. solidarity, excl. church tax) | €123.97 × 26.375% | ≈ €32.70 (≈ €33) |
| Net immediate tax (if no Sparer-Pauschbetrag applies) | ≈ €33 | |
In practice that small amount is frequently fully covered by the Sparer-Pauschbetrag (the saver’s allowance), which is €1,000 for singles and €2,000 for couples via a Freistellungsauftrag. If the allowance is available, the Vorabpauschale will not trigger any immediate tax payment.
Partial exemptions (Teilfreistellungen) by fund type
Not all funds are treated the same: different fund types receive set partial exemptions that reduce the taxable portion of the Vorabpauschale.
- Equity ETFs: 30% partial exemption — common for pure stock funds, which reduces the taxable base substantially.
- Mixed funds: typically 15% partial exemption — applies to funds with a mix of equities and bonds.
- Real estate funds: 60% to 80% partial exemption — property funds often receive the largest relief.
These partial exemptions are applied to the calculated base return before income tax is computed, which is why fund type matters for the real tax burden of accumulating funds.
Practical strategies and steps to reduce or avoid immediate tax
- Check and set a Freistellungsauftrag before January. The bank will only avoid withholding the tax if your Freistellungsauftrag is in place and large enough to cover the Vorabpauschale plus other investment income.
- Consider allocating the allowance precisely per account: some advisors suggest about €178 of allowance per €10,000 of equity ETF assets for the 2025 fund year (charged in 2026) or about €224 per €10,000 for the later year with a higher Basiszins — this is to neutralize the expected Vorabpauschale amount.
- If your total taxable investment income stays below €1,000 (singles) or €2,000 (couples), the saver’s allowance can completely prevent any cash tax from being taken in January.
- Spread or coordinate Freistellungsaufträge across multiple banks/depot accounts so your total allowance is used optimally and no bank withholds tax unnecessarily.
An expert reminder captures the practical point: “Man zahlt also nicht die Vorabpauschale an die Bank, sondern lediglich die Steuer darauf, soweit dies den Sparer-Pauschbetrag übersteigt.” In other words, you don’t pay the Vorabpauschale itself to the bank — you pay the tax on it only to the extent it exceeds your saver’s allowance.
Use the Sparer-Pauschbetrag and Freistellungsauftrag effectively
Some investors prefer distributing (ausschüttende) ETFs because distributions reduce the calculated Vorabpauschale. For regular savings plans, the time-proportional (anteilige) calculation of the Vorabpauschale can ease the burden, as new purchases during the year are only exposed for the time they were held. If you expect losses or very low gains, no Vorabpauschale will be due for that fund year.
Other tactical considerations
Warnings, limits and common pitfalls
A rising Basiszins increases potential Vorabpauschale amounts, so larger portfolios without an optimised Freistellungsauftrag feel the impact more. Missing or incorrectly allocated Freistellungsaufträge — or depot changes shortly before January — can cause banks to withhold tax that you might have avoided.
Examples and practical numbers from recent discussions show the scale: for a €50,000 depot the 2026 charge could be around €163 before allowances, but with appropriate Freistellung that can fall to zero. Another consumer warning has highlighted that for 2025 the tax per €10,000 fund volume might be at most about €51 under certain assumptions — again underscoring that this is often small per unit of invested capital.
Good news: losses from Vorabpauschalen are offsettable (verrechenbar) against other investment income, so they are not an irrevocable penalty.
Seven key insights to take away
- The Vorabpauschale is an annual minimum tax on accumulating ETFs in Germany, collected automatically in January.
- Calculation: start-of-year value × Basiszins × 0.7, capped by actual fund gains minus distributions.
- Relevant Basiszins examples: 2.53% used for the 2026 charge (fund year 2025); 3.20% is set for the following reference — the Basiszins has been rising in recent years.
- Partial exemptions matter: equity ETFs typically get 30% relief, mixed funds about 15%, property funds 60–80%.
- Sparer-Pauschbetrag (€1,000 singles / €2,000 couples) via a Freistellungsauftrag often prevents any cash tax — check and allocate it before January.
- Practical tactics: precise Freistellungsauftrag per account, consider distributing ETFs or the timing effects of savings plans, and coordinate allowances across depots (the ‘trick’ typically works up to roughly €60,000 of assets for many investors).
- Watch out for pitfalls: rising Basiszins, forgotten or misallocated Freistellungsaufträge, depot changes before January — and remember losses are offsettable.
