German Vorabpauschale 2026: The Annual Pre-Tax on ETFs
Germany's Vorabpauschale is a deemed annual distribution applied to accumulating ETFs. For 2026, the base rate is 3.20%. Here is the exact calculation, the tax you actually pay, and how to use your Freistellungsauftrag to offset it.
Why the Vorabpauschale exists
Before 2018, German investors in accumulating ETFs paid no annual tax — gains compounded tax-free until they sold. Distributing ETFs, by contrast, were taxed on dividends every year. This created a structural advantage for accumulating ETFs that parliament decided was unfair.
The Vorabpauschale (literally "advance lump sum") was introduced in the Investment Tax Reform of 2018 to level the playing field. It is a deemed annual distribution — a notional amount of income that the German tax authority treats as having been earned by an accumulating fund, even though no cash was paid out.
How the 2026 Vorabpauschale is calculated
The calculation has three steps. The German Ministry of Finance (BMF) publishes the base rate (Basiszins) each January for the prior year. For 2026, the base rate is 3.20% (compared to 2.53% for 2025).
Church members (Kirchensteuer 8–9%) owe slightly more. Without Freistellungsauftrag already used up, this €41.35 is offset automatically. Scale linearly: €100,000 position ≈ €413.50 tax.
The Freistellungsauftrag: your €1,000 exemption
Every German taxpayer can exempt up to €1,000 per year in investment income from tax (€2,000 for married couples filing jointly). This is the Freistellungsauftrag (FSA) — a standing order filed with your broker that instructs them to hold back the flat tax until this exemption is used up.
The Vorabpauschale counts against your FSA first. Dividends, interest, and realised gains use whatever FSA remains. If your total investment income (including Vorabpauschale) stays below €1,000, you pay no Abgeltungsteuer at all that year.
What actually happens in January
In January, your German broker calculates the Vorabpauschale for each accumulating ETF you held throughout the prior year. They deduct the tax automatically from your cash balance. If your cash balance is insufficient, they may sell a small number of ETF units to cover it.
You will see a line item in your broker's tax document (Jahressteuerbescheinigung) for the Vorabpauschale. This document is important — keep it, because you will need the Vorabpauschale amounts to calculate your adjusted cost basis when you eventually sell.
Teilfreistellung rates by fund type
The 30% partial exemption shown above applies to equity ETFs (≥51% equity). Other fund types have different rates:
| Fund type | Teilfreistellung | Examples |
|---|---|---|
| Equity fund (≥51% equities) | 30% | VWCE, IWDA, CSPX, IMEU |
| Mixed fund (25–50% equities) | 15% | Balanced funds |
| Real estate fund (≥51% property) | 60% | REIT ETFs |
| Bond / money market fund | 0% | AGGH, IBGS |
Historical base rates
| Tax year | Basiszins | Vorabpauschale per €10k (equity ETF) |
|---|---|---|
| 2019 | 0.52% | ~€2.55 tax |
| 2020 | 0.07% | ~€0.34 tax |
| 2021 | −0.45% | None (negative rate) |
| 2022 | 0.25% | ~€1.23 tax |
| 2023 | 2.55% | ~€33 tax |
| 2024 | 2.29% | ~€30 tax |
| 2025 | 2.53% | ~€33 tax |
| 2026 ← current | 3.20% | ~€41 tax |
2021 had a negative base rate, so no Vorabpauschale was owed. 2022 was the last year of low rates before ECB tightening pushed them up. 2026 is the highest in the modern Vorabpauschale era.
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Enter your fund value, type, and Freistellungsauftrag to calculate your exact 2026 VP tax — including Teilfreistellung.