If you’re invested in stocks or ETFs, or earning interest on a savings account in Germany, you’ll need to know your way around capital gains tax. Learn the basics here.
7 min read
Have you earned interest or capital gains on your investments this year? If so, then you’re likely liable for capital gains tax on those earnings. Whether you’ve earned funds inside or outside the country, if you reside in Germany, you’ll be taxed on your interest and capital gains earnings here. But thanks to a flat-rate withholding tax, capital gains tax isn’t as complex as you might think. In this article, you’ll learn all about capital gains and how they’re taxed in Germany. You’ll also discover what exemptions you can claim and how you can get back overpaid funds on your tax return. Let’s get started.
What is capital gains tax?
Capital gains are the money you earn from the sale of an investment that has grown in value. This can be a stock, ETF, or any other type of investment that you sold for a higher price than when you paid when you first purchased it. Interest income, such as that earned in a savings account, is also taxed as a type of capital gain. Capital gains tax (Kapitalertragsteuer in German) is classified by the German tax authorities as a type of income tax. Germany taxes people based on residence — this means that if you live in Germany, you’ll need to pay capital gains tax on your worldwide income. Here’s a list of what types of income incur capital gains tax:
Income from the sale of investments that have grown in value
As you may have noticed, cryptocurrency doesn’t appear on this list. According to the German tax authorities, the income you earn on cryptocurrency sales isn’t considered as capital gains. Instead, they’re categorized as private assets, similar to jewelry, paintings, or gold. If you sell cryptocurrency, you’ll therefore need to declare your earnings as income according to Section 22 No 2. EStG of the German tax regulations. Find out more about how cryptocurrencies are taxed here. In Germany, you may hear the terms “capital gains tax” and “withholding tax” used interchangeably. But take note: These two taxes are not quite the same. Although they have the same tax rate and apply to similar types of income, they’re collected differently. Withholding tax is charged as a flat rate on capital gains earned within Germany. Here, the tax amount is automatically paid to the German tax authorities. However, if you earn capital gains income outside of Germany, these earnings won’t be taxed at the source. In this situation, instead of withholding tax, you’ll pay capital gains tax — meaning you’re required to declare and pay the tax yourself.
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Capital gains are taxed at a flat rate of 25% — but there are some extra charges you may need to pay on top. For example, there’s the solidarity surcharge: a tax paid by residents of former West Germany to those in former East Germany. If liable, this is taxed at an additional 5.5% of your earnings. However, since a new law passed in 2021 instituting an earning threshold, 90% of Germans are exempt from paying this tax. Additionally, if you’re a member of a state-recognized church, you’ll need to pay an additional church tax at a rate of 8-9%, depending on the state you live in.
Capital gains tax allowances and exemptions
In Germany, each resident benefits from a tax exemption for their capital gains and withholding tax. Since 2023, this exemption amount (Sparerpauschbetrag in German) is €1,000 for single filers and €2,000 for married or civil-partnered couples. This means that any interest and other capital gain earnings up to this threshold are tax free. Important: This exemption won’t be applied automatically — you’ll need to file a tax exemption order with your bank. Learn how here.
When do you need to pay capital gains tax?
As we’ve mentioned above, capital gains tax is due on all your investment income above the exemption amount. For investments earned abroad, you have to declare the income in the KAP appendix on your tax return. We’ll go into more detail about how to do this a bit later.
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Thanks to the tax exemption amount of up to €2,000, if you earn less than this in capital gains, you won’t need to pay anything to the tax office. Furthermore, if your income is less than €10,908 per year (as of 2023), then you’re also exempt from paying capital gains tax on your investment earnings. To get this exemption, you have to file for a certificate called a Nichtveranlagungsbescheinigung (or NV-Bescheinigung) with the tax authorities. This is particularly helpful for students, retirees, and those with a low income. But take note: You can’t file both a tax exemption order and a NV-Bescheinigung — you’ll have to choose.
Who needs to pay capital gains tax in Germany?
In principle, everyone residing in Germany who earns investment profits that are above the exemption amount is obligated to pay the 25% tax on those earnings. As we mentioned above, anyone earning below the income threshold of €10,908 doesn’t have to pay capital gains tax. Because most institutions in Germany automatically deduct profits via withholding tax, it’s useful to know when you need to declare and pay taxes yourself. Banks and brokerages in Germany will automatically deduct the withholding tax for any amount above the tax exemption order (if you’ve submitted one). This means, provided you’ve tracked the money to ensure you haven’t surpassed the exemption threshold, there’s nothing more to do. However, if you have earnings the tax office can’t track, you’ll need to declare these yourself on your tax return. This may apply to the following situations:
You earned capital gains abroad
You collected interest from private loans
You received reimbursement interest from the tax office
You have foreign accounts
If any of these applies to you, you have to file a return and report these earnings. If you don’t, this is considered tax evasion. But don’t worry — in the next section, you’ll learn how to declare your capital gains without too much fuss.
Declaring capital gains on your German tax return
In order to declare your capital gains, you’ll need to file a KAP appendix (income from capital assets) along with your tax return. To do this, simply input the figures from your annual tax statements sent to your bank or brokerage account. Our tip? Apply for the so-called “cheap check” when filling out your KAP. Then, the tax authorities will take care of finding the most favorable option for you, so that you’ll get back any taxes you’ve overpaid.
Can you get your overpaid capital gains tax refunded?
Because you pay capital gains tax yourself with your tax return, it's unlikely that you’ll overpay, unless you make an error on your return. However, when it comes to withholding tax, in the event that you forget to file a tax exemption order, or if you set it too low, then you may have overpaid. Don’t worry — you can retrieve your overpaid withholding tax relatively easily when you fill out your KAP for your tax return. Here, you’ll need to provide the following information:
What investment income you have from different sources
How much in capital gains you paid
How much solidarity tax you paid (if applicable)
How much church tax you’ve paid (if applicable)
What kinds of exemptions you’ve applied for at what rate
What’s the deadline for reclaiming your overpaid capital gains tax?
The good news is, you have four years to reclaim your overpaid capital gains and withholding tax via the KAP appendix in your annual tax return. So, when you’re filing your taxes for 2023, you could feasibly declare your overpaid capital gains/withholding tax not only for 2023, but also for 2019. However, once those four years have passed, it’s unfortunately too late to reclaim the funds.
So, you want to sell your property, but you aren’t sure what taxes you’ll have to pay? Our guide will help you understand whether you need to pay speculation tax, and if so, how you can reduce it.
So, you want to sell your property, but you aren’t sure what taxes you’ll have to pay? Our guide will help you understand whether you need to pay speculation tax, and if so, how you can reduce it.
