The Vorabpauschale is a German advance tax on investment fund gains that haven’t been paid out to you. For 2026, it’s calculated using a base interest rate (Basiszins) of 3.20%, of which only 70% feeds the formula, giving an effective rate of 2.24% applied to the value of your fund shares on January 2, 2026. If you hold an accumulating fund with a positive return this year, expect your custodian bank to debit the tax from your clearing account in early January 2027.1Bundesministerium der Finanzen. Basiszins zur Berechnung der Vorabpauschale gemaess 18 Absatz 4 InvStG
When You Actually Owe It
Three conditions have to line up before the Vorabpauschale produces a charge. Miss any one and it’s zero.
The fund has to have retained earnings rather than distributing them all. Fully accumulating funds (thesaurierende Fonds) are the classic case, but partially distributing funds can also trigger a Vorabpauschale if their payout falls short of the base yield. If a fund distributes more than its calculated base yield, the Vorabpauschale drops to zero because you’ve already been taxed on that income.2Gesetze im Internet. Investmentsteuergesetz InvStG 18 – Vorabpauschale
The fund has to have gained value over the calendar year. The law caps the taxable base yield at the actual gain between the first and last redemption prices plus distributions. A losing year produces no charge, no matter what the formula would otherwise say.
The Basiszins has to be positive. From 2021 through early 2022, when it was zero or negative, the formula produced nothing. At 3.20% for 2026, this condition is easily met.1Bundesministerium der Finanzen. Basiszins zur Berechnung der Vorabpauschale gemaess 18 Absatz 4 InvStG
The 2026 Base Rate
The Basiszins is calculated by the Deutsche Bundesbank from long-term government bond yields as of the first business day in January and published by the Federal Ministry of Finance in the Bundessteuerblatt. For 2026, that figure is 3.20%. Only 70% of it enters the calculation, so the effective multiplier is 2.24%. The 30% discount is built into the statute as a deliberate reduction from the full theoretical yield.1Bundesministerium der Finanzen. Basiszins zur Berechnung der Vorabpauschale gemaess 18 Absatz 4 InvStG
How the Calculation Works
Three steps: work out the base yield, cap it against real performance, subtract distributions.
Base Yield
Multiply the fund’s redemption price at the start of the year by 70% of the Basiszins. For €50,000 held on January 1, 2026: €50,000 × 3.20% × 70% = €1,120.2Gesetze im Internet. Investmentsteuergesetz InvStG 18 – Vorabpauschale
Cap at Actual Gains
Compare the base yield to the actual price gain during the year plus any distributions. If the fund grew from €50,000 to €50,300, the €300 gain becomes the cap, and the base yield falls to €300. If the fund grew to €54,000, the €1,120 base yield stands because the actual gain is larger.
Subtract Distributions
Deduct any distributions the fund already paid out during the year. The Vorabpauschale can go to zero but never below.2Gesetze im Internet. Investmentsteuergesetz InvStG 18 – Vorabpauschale
Worked Example for 2026
An accumulating equity ETF worth €50,000 on January 1, 2026 grows to €54,000 by year-end and pays no distributions.
- Base yield: €50,000 × 3.20% × 70% = €1,120
- Cap check: actual gain of €4,000 exceeds €1,120, so no cap
- Distributions: €0
- Vorabpauschale: €1,120
- Partial exemption for equity funds (30%): €1,120 × 70% = €784 taxable
- Tax at 26.375%: roughly €206.78
Swap the year-end value for €50,300 and the picture changes. The €300 actual gain caps the base yield at €300, only €210 is taxable after the equity exemption, and the tax comes to about €55. The cap is what stops the formula from taxing gains the fund didn’t actually produce.
Partial Exemptions by Fund Type
Before the tax rate hits, part of the Vorabpauschale is exempt (Teilfreistellung), reflecting taxes the fund itself pays at the corporate level.3Gesetze im Internet. Investmentsteuergesetz InvStG 20 – Teilfreistellung The rate depends on what the fund holds, and the fund’s investment conditions must commit it to those minimums continuously rather than as a one-day snapshot.4Gesetze im Internet. Investmentsteuergesetz InvStG 2 – Begriffsbestimmungen
- Equity funds (more than 50% in equities): 30% exempt
- Mixed funds (at least 25% in equities): 15% exempt
- Domestic real estate funds (more than 50% in real estate): 60% exempt
- Foreign real estate funds (more than 50% in foreign real estate): 80% exempt
Check the fund’s sales prospectus or the provider’s website for its classification. Guessing from the name can put you on the wrong exemption rate.
Tax Rate, Solidarity Surcharge, Church Tax, and the Allowance
What’s left after the partial exemption is taxed at the flat capital gains rate (Abgeltungsteuer) of 25%, plus a 5.5% solidarity surcharge on the tax itself, for a combined effective rate of 26.375%.5Bundeszentralamt fuer Steuern. Kapitalertragsteuerentlastung
Church members pay an additional 8% (Bavaria and Baden-Württemberg) or 9% (elsewhere) on the capital gains tax. The base capital gains rate is automatically reduced from 25% to about 24.45% to reflect that church tax is deductible, and a church member paying 9% ends up at roughly 27.82% overall.
Before any of this bites, the Sparer-Pauschbetrag shields €1,000 of investment income per person (€2,000 for joint filers) each year.6Bundesministerium der Finanzen. EStH – Sparer-Pauschbetrag (20 Abs. 9 EStG) File a Freistellungsauftrag with your bank and the allowance is applied against the Vorabpauschale first. For a smaller portfolio, that can wipe out the charge entirely.
How and When the Bank Collects It
For funds held with a German custodian, everything happens automatically. The 2026 Vorabpauschale is legally deemed to accrue on the first business day of 2027.2Gesetze im Internet. Investmentsteuergesetz InvStG 18 – Vorabpauschale Shortly after, the bank runs the calculation, debits your clearing account (Verrechnungskonto), and forwards the tax to the Finanzamt. The amount shows up on your annual Jahressteuerbescheinigung.
Keep enough cash in the clearing account to cover the debit. If the account is empty, the bank may try a linked checking account, and failing that must report the shortfall to the tax office, which pulls the Finanzamt into what would otherwise have been a routine deduction. A small January buffer avoids all of that. For the €50,000 equity ETF above, roughly €207 was enough.
Why It Isn’t Double Taxation
The Vorabpauschale is a prepayment, not an extra layer of tax. Every euro of Vorabpauschale you’ve paid raises the tax cost basis of your fund shares. When you sell, the taxable gain is the sale price minus your original purchase price minus every Vorabpauschale you’ve already been taxed on.
Say you bought shares for €40,000, paid €800 in Vorabpauschale across several years, and later sold for €60,000. Your taxable gain at sale is €60,000 − €40,000 − €800 = €19,200. Without the credit you’d pay tax on the same €800 twice.
If You Hold Funds With a Foreign Broker
None of the automatic withholding applies. A broker based outside Germany has no obligation to calculate or deduct the Vorabpauschale, so you report it yourself on Anlage KAP-INV with your annual income tax return.
That means running the full calculation by hand: pull the redemption prices from the fund provider for the first and last trading days of the year, apply 70% of the Basiszins to the January price, cap against actual gains plus distributions, subtract distributions, then apply the correct partial exemption. Skipping the report doesn’t save tax. It just pushes the full gain to sale without the basis adjustments you would have built up, and German tax authorities increasingly receive account data through automatic exchange of information.