Index Fund Taxation: Strategies to Tax ETFs Without Filing a Tax Return
In Germany, taxation on ETF savings plans follows a similar structure to that of stocks. The profits from selling ETFs are taxed at a flat rate of 25%, along with a 5.5% solidarity surcharge, and church tax if applicable.
Automatic tax withholding is a standard practice by German brokers, including a yearly prepayment known as the "advanced flat rate" on ETF profits. This amount is credited against the tax due upon sale, ensuring that you are not taxed twice.
One key benefit for investors is the annual tax-free allowance of €1,000 for single taxpayers or €2,000 for married couples. This allowance can shield part of your investment income from tax. However, it requires an exemption order to be in place.
It's important to note that losses from the sale of stocks or ETFs can only be offset against gains from other stock market transactions, not against income from employment or other asset classes.
When it comes to tax-efficient strategies, choosing between accumulating and distributing ETFs depends on your saver's allowance usage. If you regularly exhaust your saver's allowance before investing in ETFs, it's advisable to choose an accumulating ETF from the start. On the other hand, a distributing ETF can be tax-efficient if you haven't yet fully exhausted your saver's allowance.
For larger portfolios, accumulating ETFs tend to perform better tax-wise. The partial exemption, which means that you only have to tax 70%, while 30% is tax-exempt, is particularly beneficial in such cases.
However, the partial exemption does not apply to bond and real estate ETFs, and mixed funds with an equity share of less than 25%. People with low income can avoid capital gains tax with a non-assessment certificate or tax optimization.
If you make profits with a broker abroad, you must pay the taxes yourself and file a tax return. The ETF tax calculator can help estimate your tax burden and support financial planning.
In summary, understanding the taxation system for ETF savings plans in Germany is crucial for effective financial planning. By being aware of the tax rates, tax withholding practices, and tax-exempt allowances, investors can make informed decisions about their ETF investments.
Other personal-finance strategies could involve utilizing the saver's allowance effectively when choosing between accumulating and distributing ETFs, as a distributing ETF can be tax-efficient if the saver's allowance has not been fully exhausted. In another aspect of personal-finance, considering a non-assessment certificate or tax optimization can help lower the capital gains tax for people with low income.
