Taxing investment income in Germany, Austria and Switzerland

The Abgeltungsteuer under § 32d EStG is a schedular tax: 25%, whether you make EUR 500 or EUR 500,000. On top sits a solidarity surcharge of 5.5% levied on the tax itself rather than on the income, which produces the familiar 26.375%. Church members pay more, but less than simple addition suggests, because church tax is baked into the calculation as a deduction: the combined burden works out at roughly 27.99% at a 9% church rate and roughly 27.82% at 8%, not the 28.7% a naive sum would give.

The Sparer-Pauschbetrag is EUR 1,000 per person per year, EUR 2,000 for jointly assessed couples. It is not applied automatically. You have to lodge an exemption instruction with each domestic bank, and the total across all of them must not exceed your entitlement. Investors with three accounts who lodge the instruction at only one routinely hand over a few hundred euros a year that they could reclaim only by filing a return.

Losses are where most people go wrong. Under § 20 Abs. 6 EStG your bank runs two separate loss pots. The equity pot takes losses from sales of individual shares only, and those losses can be offset only against gains from sales of individual shares. Everything else — ETFs, funds, bonds, certificates, options — goes into the general pot, which offsets against all income including dividends. So a EUR 5,000 loss on a single share neutralises exactly nothing of your dividend income. Unused losses are carried forward by the bank indefinitely.

The former rule capping the use of derivative losses at EUR 20,000 a year was repealed in the 2024 annual tax act. Details like this move quickly, so check the current position with the Federal Ministry of Finance or the Federal Central Tax Office before any sizeable decision.

Accumulating funds distribute nothing, so without a special rule there would be nothing to tax for decades. Germany solves this with the Vorabpauschale under § 18 InvStG. In plain terms, the tax authority imputes a minimum return, taxes it in January of the following year, and credits it against your gain when you eventually sell. It brings tax forward; it does not add tax.

The calculation has three steps. First the base return: the value of the holding at the start of the year, multiplied by a base rate published annually by the ministry, of which 70% counts. Second the cap: the figure can never exceed the actual increase in value over the year, so in a down year the Vorabpauschale is zero. Third the partial exemption: equity funds holding at least 51% equities have 30% of the amount exempted, mixed funds from 25% equities have 15% exempted.

Worked example. Your accumulating global equity ETF is worth EUR 50,000 on 1 January and rises by EUR 4,000 over the year. Assume a base rate of 2.5% — the exact figure is published each January, so never reuse last year's number. Base return: 50,000 times 2.5% times 0.7 equals EUR 875. The EUR 4,000 rise does not bind the cap. Applying the 30% partial exemption leaves EUR 612.50 taxable. At 26.375% that is EUR 161.55 of tax — assuming your annual allowance is already used up. If it is not, you pay nothing.

The practical trap is mechanical. Your bank debits the amount from the linked cash account in January. If there is no balance there, it may sell holdings or push the account into overdraft. Leave a small cash buffer over the turn of the year.

Austria has two special rates, set out in § 27a EStG. Interest on bank deposits is taxed at 25%; everything else — dividends, realised gains on securities, income from derivatives — at 27.5%. There is no equivalent of the German allowance. The first euro of dividend income is taxable.

The structural difference that matters most is the treatment of losses. An Austrian custodian bank performs an automatic loss offset within the calendar year across all accounts you hold with that institution. At year end it stops: any remaining loss simply expires and cannot be carried forward. An investor sitting in December on EUR 8,000 of unrealised gains and EUR 8,000 of unrealised losses has a concrete reason to realise both in the same year — a EUR 2,200 difference. Pushing one into January throws it away.

Accounts at different Austrian banks are not offset against each other; you recover that through your return. Anyone who finds the flat rate unfavourable can elect ordinary progressive taxation instead, which is worth it only at very low total income and then applies compulsorily to all investment income, not selectively.

The expensive corner is funds without an Austrian tax representative, so-called non-reporting funds. Because the deemed distributed income is never reported, the law imputes it: 90% of the increase in value over the year, but at least 10% of the year-end value. For a fund worth EUR 40,000 that went sideways, the floor produces EUR 4,000 of imputed income and EUR 1,100 of tax on a year in which you earned nothing. Check the reporting-fund status before buying; most ETFs marketed in Austria qualify, many US-domiciled funds do not. Current lists sit with the Austrian Ministry of Finance.

For private investors, gains on movable assets are tax free. This is not a loophole but a design choice, and it cuts both ways: because gains are not taxed, losses are not deductible either. What is taxable is the income — dividends and interest — as ordinary income at your combined federal, cantonal and communal marginal rate. On top comes wealth tax on the year-end portfolio value, again cantonal and typically in the range of a few tenths of a percent.

The exemption comes with conditions. The federal tax administration tests whether someone qualifies as a professional securities dealer, in which case gains become income and social security contributions apply too. You are on safe ground if you meet all of the criteria: a holding period of at least six months on the securities sold, annual turnover no greater than five times the portfolio value at the start of the year, capital gains below 50% of net income, no debt financing of the positions, and derivatives used only for hedging. Active traders should take this test seriously and consider seeking a ruling from their canton before a large year closes.

Swiss dividends and interest suffer 35% withholding tax at source — the highest rate in the region. For residents this is not a loss but a forced loan: you declare the income in the securities schedule of your return and the 35% is refunded or credited. Fail to declare it and the money is simply gone. The rules sit in the withholding tax act and the practical forms with the federal tax administration.

Before any domestic tax applies, the company's home country has usually taken its cut. The United States withholds 30% on dividends by default; with a valid W-8BEN, which any serious broker collects at onboarding and renews every three years, residents of Germany, Austria and Switzerland drop to the 15% treaty rate. That 15% is then credited at home: a German bank deducts it directly from the Abgeltungsteuer so your total stays at 26.375% rather than 41.375%. Austria credits it against the 27.5% in the same way, and Switzerland handles it through the DA-1 form in the annual return.

Miss the form, or hold the account with a broker that does not process the credit, and you pay twice. On EUR 3,000 of US dividends a year, 15% of uncredited withholding is EUR 450 — every year, permanently.

A related mechanism explains why nearly every ETF relevant to DACH investors is domiciled in Ireland. Ireland has a US treaty that reduces the withholding tax the fund itself suffers on US dividends to 15%. An otherwise identical fund domiciled somewhere without that treaty loses 30%. At a US dividend yield of 1.5%, that gap is 0.225 percentage points of return a year, lost before any fee is charged — more than the total expense ratio of many index funds. Ireland itself levies no withholding tax on distributions to non-residents.

Suppose you realise EUR 10,000 of gains in a year and receive EUR 2,000 of dividends from domestic holdings. No losses, no church tax, allowance unused.

The Swiss figure looks dramatically better and is still misleading. First, the marginal rate is an assumption — it varies enormously by canton, commune and income level, and at high incomes it can comfortably exceed Austria's 27.5%. Second, wealth tax is missing from the line: on a EUR 300,000 portfolio at an assumed 0.3%, add EUR 900, payable whether the portfolio rose or fell. Third, the picture inverts as soon as returns come mostly from income rather than appreciation. Switzerland rewards accumulating growth assets and penalises dividend strategies; Germany and Austria treat both identically.

The biggest practical difference is not the rate but who does the work. A domestic bank in Germany or Austria withholds the tax, offsets losses, credits foreign withholding tax and sends you a finished annual tax certificate. A foreign broker — even an excellently regulated one — does none of that. You get an activity statement and file it yourself.

In Germany that means the Anlage KAP with every transaction; in Austria the E1kv schedule. Both are perfectly doable, but they cost either your time or an accountant's fee, and you handle loss offsetting yourself. Set that against the saving: if the cheaper broker saves you EUR 200 a year in fees while your accountant charges EUR 250 for the extra schedule, the move lost money. On a large portfolio with heavy turnover the arithmetic flips quickly the other way.

For Swiss investors the point is softer, because nothing is withheld at source anyway and the securities schedule has to be completed regardless. What matters there is whether the broker produces a usable tax report in a Swiss-friendly format.

1. 1Review your exemption instructions. In Germany, spread them across every bank where you expect income, up to EUR 1,000 per person in total.
2. 2Keep the W-8BEN current. It lapses after three years, and a lapsed form costs you 15 percentage points on every US dividend.
3. 3Look at your loss pots before year end. In Austria they expire on 31 December; in Germany they do not, so the urgency is completely different.
4. 4Check a fund's domicile before buying, and in Austria its reporting-fund status.
5. 5Keep cash in the German settlement account over January so the Vorabpauschale does not force an overdraft.
6. 6In Switzerland, test your actual trading behaviour against the professional-dealer criteria before the year closes, not after.

Tax rules in all three countries change annually, and allowances, base rates and reporting-fund lists are reset regularly. Verify the current position with the relevant authority before acting, and take professional advice on larger amounts.

This article is information only. It is not investment, legal or tax advice.