Vorabpauschale 2026: what your bank debits in January and why

In the first weeks of January, German custodian banks debit tax on the Vorabpauschale for 2025. The Vorabpauschale is a notional minimum income that the tax office assumes an investment fund has paid out, whether or not it did. For 2025 it is 1.771 per cent of the fund's value at the start of 2025, capped at the fund's actual gain for the year. On EUR 100,000 in an accumulating equity ETF the tax comes to EUR 326.97 at most, and it is taken from the cash account, not from the fund.

It is a prepayment on the tax due at a later sale, not an additional tax. The practical risks are an empty cash account and a statement nobody checks.

Where the 1.771 per cent comes from

Section 18 of the Investment Tax Act (InvStG) defines the calculation. The starting point is the base rate (Basiszins), which the Bundesbank derives from the yield on long-dated federal bonds on the first trading day of the year and the Federal Ministry of Finance publishes. For 2025 the ministry announced 2.53 per cent in its letter of 10 January 2025.

The law takes 70 per cent of that rate and multiplies it by the redemption price of the fund unit at the beginning of the year. That is the base income (Basisertrag): 2.53 % × 0.7 = 1.771 % of the value on the first day of 2025.

Three rules then reduce it.

1. Distributions count against it. The Vorabpauschale is only the amount by which the fund's distributions in the year fall short of the base income. A distributing fund that paid out more than 1.771 per cent produces none.
2. It cannot exceed the gain. The amount is capped at the increase between the first and the last redemption price of the year, plus distributions. A fund that ended 2025 below where it started produces none.
3. In the year of purchase it is reduced by one twelfth for each full month before the month of purchase. Units bought in July carry six twelfths.

The Vorabpauschale for 2025 is deemed to have been received on the first working day of the following year, 2 January 2026. That is why it belongs to the tax year 2026 and why it draws on this year's saver's allowance.

A worked example for an accumulating ETF

Say you held 1,000 units of an accumulating global equity ETF throughout 2025. The unit price was EUR 100.00 on the first trading day and EUR 107.00 on the last. The fund distributed nothing.

• Base income: 1,000 × EUR 100.00 × 1.771 % = EUR 1,771.00
• Gain in 2025: EUR 7,000.00, so the cap does not apply
• Vorabpauschale: EUR 1,771.00
• Partial exemption for equity funds, 30 per cent (section 20 InvStG): EUR 531.30 remains tax-free
• Taxable: EUR 1,239.70
• Withholding tax of 25 per cent plus solidarity surcharge of 5.5 per cent on it, together 26.375 per cent: EUR 326.97

Church tax comes on top where it applies. Had the fund risen only to EUR 101.00, the Vorabpauschale would be the gain of EUR 1,000 and the tax EUR 184.63.

The saver's allowance changes the cash amount. With an unused exemption order (Freistellungsauftrag) for EUR 1,000, only EUR 239.70 is taxed and the bank debits EUR 63.22. A married couple with EUR 2,000 pays nothing. The allowance is not saved, though: EUR 1,239.70 of it has been used on 2 January, before a single dividend or interest payment of 2026 has arrived. Investors who split their exemption orders across several banks should give the bank that holds the accumulating funds its share; we covered the allocation in the year-end checklist.

The partial exemption depends on the fund's classification. Equity funds get 30 per cent, mixed funds 15 per cent, real estate funds 60 per cent, and a bond or money-market fund none. A money-market ETF with EUR 100,000 at the start of the year is taxed on the full EUR 1,771, provided it earned at least that.

What the bank debits, and from which account

An accumulating fund pays out no cash from which the bank could withhold. Section 44 (1) of the Income Tax Act therefore allows the bank to take the tax from an account it holds in your name, without your consent. In practice that is the settlement account of the depot. If the balance is insufficient, the bank may use an agreed overdraft on that account unless you objected beforehand. If neither covers the amount, the bank reports the case to the tax office, and the tax is collected through your assessment.

Three consequences follow.

Keep cash on the settlement account in January. A depot of EUR 600,000 in accumulating equity ETFs with no allowance left produces a debit of about EUR 1,960. At brokers where the settlement account normally holds nothing, that becomes an overdraft with debit interest, or a report to the tax office.

The date differs by bank. The income is deemed received on 2 January, but the booking can follow days or weeks later. Do not conclude from a quiet first week that nothing is due.

A depot abroad withholds nothing. If your funds sit with a foreign broker that does not deduct German tax, the Vorabpauschale still exists. You compute it yourself and declare it in Anlage KAP-INV of your return for 2026.

What to check on the statement

The bank's tax statement for the booking shows the calculation per fund. It takes five minutes to check, and errors here tend to repeat every year.

• The number of units and the price at the start of 2025. For savings plans every purchase in 2025 is a tranche of its own, reduced by the twelfths for its month.
• The cap. Compare the fund's first and last price of 2025. For funds that barely rose, or dollar bond funds that lost value in euros, the Vorabpauschale should be small or zero.
• The partial exemption rate. A fund the bank has classified as "other" instead of as an equity fund is taxed on 100 per cent instead of 70.
• How much of the exemption order was used, and whether a loss pot held at the bank was offset first.

Then file the statement. Section 19 InvStG reduces the gain on a later sale by every Vorabpauschale applied during the holding period, so that nothing is taxed twice. A German custodian carries those amounts with the position. After a transfer between banks, and always with a foreign broker, it is worth checking that they arrived, because the proof is yours to give ten or twenty years from now.

What it costs over time

Because it is credited at sale, the Vorabpauschale changes when tax is paid, not how much. The cost is the return you no longer earn on the money paid early. On the example above that is EUR 327 a year on EUR 100,000, or 0.33 per cent of the position, paid years before a sale. For a long-term holder the advantage of an accumulating fund over a distributing one shrinks in years with a high base rate. It does not disappear: a distributing equity fund yielding 1.8 per cent is taxed on just as much.

The base rate for 2026, which decides the debit of January 2027, is taken from the first trading day of this year. The ministry had not yet published it when this article was written; last year the letter was dated 10 January.

This article describes how the rule works and is not tax advice. Your tax adviser decides the individual case, in particular for funds held in business assets, where different exemption rates apply.