Teilfreistellung: The Underrated Tax Advantage of Equity ETFs
Since Germany’s 2018 investment tax reform, a flat portion of all returns from equity ETFs stays tax-free — compensating for taxes the fund already pays at source. For an equity fund that’s 30 %, applied to all taxable income: distributions, capital gains on sale and the Vorabpauschale.
What counts is solely the equity quota fixed in the fund’s terms. Knowing the thresholds helps you avoid expensive surprises with mixed, bond and money market products.
The thresholds: 51 %, 25 % — and what falls below
German investment tax law defines three relevant tiers for securities funds. What matters is not what the fund happens to hold, but the minimum equity quota it must maintain continuously under its fund terms:
- Equity funds (at least 51 % equities): 30 % exemption
- Mixed funds (at least 25 % equities): 15 % exemption
- Other funds (below 25 %): 0 % — no exemption
That’s why bond ETFs and money market ETFs come away empty-handed: their income is fully taxed at the 26.375 % flat rate including solidarity surcharge. Synthetic ETFs also qualify as long as the fund terms guarantee the required equity quota — standard practice for mainstream swap-based equity ETFs today.
For completeness: real estate funds have their own rates of 60 % or 80 % (with a foreign focus) — rarely relevant for ETF investors in practice. More important is checking the fund terms of multi-asset products and defensive strategies: there, the codified minimum quota — not the marketing label — decides between 30 %, 15 % or 0 %.
| Fund type | Equity quota per fund terms | Exemption |
|---|---|---|
| Equity ETF (e.g. MSCI World) | min. 51 % | 30 % |
| Mixed / multi-asset ETF | min. 25 % | 15 % |
| Bond ETF | below 25 % | 0 % |
| Money market ETF | below 25 % | 0 % |
Concentration risks, ETF overlap and look-through analysis – free with MoneyPeak.
What the 30 % means in euros
The exemption applies in three places: every distribution, the annual Vorabpauschale and the sale. A worked example: you sell equity ETF units with a €10,000 gain.
- Only 70 % is taxable, i.e. €7,000
- At 26.375 % flat tax incl. surcharge: €1,846
- Without the exemption it would be €2,638 — you save roughly €791
Effectively the tax burden on equity ETF gains drops from 26.375 % to around 18.5 % (before the saver’s allowance). This is also why a money market ETF brings no exemption bonus in an after-tax comparison against savings accounts — and why mixed funds deserve scrutiny: narrowly missing the 51 % threshold forfeits half the exemption.
Note: the exemption also applies to church tax and is handled automatically by German custodian banks. In MoneyPeak you can see which exemption rate applies per position — spotting tax-inefficient building blocks at a glance.
Frequently asked questions
Does the Teilfreistellung also apply to the Vorabpauschale?
Yes. The Vorabpauschale of an equity ETF is reduced by 30 % before taxation, by 15 % for mixed funds. This significantly lowers the annual tax on accumulating ETFs.
Do swap-based ETFs get the exemption?
Yes, provided the fund terms prescribe a continuous equity quota of at least 51 %. Mainstream synthetic equity ETFs from large providers meet this today.
Do I have to apply for the exemption myself?
No. German custodian banks apply it automatically when withholding tax. Only with foreign brokers do you need to declare income correctly via the Anlage KAP tax form.
Concentration risks, ETF overlap and look-through analysis – free with MoneyPeak.