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The amount of advance tax for your ETF

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In summary:

If your ETFs or funds in 2023 profits to achieve this, you must Pay taxes, based on the Advance payment. This depends on the current interest rate level. In recent years, the advance lump sum tax was zero due to low interest rates. This has now changed: Your brokerage firm will automatically deduct the tax from your account at the beginning of January 2024. The tax will also be due at the beginning of 2025, although the maximum amount will be slightly lower than in 2024.

If your ETF generates profits and you sell it, taxes are due. However, even while your ETF is held in your portfolio, an advance lump-sum tax is payable once a year. This guide explains the background of this tax and how high the tax burden is expected to be for 2023.

1. Introduction to the advance lump sum: What exactly is it?

The advance payment is a Tax levied on profits This is the amount of profit your funds and ETFs have generated over the course of a year. At the beginning of the following year, you must pay tax on a portion of these profits. The amount of the advance lump sum serves as a guideline. Basis for calculating this tax.

The exact amount of the advance payment depends on the base interest rate, The advance lump sum is set by the Finance Ministry at the beginning of the year and is derived from the yields of German government bonds. In recent years, when the base interest rate was close to zero or even negative, the advance lump sum was correspondingly zero. In such cases, no tax payment was required at the beginning of the year, even if the ETFs had generated profits in the previous year.

Advance lump sum 2023

For the year 2023, the base interest rate due to several interest rate hikes by the European Central Bank 2.55 percent This means that an advance lump sum tax will be due this year if your ETFs have generated profits. For an equity ETF, the advance lump sum tax is a maximum of just under €180 for every €10,000 of fund volume.

It is important to note that the The advance lump sum itself is not the tax. This is not the amount you pay, but rather the basis for calculating the 25 percent withholding tax. The solidarity surcharge and, if applicable, church tax are added on top. For ETFs/funds that primarily invest in stocks, 30 percent of the advance lump sum is tax-free (partial exemption). This means the maximum tax on the advance lump sum for 2023 is approximately €36 per €10,000 of fund volume.

If the actual returns from your ETFs are lower than the advance lump sum, you only pay tax on the actual return. If the ETFs haven't made a return, no tax is due at all.

Your brokerage firm will calculate and deduct the tax, but you must ensure that there are sufficient funds in your settlement account at the beginning of the year. Alternatively, you can set up a tax exemption order to avoid automatic tax deduction.

Advance lump sum 2024

The advance lump sum payment for 2024 is due in January 2025, based on the base interest rate set at the beginning of the year. If adjusted, this rate for 2024 is [amount missing]. 2.29 percent. The maximum tax on the advance lump sum is then expected to be around 31.50 euros per 10,000 euros of fund volume.

2. When is the advance payment due and how can you pay it?

The advance lump sum will each January of the following year The tax is due. For the year 2023, you must therefore pay the tax in January 2024. Your brokerage firm will automatically deduct the tax from your settlement account, usually in the first few weeks of January. It is advisable to deposit sufficient funds into your settlement account in good time.

Alternatively, you can also set up a tax exemption order for 2024. You can apply for this even during the current year. Many brokerage firms offer the option of submitting the tax exemption order easily online. Make sure that you do not exceed the maximum amount of €1,000 (€2,000 for married couples) in total if you submit tax exemption orders to different banks.

What happens if there are insufficient funds in the account?

If the account does not have sufficient funds to debit the advance lump sum, the procedures of the securities account providers vary. Some providers allow a negative balance and ask you to settle it immediately. additional overdraft interest Other providers report the unpaid amount directly to the tax authorities. In this case, the advance lump sum will be credited against your 2024 tax return, which you must submit by 2025. This obligates you to file a corresponding declaration.

For brokers located abroad who do not communicate with German tax authorities, you are responsible for the correct taxation of the advance lump sum in your 2024 tax return. All brokerage providers recommended by Finanztip are German companies and automatically comply with German tax regulations.

3. ETF recommendations: Share prices at the beginning of 2023

The ETFs we recommend for equity and money market instruments were analyzed to determine their share prices at the beginning of 2023. These values are listed in the attached table.

Key factors for ETF recommendations

Equity ETF
ETF	ISIN	Share price at the beginning of 2023 in euros	What does the fund/ETF invest in?
Amundi MSCI World III ETF	LU2572257124	72,463¹⁾	Equity fund (> 50 % stocks)
Amundi Index MSCI World ETF DR	LU1737652237	68,338	Equity fund (> 50 % stocks)
Amundi MSCI World ETF (C)	LU1681043599	377,500	Equity fund (> 50 % stocks)
HSBC MSCI World ETF	IE00B4X9L533	25,347	Equity fund (> 50 % stocks)
Invesco MSCI World ETF Acc	IE00B60SX394	74,339	Equity fund (> 50 % stocks)
iShares Core MSCI World ETF (Acc)	IE00B4L5Y983	69,369	Equity fund (> 50 % stocks)
iShares MSCI World ETF (Dist)	IE00B0M62Q58	52,441	Equity fund (> 50 % stocks)
iShares MSCI ACWI ETF (Acc)	IE00B6R52259	58,600	Equity fund (> 50 % stocks)
iShares Dow Jones Global Sustainability Screened ETF (Acc)	IE00B57X3V84	49,531	Equity fund (> 50 % stocks)
Lyxor MSCI World ETF Dist	FR0010315770	241,233	Equity fund (> 50 % stocks)
Lyxor MSCI All Country World ETF	LU1829220216	331,666	Equity fund (> 50 % stocks)
SPDR MSCI ACWI ETF	IE00B44Z5B48	155,722	Equity fund (> 50 % stocks)
UBS MSCI World ETF A-dis	IE00B7KQ7B66	61,984	Equity fund (> 50 % stocks)
UBS MSCI World ETF A-acc	IE00BD4TXV59	21,539	Equity fund (> 50 % stocks)
UBS MSCI World Socially Responsible ETF A-acc	LU0950674332	20,988	Equity fund (> 50 % stocks)
UBS MSCI World Socially Responsible ETF A-dis	LU0629459743	107,722	Equity fund (> 50 % stocks)
Vanguard FTSE Developed World ETF	IE00BKX55T58	71,503	Equity fund (> 50 % stocks)
Vanguard FTSE Developed World ETF Acc	IE00BK5BQV03	71,244	Equity fund (> 50 % stocks)
Vanguard FTSE All-World ETF Distributing	IE00B3RBWM25	94,214	Equity fund (> 50 % stocks)
Vanguard FTSE All-World ETF Accumulating	IE00BK5BQT80	91,846	Equity fund (> 50 % stocks)
Xtrackers MSCI World ETF 1C	IE00BJ0KDQ92	75,837	Equity fund (> 50 % stocks)
Xtrackers MSCI World Swap ETF 1D	LU2263803533	15,043	Equity fund (> 50 % stocks)
Xtrackers MSCI World Swap ETF 1C	LU0274208692	74,635	Equity fund (> 50 % stocks)
Xtrackers MSCI World ETF 1D	IE00BK1PV551	66,141	Equity fund (> 50 % stocks)
Money market ETFs
ETF	ISIN	Share price at the beginning of 2023 in euros	What does the fund/ETF invest in?
Deka Deutsche Börse EUROGOV Germany Money Market ETF	DE000ETFL227	68,392	Other funds (< 25 % shares)
iShares eb.rexx Government Germany 0-1yr ETF	DE000A0Q4RZ9	72,664	Other funds (< 25 % shares)
Lyxor Euro Overnight Return ETF Acc	FR0010510800	103,150	Other funds (< 25 % shares)
Xtrackers EUR Overnight Rate Swap ETF 1C	LU0290358497	135,135	Other funds (< 25 % shares)
Xtrackers EUR Overnight Rate Swap ETF 1D	LU0335044896	126,485	Other funds (< 25 % shares)

4. How is the advance lump sum calculated? A look at the exact calculation method for investment funds.

The advance lump sum for investment funds is determined by several factors, which are explained below.

Calculation of the basic yield

To determine the advance lump sum, the fund provider first calculates the basic return. This is calculated as follows:

$Basic yield$ $=$ $Value of the fund units as of January 1st of the tax year$ $\times$ $base interest rate$ $\times$ $0$ $,$ $7$

For the 2023 tax year, the base interest rate is 2.55 %. This value can be taken directly from the Bundesbank's time series, specifically for federal securities with a remaining term of 15 years and annual coupon payments.

Example for calculating the advance lump sum

Case of a large increase in value:

Value of the fund units on January 1, 2023: €10,000
Value of the fund units on January 1, 2024: €10,500
Increase in value: €500

$Basic yield$ $=$ $10.000$ $€$ $\times$ $2$ $,$ $55%$ $\times$ $0$ $,$ $7$ $=$ $178$ $,$ $50$ $€$

Since the basic return (€178.50) is less than the actual increase in value of the fund units (€500), the taxable advance lump sum is also €178.50.

Case of a small increase in value:

Value of the fund units on January 1, 2023: €10,000
Value of the fund units on January 1, 2024: €10,100
Increase in value: €100

$Basic yield$ $=$ $10.000$ $€$ $\times$ $2$ $,$ $55%$ $\times$ $0$ $,$ $7$ $=$ $178$ $,$ $50$ $€$

Since the basic return (€178.50) is greater than the increase in value of the fund units (€100), the taxable advance lump sum is €100.

Advance lump sum payment for distributing funds

For distributing funds, the advance lump sum is calculated slightly differently. In addition to the basic income, dividend income is also taken into account. This is credited against the advance lump sum, whereby in the case of higher dividend income, only the higher amount is taxed.

Advance payment for the savings plan

If investors purchase a fund unit during the year or regularly save via a savings plan, the advance lump sum is calculated proportionally. For each full month prior to the purchase date, the lump sum is reduced by one-twelfth.

These calculation methods ensure that the advance lump sum is determined fairly and transparently based on the performance of the fund units, for both accumulating and distributing funds.

5. How much tax do you have to pay on the advance lump sum?

The advance lump-sum tax is subject to partial exemption, depending on the type of fund. For equity funds, the partial exemption is 30 percent, while for mixed funds (with at least 25 percent equity exposure) it is 15 percent. This regulation replaces the previous practice under which investors could credit portions of the withholding tax on dividends against the final withholding tax.

Example of a stock ETF:

Let's take the previously described example of a stock ETF:

Value of the fund units on January 1, 2023: €10,000
Value of the fund units on January 1, 2024: €10,500
Increase in value: €500
Base yield: €178.50 (calculated as €10,000 x 2.55 % x 0.7)

Since the basic return (€178.50) is lower than the increase in value of the fund units (€500), the advance lump sum to be taxed is also €178.50.

However, the withholding tax including the solidarity surcharge is only levied on 70 percent of the advance lump sum, corresponding to the partial exemption of 30 percent.

$178$ $,$ $50$ $€$ $\times$ $0$ $,$ $7$ $=$ $124$ $,$ $95$ $€$

Tax amount for the example:

For a portfolio value of €10,000 at the beginning of the year, this results in:

Without church tax: €32.96
Including church tax in Bavaria or Baden-Württemberg: €34.76
Including church tax in other countries: €34.97

These amounts show how much withholding tax is due on the advance lump sum. It is important to take this amount into account when allocating the tax exemption.

The framework conditions for 2024 are also known, so investors can plan early on how much tax they expect to have to pay.