Upfront Flat Fee for ETFs: Why the Bank Deducts Taxes
You haven't sold anything, and yet the bank is withholding tax. That's the advance lump-sum tax: a flat-rate income that the law attributes to reinvesting funds every year. The fund keeps the money; the law counts it as income in advance.
The advance lump-sum amount is a flat-rate income that the law attributes to fund shares each year, even if the fund does not make any distributions. It is calculated as the fund value as of January 1 multiplied by the base interest rate multiplied by 70 percent, minus any distributions. The base interest rate is 2.53% for 2025 and 3.20% for 2026. For equity funds, 30% of this amount is tax-exempt.
- The advance lump sum is equal to the fund value as of January 1 × the base interest rate × 70 percent, capped at the increase in value and reduced by distributions.
- The base interest rate is 2.53% (2025 advance lump sum) and 3.20% (2026 advance lump sum).
- It is considered to have been received on the first business day of the following year and is then included in the saver's flat-rate deduction for the new year.
- For equity funds, 30% of the advance lump-sum payment is tax-free; for balanced funds, 15%.
- Upon sale, the advance lump-sum amount already recognized reduces the profit.
What is the advance lump sum?
The advance lump-sum is a legally mandated minimum return for investment funds. If a fund distributes less in a year than the amount the law sets as the base return, the difference is still subject to tax. This primarily affects reinvesting ETFs, which retain their earnings within the fund. This rule is set forth in Section 18 of the Investment Income Tax Act (InvStG) and limits how long the tax on undistributed income can be deferred.
The examples on this page apply to fund shares held as part of personal assets.
Reinvesting – A reinvesting fund does not distribute its earnings but reinvests them in the fund. A distributing fund transfers them to your account.
Base Return – The statutory minimum return for a fund year: the redemption price at the beginning of the year multiplied by 70% of the base interest rate. This is the calculation basis used to determine the advance lump-sum payment.
Distributing funds are not exempt either
An advance flat fee applies if the distribution falls short of the base return. If the distribution is sufficient, the advance flat fee is €0.
How is the advance lump sum calculated?
First, the base return; then, the cap; then, the distributions. The base return is the fund’s redemption price at the beginning of the year multiplied by 70% of the base interest rate. If no redemption price is set, the stock exchange or market price is used instead. It is capped at a maximum of the unit’s capital gain during the calendar year plus the distributions. The distributions for the year are deducted from this base return. What remains is the advance lump sum. It never becomes negative.
Anyone who purchases shares later in the year receives the advance lump sum on a pro rata basis: one-twelfth is allocated for each full month prior to the month of purchase (Section 18(2) of the Investment Income Tax Act).
Advance Flat Fee: The Invoice
10,000 € × 2.53% × 70% = 177.10 €. This is the advance lump-sum payment, provided that the share's appreciation in 2025 was at least that high and the fund did not make any distributions.
Sample Calculation: €10,000 in a dividend-reinvesting equity ETF, Year 2025
- Fund value as of January 1, 2025: €10,000; shares held as part of personal assets, purchased before 2025
- Equity funds as defined by the InvStG, 30% partial exemption
- No dividend; the capital gain in 2025 will exceed €177.10
- Tax calculation excluding church tax, including a 25% withholding tax and a 5.5% solidarity surcharge on that amount
| Base return (10,000 € × 2.53% × 70%) | €177.10 |
| Dividends in 2025 | €0 |
| Advance Lump Sum for 2025 | €177.10 |
| 30% partial exemption | − €53.13 |
| Taxable Portion | €123.97 |
| Tax rate when the saver's allowance has been fully used (26.375%) | €32.70 |
| Taxable Portion of the Advance Lump Sum | €123.97 |
The amount is considered to have been received on January 2, 2026. It therefore reduces the 2026 saver’s allowance by €123.97 out of €1,000, which is 12.4%. If a valid tax exemption form is in place, no tax is due.
What will the base interest rate be in 2025 and 2026?
The Federal Ministry of Finance announces the base rate every January. The Bundesbank calculates it based on the yield of a federal bond with a remaining term of 15 years, as measured on the first trading day of the year (Section 18(4) of the Investment Income Tax Act (InvStG)). For 2025, it is 2.53%; for 2026, it is 3.20%.
The advance lump-sum payment for 2026 is therefore higher than that for 2025: For a fund value of €10,000, the amount is €224.00 instead of €177.10.
Base rate and upfront flat fee per €10,000 in fund value
| Year of the Advance Lump Sum | Base Rate | Letter from the Federal Ministry of Finance dated | Advance Lump Sum Before Partial Exemption | Considered to have been received |
|---|---|---|---|---|
| 2025 | 2.53% | 10.01.2025 | €177.10 | January 2, 2026 |
| 2026 | 3.20% | 13.01.2026 | €224.00 | January 4, 2027 |
Calculation: Fund value €10,000 × base interest rate × 70%, excluding distributions and without any cap based on capital appreciation. Source: Section 18 of the Investment Income Tax Act (InvStG); Federal Ministry of Finance (BMF) letters regarding the base interest rate dated January 10, 2025, and January 13, 2026. As of October 2026.
Why does the increase in value cap the advance lump sum?
The advance lump sum can never exceed the actual annual gain on the share. If the price falls, it is 0 €. If a share worth €10,000 increases in value by only €100, the advance lump sum is capped at €100, even if the formula yields €224.00. The decisive factor is the difference between the first and last redemption price of the calendar year, plus any distributions.
The cap applies before distributions are deducted. Therefore, a high distribution can reduce the advance lump sum to €0 without the share price necessarily having to rise.
How does the partial exemption affect the advance lump-sum payment?
The partial exemption allows a portion of the fund’s returns to be tax-free (Section 20 of the Investment Income Tax Act [InvStG]). It also applies to the advance lump-sum payment, since this is considered part of investment income (Section 16(1) of the InvStG). A fund’s category is determined by its investment terms: According to these terms, an equity fund continuously invests more than 50% of its net assets in equity investments, while a mixed fund continuously invests at least 25% (Section 2(6) and (7) of the InvStG). What matters is what the investment conditions stipulate, not the actual proportion at any given point in time. That is why you cannot determine the category from the fact sheet, and why some “equity ETFs” do not qualify for the equity portion exemption.
Equity Funds
30%The portion of income that remains tax-free.
Blended Funds
15%Half of the stock dividend exemption.
Real Estate Funds
60%For funds focused on real estate.
Overseas Real Estate Funds
80%For funds focused on foreign real estate.
If the bank has not granted the partial exemption
If you can demonstrate that the fund actually exceeded the applicable threshold throughout the calendar year, the partial exemption will be applied in the tax assessment upon request.
This entails a reporting requirement: If you later incur losses of more than €500 from the sale of such shares, you must obtain and submit documentation and the redemption prices as of the end of each year for the entire period of ownership.
When does the bank deduct the tax?
The advance lump sum is deemed to have been received on the first business day of the following year (Section 18(3) of the Investment Income Tax Act (InvStG)): the 2025 advance lump sum on January 2, 2026, and the 2026 advance lump sum on January 4, 2027. The domestic financial institution that holds the shares then withholds the capital gains tax (Section 44(1) and (1b) of the Income Tax Act (EStG)). An exemption order based on the official form or a non-assessment certificate prevents the withholding, provided the saver’s flat-rate allowance is sufficient: €1,000; for jointly assessed spouses, €2,000 (Section 44a, Section 20(9) of the German Income Tax Act (EStG)).
From the 2025 Advance Flat Fee to the Debit
- January 1, 2025
The foundation has been laid
The redemption price at the beginning of the year serves as the basis for the calculation.
- Calendar Year 2025
The fund year is underway
Capital appreciation and distributions determine whether the formula is capped or reduced.
- January 2, 2026
Inflow
The 2025 advance lump-sum payment is considered to have been received and is therefore included in the investment income for 2026.
- After that
Tax Deduction
The institution withholds withholding tax on investment income unless an exemption order prevents the withholding.
The tax year and the year of receipt are two different years
The advance lump-sum allowance for 2025 will be applied in 2026. It uses the 2026 saver’s allowance rather than the 2025 allowance. Anyone who reviews their tax exemption form at the turn of the year will therefore see this item in the new year.
If there are insufficient funds in the account to cover the tax, the financial institution may withdraw the amount from an account in your name, provided you have not objected and are not drawing on an agreed-upon overdraft line of credit. If that is not sufficient, the bank will report the matter to the tax office, which will then demand payment of the tax as part of the tax assessment (Section 44(1) of the Income Tax Act (EStG)).
Calculate the Advance Flat Fee Yourself
What is the upfront flat fee for this account balance and this base interest rate?
Model calculation in accordance with Sections 18 and 20 of the Investment Income Tax Act (InvStG) using the entered values. The calculation runs in the browser; no data is transmitted. The actual amount can be found in the documents provided by your financial institution. Base interest rate: 2.53% for 2025, 3.20% for 2026. As of October 2026.
What happens when the shares are sold?
Upon sale, the advance lump-sum allowances applied during the period of ownership are deducted from the gain in full, regardless of the partial exemption (Section 19(1) of the Investment Income Tax Act (InvStG)). This ensures that tax on this portion of the appreciation is not paid twice; it was either paid earlier or offset against the saver’s flat-rate allowance.
Model Calculation: Sale After Several Years
- Equity funds with a 30% partial tax exemption, shares held as part of personal assets
- Purchase price: €10,000, Proceeds from sale: €13,000
- Total advance lump-sum payments recognized during the holding period: 300 €
| Sales proceeds minus acquisition costs | €3,000 |
| minus the estimated advance lump-sum amounts | − €300 |
| Capital gain | €2,700 |
| 30% partial exemption | − €810 |
| Taxable profit before the saver's allowance | €1,890 |
Excluding the offset, the amount is €2,100 (€3,000 minus 30%). The difference of €210 is exactly the portion of the advance lump sums (€300 × 70%) that has already been taxed.
Quick question, quick answer.
Why was money debited from my account?
This is because the advance lump-sum payment is considered investment income, and the domestic financial institution withholds capital gains tax on it. This occurs after the start of the new year, as soon as the advance lump-sum payment is deemed to have been received. With an exemption order covering a sufficient amount, the withholding does not apply.
Do I have to report the advance lump-sum payment on my tax return?
No, if a domestic financial institution has withheld the tax. In that case, the deduction is considered settled (Section 43(5) of the Income Tax Act (EStG)). If the securities account is held abroad, this deduction does not apply, and the amount must be included in the tax return. Upon request, the tax deduction can also be reviewed, for example, if the flat-rate savings allowance has not been fully utilized (Section 32d(4) of the Income Tax Act).
Am I paying double taxes?
No. Upon sale, the pre-determined lump-sum amounts reduce the profit in full (Section 19(1) of the Investment Income Tax Act). The tax on the pre-determined lump-sum amount is therefore an advance payment on the future profit, not an additional item.
Does the advance lump-sum payment also apply to distributing ETFs?
Yes, but only if the distribution falls short of the base return. In that case, the difference is reported. If the distribution is sufficient, the advance lump-sum payment is €0.
How much is the advance lump sum if the fund posted a loss for the year?
It amounts to 0 €. The advance lump sum is capped at the increase in the value of the share during the calendar year plus any distributions and cannot be negative.
What applies in the year of purchase?
The advance lump sum is calculated on a pro rata basis. One-twelfth is applied for each full month prior to the month of purchase (Section 18(2) of the Investment Income Tax Act). Someone who makes a purchase in July has six full months prior to that; the advance lump sum is then six-twelfths.
Sources & Legal Basis
- Advance lump sum – § 18 InvStG (October 2026)
- Gains from the sale of investment shares – § 19 InvStG (October 2026)
- Partial Exemption – § 20 InvStG (October 2026)
- Investment Returns and Fund Categories – § 16 und § 2 Abs. 6, 7 InvStG (October 2026)
- Base Rate as of January 2, 2025 – BMF-Schreiben vom 10.01.2025, IV C 1 - S 1980/00230/009/002 (10.01.2025)
- Base Rate as of January 2, 2026 – BMF-Schreiben vom 13.01.2026, IV C 1 - S 1980/00230/012/001 (13.01.2026)
- Withholding Tax on Investment Fund Income, Waiver – § 43 Abs. 5, § 44 Abs. 1 und 1b, § 44a EStG (October 2026)
- Savings deduction – § 20 Abs. 9 EStG (October 2026)
- Solidarity surcharge – § 4 SolzG 1995 (October 2026)
Change History
- October 8, 2026Post created (draft).
- October 9, 2026Technical review incorporated.
This article is intended to provide general information and does not constitute tax advice for specific cases. For binding information, please contact your local tax office.
Reviewed by expertsSven Schilling
Tax expert- Bachelor of Business Administration (University of Applied Sciences)
- Over 30 years of experience in accounting and tax firms
- Board Member of an Income Tax Assistance Association
Reviewed on October 9, 2026. If there are any changes to the law, this post will be reviewed again.
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