In early January 2026, many ETF investors in Germany noticed something odd: less money in their settlement account. No transaction they'd made themselves. No bank error. It was the Vorabpauschale (advance lump-sum tax). Roughly 33 EUR per 10,000 EUR in portfolio value, quietly debited with no warning on the statement. A lot of people had no idea why.
If you invest in accumulating ETFs (funds that automatically reinvest dividends instead of paying them out), this hits you every single year. In January, your broker automatically deducts taxes on fictional gains. Fictional, because you never saw that money in your account. It's still sitting inside the fund. The German tax authorities want their share anyway, and they collect it in advance.
The logic behind it is straightforward: without the Vorabpauschale, you could theoretically defer taxes on capital gains for decades simply by never selling. The Investmentsteuergesetz (Investment Tax Act) put an end to that in 2018. Since then, there's an annual minimum tax, regardless of whether you've realized any gains or not.
The Base Rate: Why 2026 Really Stings
The size of the Vorabpauschale depends on the so-called Basiszins (base rate), which the Deutsche Bundesbank derives annually from the yield on long-term German government bonds. In 2021 and 2022, the base rate was exactly 0%. No Vorabpauschale, no tax deduction, no January shock. The ECB's zero-interest-rate policy made that possible.
Then interest rates climbed. In 2023, the base rate jumped to 2.55%. In 2024, it was 2.29%. For the 2025 tax year, due in January 2026, it's 2.53%. Anyone who started investing in ETFs during the zero-rate era might have heard of the Vorabpauschale. But they'd never actually seen it on their own bank statement until 2023.
And the trend is heading upward: for the 2026 tax year, due in January 2027, the base rate rises to 3.20%. The tax burden keeps growing.
How the Vorabpauschale Is Calculated
The formula sounds complicated but it's not rocket science:
Base yield = Portfolio value on January 1 x 2.53% x 0.7
The 0.7 factor is a flat-rate discount. After that, equity funds get a partial exemption (Teilfreistellung): 30% of the base yield is tax-free. On the remainder, you pay capital gains tax plus solidarity surcharge, totaling 26.375%. (Church tax may add to that for some.)
Abstract formulas aren't very helpful. Concrete EUR amounts are.
10,000 EUR in an equity ETF, +10% growth in 2025:
- Base yield: 10,000 x 2.53% x 0.7 = 177.10 EUR
