Abgeltungsteuer mechanics in detail: Solidaritätszuschlag, Kirchensteuer, how the bank withholds, FIFO and acquisition costs

What you will learn

• How the 25 percent flat rate, the Solidaritätszuschlag and the Kirchensteuer combine into 26.375 percent, 27.82 percent or 27.99 percent.
• The order in which a German bank processes a payment or a sale before it withholds tax.
• How the FIFO rule and acquisition costs determine the taxable gain of a partial sale.
• What the bank does when it does not know your purchase price (Ersatzbemessungsgrundlage).

Explanation

The basic idea of the Abgeltungsteuer (flat withholding tax on capital income) and the taxation of funds were covered in the course ETFs, Funds & Long-Term Investing. This lesson explains the mechanics behind the numbers on your statement. Everything is general orientation for private investors in Germany as of 2026; check the current rules and, for your own case, a Steuerberater (tax adviser).

The three layers of the rate. The Kapitalertragsteuer (capital-income tax) is 25 percent of the taxable amount. The Solidaritätszuschlag (solidarity surcharge, "Soli") is 5.5 percent of that tax, not of the income: 25 × 0.055 = 1.375 percent. Together: 26.375 percent. The income-tax Soli exemption threshold that applies to wages does not apply to withheld capital-income tax; the bank always withholds the full 5.5 percent.

Kirchensteuer (church tax) is 8 percent of the tax in Bavaria and Baden-Württemberg and 9 percent elsewhere. Because church tax is deductible as a special expense, the law builds the deduction into a reduced flat rate: tax rate = 1 / (4 + church-tax rate). With 9 percent: 1 / 4.09 = 24.45 percent; with 8 percent: 1 / 4.08 = 24.51 percent. Soli and church tax are then charged on this reduced tax. The all-in rates are therefore 27.99 percent (9 percent church tax) and 27.82 percent (8 percent). Banks query your church membership automatically at the Bundeszentralamt für Steuern (BZSt, federal central tax office) once a year.

What the bank does, in order. For every dividend, interest payment, distribution, Vorabpauschale or sale, the German custodian bank (the "auszahlende Stelle", paying agent) runs the same sequence: (1) it calculates the gross income or the gain; (2) it offsets losses from your loss pots (lesson 3); (3) it applies your Freistellungsauftrag (exemption order, lesson 2); (4) it credits creditable foreign withholding tax against the remaining German tax (lesson 7); (5) it withholds 25 percent plus Soli and church tax on what is left and pays it to the tax office under your name. The order matters: an allowance used up by foreign dividends can leave foreign withholding tax uncredited.

Acquisition costs and the FIFO rule. The taxable gain is: sale proceeds minus direct sale costs minus acquisition costs. Acquisition costs are the purchase price plus purchase fees (Anschaffungsnebenkosten). Other running costs such as custody fees or margin interest are not deductible for private investors; the Sparer-Pauschbetrag (saver's allowance) replaces all such expenses. When you sell part of a position bought in several lots, § 20 Abs. 4 EStG (Einkommensteuergesetz, income tax act) prescribes FIFO (first in, first out): the oldest units in that custody account (Depot) count as sold first. FIFO is applied per Depot, so transferring specific lots into a second Depot or sub-account is the accepted way to separate them.

Ersatzbemessungsgrundlage. If the bank does not know your acquisition costs, for example after a transfer from abroad without data, it taxes 30 percent of the sale proceeds as a substitute base. You correct this in the tax return with your purchase documents, so keep them.

Worked example

Hypothetical example: you hold 200 shares of one company in one Depot, bought in two lots. Your Freistellungsauftrag is already used up by other income. Spreads and later price changes are ignored.

You sell 150 shares at €70.00 with a €10.00 fee. Proceeds: 150 × €70 − €10 = €10,490.00.

FIFO cost: all of lot 1 (€4,005.00) plus half of lot 2 (50 × €60 + half of the €5 fee = €3,002.50). Total: €7,007.50.

Taxable gain: €10,490.00 − €7,007.50 = €3,482.50.

Without church tax: tax 25 percent = €870.63; Soli 5.5 percent of €870.63 = €47.88; total €918.51 (26.375 percent).

With 9 percent church tax: tax 24.45 percent = €851.47; Soli €46.83; church tax €76.63; total €974.93 (27.99 percent).

Without purchase data the bank would tax 30 percent of €10,490 = €3,147.00 instead, withholding €830.02, and you would have to prove the real cost in the tax return.

Common mistake

Practice activity

On paper: an investor in Bavaria (8 percent church tax) bought 50 ETF units at €80 (fee €1) and later 50 units at €120 (fee €1), all in one Depot. She sells 60 units at €130 (fee €1). Her allowance is used up. Ignore the Teilfreistellung for this exercise. Calculate the taxable gain and the total tax.

Key takeaways

• The all-in rate is 26.375 percent without church tax, 27.82 percent with 8 percent and 27.99 percent with 9 percent church tax.
• The bank offsets losses, applies the allowance, credits foreign tax and only then withholds.
• Taxable gain = proceeds − sale fees − acquisition costs including purchase fees, with FIFO per custody account.
• Keep purchase records: without them the bank taxes 30 percent of the proceeds.

Next step

Next, lesson 2 shows how to place your Freistellungsauftrag across banks so that the allowance is used where it saves the most.