You must pay tax on your capital gains in Germany. Here are some tips to save Capital Gains taxes in Germany.
Key takeaways
Set up an exemption order with your bank. This way, the bank does not pay any withholding tax to the tax office. Hence, you can re-invest the profits from your investment. But your income from investments, like interest, dividends, profits from shares, etc., must be below the exempt amount.
Every person in Germany gets an allowance of 1,000 € for all capital income in a year from 2023. Until 2022 the allowance was only 801 €.
The tax office will increase all the existing allowances by 24.844 % from 2023.
Spouses can issue separate or joint tax exemption orders.
This is how you do it
To issue the exemption order, the bank needs your tax identification number.
As per German law, banks must withhold the withholding tax on capital gains if they do not know your tax identification number.
Every bank offers a form to set up a tax exemption order. So, ask for one and submit it.
If you have accounts in multiple banks, you need to set up an exemption order with each separately.
You can have different tax exemption amounts with different banks. Hence, adjust the tax-free amount based on the capital gains paid by each bank.
While setting up tax exemption orders in the banks, ensure not to exceed the current total tax-free allowance limit.
Table of contents
Capital Gain Tax Germany
What's a capital gains tax in Germany?
When someone sells assets for an amount greater than they paid, the tax office considers it capital gains.
And the taxes you pay on the profits from the sale of your investments are capital gains taxes.
You usually pay income tax on everything you sell for a profit in Germany.
But the tax rate used to calculate capital gains tax differs based on two factors.
Your holding period - the period from purchase and sale
Type of investment - the capital gains tax rate may vary depending on your investment.
For example, the rules to calculate capital gains tax from selling properties, artworks, etc., differ from selling stocks or bonds.
Capital Gains Tax Rate in Germany
Capital gains in Germany are subject to a flat tax rate of 25 percent plus a solidarity surcharge (Solidaritätszuschlag in German).
On top of it, you might pay church tax, if applicable.
What is long-term and short-term Capital gains tax in Germany?
If you hold your investment long enough, you pay no capital gains tax in Germany.
But the holding period and whether you pay tax varies with your investment.
#1 Stocks, Bonds, Interest Income, Dividends
There is no differentiation between long-term and short-term capital gains tax rates regarding stocks, bonds, interests, and dividends.
You pay a flat tax rate of 25% plus a 5.5% solidarity surcharge. And church tax on top of it, if applicable.
#2 Cryptocurrency
As of 2023, you pay capital gains tax on the profits from the sale of your cryptocurrency. But you pay the tax only if you sold your investment before one year.
So, buy and hold crypto for over a year to avoid paying capital gains taxes in Germany.
The capital gains tax rate on crypto profits is the same, i.e., 25% plus solidarity surcharge. Additionally, church tax, if applicable.
#3 Real estate
You pay no capital gains tax on the sale of your property if you sell it after ten years.
However, you pay tax on the capital gains derived from the private sale if you sold the property within ten years.
You pay no capital gains tax if you have lived in the property for at least two years.
The capital gains tax rate for real estate is also 25% plus a solidarity surcharge.
You can learn more about property taxes in Germany here.
Capital gains tax exemption order
As per German law, financial institutions must withhold the capital gains tax before releasing the profit to you.
It means your bank or trading company will automatically deduct or withhold 25% tax plus a solidarity surcharge (Solidaritätszuschlag in German) from your realized investment profits.
Hence, reducing your net income from investments, like dividend income or interest income, etc.
But the good news is you can tell your bank to stop withholding tax by issuing a capital gains tax exemption order.
What is a capital gains tax exemption order in Germany?
Capital gains tax exemption order is an application form you submit to your bank.
By submitting the exemption order, you tell your bank to stop deducting withholding tax (Abgeltungssteuer in German) from your capital gains.
You can set up an exemption order with
Banks,
saving products (Sparkasse in German),
property savings products (Bausparkasse in German),
insurance companies
As per German law, banks in Germany must withhold the capital gains tax if there is no exemption order in place.
Hence, to avoid unnecessary tax deductions by the bank, submit a tax exemption order in good time.
What is capital gains tax-free allowance?
Everyone, including children, is entitled to a capital gains tax exemption in Germany.
From 2023 the capital gain tax exempt amount is 1,000 €. For married couples, the tax exempt amount increases to 2,000 € if they file a tax return together.
In 2022 the capital gain tax exempt amount was 801 € for an individual and 1,602 € for married couples filing the tax return together.
What is the capital gains tax exemption amount for children in Germany?
You can also open a savings or trading account for children in Germany.
German tax authorities treat the capital gains from children's accounts as separate from the parents' capital gains.
Hence, parents should submit a separate capital gains tax exemption order for minors. The capital gains tax exempt amount for minors is also 1,000 € as of 2023.
Capital gains taxes for accounts in multiple banks
Section 44a of the Income Tax Act (EStG) states that you do not have to pay capital gains tax if your gains do not exceed the tax-free allowance, i.e., 1000 €.
Thus, you could get a tax refund if you overpaid capital gains tax.
You can even split the tax exempt amount among your accounts in multiple banks. That means you can assign partial amounts to the individual banks on the tax exemption orders.
Thus, you must estimate your total investment income at each bank and carefully distribute the tax exempt allowance.
Caution: Don't exceed the capital gains tax allowance
The sum of tax-free allowance in all your exemption orders must not exceed 1000 € per person (married couples: 2000 €) as of 2023.
If the tax office finds that the exemption orders exceed the capital gains tax exempt amount, they consider it a violation of the tax law.
In the event of a repeat offense, the tax office reserves the right to issue you a fine.
So, pay utmost attention while submitting multiple capital gains tax exempt orders to different banks.
Capital gains tax allowance will automatically increase in 2023
As mentioned, the exempt amount will increase to 1,000 € for individuals and 2,000 € for couples from 2023.
So, you may be wondering what happens to your existing capital gains tax exemption orders. Do you need to submit a new tax exemption order?
The answer is you have to do nothing.
As per the Annual Tax Act 2022, German financial institutions will increase all the existing exemption orders by 24.844 percent. This corresponds to an increase from 801 to 1,000 €.
For example, if you have a capital gains tax exemption order for 400 €, the bank will automatically increase it to 499.38 €.
The same applies if you have several tax exemption orders with multiple banks. Banks will raise each of your orders by 24.844 percent.
Good to know about capital gains tax exemption orders
#1 Tax Id (Steueridentifikationsnummer in German)
Since 2011, you must provide your tax identification number in your capital gains tax exemption order.
Exemption orders issued before 2011 remained valid until 2015 without a tax identification number.
But since 2016, you must also give your tax identification number (tax ID) for the old orders.
Exemption orders without tax identification numbers are not valid anymore.
#2 Duration of capital gains exemption orders in Germany
The tax exemption order is valid from 1st January for the entire calendar year in which you submitted it.
You can only cancel the order on 31st December.
You can also issue exemption orders for an unlimited period. So, the orders remain valid until changed or revoked by a new order.
#3 Changing tax
You can change an exemption order as often as you like before it begins. But you cannot change it for previous years.
The due date for the final change is the last working day, which is usually 28th December. But banks often specify earlier deadlines, for example, 15th December.
We recommend submitting the exemption application to avoid unwanted tax payments when you open an account.
NOTE: You must ensure to delete the exemption order when you close your account in the bank. If you fail to do so, an unused tax-free allowance remains.
#4 Joint or separate tax-free allowance
You can submit the capital gains tax exemption order individually or jointly with your spouse or partner.
You must submit a new exemption application if your name changes after marriage. In this case, the old order becomes invalid.
#5 Spousal Loss Settlement (Ehegattenübergreifende Verlustverrechnung in German)
The joint exemption order also serves as an application for a spousal loss settlement.
Once a year, the bank offsets profits and losses from different, individually or jointly managed spouses' accounts.
The offset of profits and losses is binding and is independent of whether you and your partner file the tax return together or separately.
Hence, the tax office cannot change it as part of your annual income tax assessment.
If you and your partner exhausted all your tax-free allowance at one bank, you could still have a comprehensive loss offset at another bank.
You can do it by selecting a tax-free amount of 0€ in the exemption form of another bank.
How do you get back capital gains withholding tax?
It can happen that, despite all due care, you have distributed the exemption orders unfavorably among different financial institutions.
As a result, the bank overpaid the withholding tax to the tax office.
In this case, you can get back the overpaid amount during your income tax return.
To do this, you must fill out the "Income from capital assets" (Einkünfte aus Kapitalvermögen in German) form (Annex KAP).
Taxes on capital gains from running a business in Germany
You can avoid tax deductions on business capital gains by submitting a "Declaration on exemption from capital gains tax deduction" (Erklärung zur Freistellung vom Kapitalertragsteuerabzug ") to your bank.
In the declaration, you state that your investment income is part of the operating income or income from renting and leasing.
Like your private tax exemption order, the bank also keeps your business exemption order for six years.
Non-assessment certificate (Nichtveranlagungs-Bescheinigung in German)
Instead of an exemption order, you could apply for a non-assessment certificate from your tax office and present it to the bank.
Once a bank has a non-assessment certificate, it doesn't withhold taxes on income from capital gains.
You can apply for a non-assessment certificate if your expected taxable income, including capital gains, is so low that it would be tax-free anyway.
The non-assessment certificate is valid for three years. But you must notify the tax office if your income changes.
The non-assessment certificate makes sense for children and pensioners with income from capital investments.
The reason is taxable income of most children and pensioners does not exceed the basic tax-free allowance.
The basic tax-free allowance in 2023 is 10,908 € for single people and 21,816 € for married people and civil partnerships.
Frequently asked questions about German capital gains tax.
How much capital gains are tax-free in Germany?
As of 2023, the capital gains tax-free amount is 1,000 € for individuals and 2000 € for married couples if they file a tax return together.
How do I avoid taxes on income from capital gains?
Here are a few things you can do to reduce your income tax burden.
Invest and hold for the long term to avoid paying additional tax.
Use your losses in investments to compensate for gains.
Submit a tax exemption order to your bank to avoid unnecessary taxation.
Get a non-assessment certificate from your local tax office to avoid paying withholding tax.
What is the capital gains tax rate for Germany in 2023?
Germany's capital gains tax rate is a flat tax rate of 25% plus a solidarity surcharge. On top of it, you may pay church tax, if applicable.
Are unrealized gains taxable in Germany?
No, you don't pay taxes on unrealized capital gains in Germany.
You only pay taxes on the capital gains derived from the sale of assets.