Vorabpauschale 2026: The Cost of a Passive Portfolio in Germany

Educational material. Not tax or financial advice.

If you see an ETF-related tax debit in January even though you didn’t sell anything, you’re not alone — in Germany this is a recurring pattern. The mechanism is called Vorabpauschale: a tax on “deemed” income from investment funds, especially accumulating ETFs (thesaurierend).

Key point for 2026: the Basiszins is determined for 02.01.2026 (following the InvStG procedure and the BMF publication), while the Vorabpauschale for 2026 is deemed received on the first working day of 2027. Your broker/bank typically withholds the tax in early January.

Why Does Germany Tax ETFs When You Didn’t Sell?

Vorabpauschale isn’t a penalty and it’s not “double taxation.” It’s an advance taxation of part of a fund’s return so investors can’t accumulate gains inside an ETF for years without paying tax until they finally sell.

The idea is straightforward: if the fund didn’t distribute (or distributed only a small amount), the tax system assumes there was still a baseline return and taxes that baseline. If the fund distributed enough, the Vorabpauschale can be zero.

What Is Basiszins 2026 and Why It Drives the Vorabpauschale Amount

Basiszins 2026 is the base interest rate published by the German Ministry of Finance (BMF) for calculating the Vorabpauschale. It’s derived from long-term government bond yields and fixed on the first trading day of the year.

Basiszins is not your ETF’s yield. It’s a technical input to the formula — and it changes from year to year, which is why the withheld amount can jump up or down.

Accumulating ETF Tax: How Vorabpauschale Is Calculated 

Real-world calculations include details (months held, caps, etc.), but the core logic is:

Step 1) Calculate the Basisertrag (base return)

Basisertrag = fund value at the start of the year × 70% × Basiszins

Why 70%? That coefficient is built into the rules — the state taxes only a portion of the base return.

Step 2) Subtract distributions

Any distributions paid during the year reduce the Basisertrag. That’s why distributing ETFs (ausschüttend) often have a smaller or even zero Vorabpauschale.

Step 3) Apply a cap based on the actual price gain

The Basisertrag is capped by the fund’s actual price increase over the year, so you don’t get taxed on a “deemed gain” in a year where the market fell.

Step 4) Apply Teilfreistellung

Many funds qualify for Teilfreistellung (partial exemption). For example, equity funds (Aktienfonds) commonly benefit from a partial exemption (often seen as 30%, depending on the fund category under the InvStG).

Step 5) The bank withholds the tax

Then the standard German capital income tax mechanics apply: your bank/broker withholds the tax automatically (assuming there’s cash available to debit — usually from the account cash balance).

Why the Debit Feels “Out of Nowhere”

Under the InvStG, the Vorabpauschale is deemed received on the first working day of the following year. So the tax for 2026 typically shows up in January 2027. That’s the whole “I didn’t sell anything, but I paid tax” moment.

How to Reduce Withholding Legally

Two terms worth checking early each year:

• Sparer-Pauschbetrag: the tax-free allowance for capital income (applied by the bank when withholding).
• Freistellungsauftrag: the instruction to your bank to apply that allowance at that institution (if you use multiple banks/brokers, you can split the allowance).

If your Freistellungsauftrag isn’t set up (or you already used the allowance elsewhere), the Vorabpauschale withholding can look harsher — even if your total capital income for the year isn’t huge.

What to Check on Your Broker Statement

1. The transaction label (often mentions Vorabpauschale / Investmentsteuer / Abgeltungsteuer).
2. Which ISINs/ETFs the calculation applies to (some banks show a breakdown).
3. Whether your Freistellungsauftrag allowance was available (if not, withholding happens automatically).

Conclusion

Vorabpauschale 2026 is a normal part of the tax reality for passive ETF investors in Germany. It’s most visible for accumulating ETFs and depends on the Basiszins, distributions, and how your Sparer-Pauschbetrag / Freistellungsauftrag is configured.

And if your portfolio isn’t only ETFs (for example, you also hold crypto), it helps to treat idle cash with the same discipline between rebalances. You can park cash in Hexn yield deposits with regular payouts, so money doesn’t sit dead while your plan does its job.