Let’s talk about: Investment vs. capital gains tax

3 min 52

Taxes are not a favorable topic. Where does one even start? Did you, for example, know that the government also wants its share of the profits made from the capital market? That’s why it’s even more critical that you take the first step to understand it better. We will try to break the topic down as simply as possible so that you can get the first insight.

What is capital gains tax?

The bulky name capital gains tax refers to the tax due on all income you receive from stock gains and dividends. For the nerds among you or those who want to understand precisely: it is a form of final withholding tax and counts as income tax for individuals.

The good news: since 2009, the capital gains tax percentage has been uniformly regulated. You pay 25% on all income related to the investment profit (note: crypto is not included here but is regulated separately).

How is the capital gains tax calculated?

Capital gains tax: 25%

plus, if applicable

  • Solidarity contribution: 5.5%, depending on the federal state
  • Church tax between: 8%-9%, depending on the federal state

In addition to the aforementioned capital gains tax of 25%, which is levied on all capital gains, there is also the solidarity contribution of 5.5%, depending on your place of residence and federal state. After all, this has now been abolished for most Germans. Please note that you will also have to pay between 8% and 9% church tax depending on your denomination and federal state. This, in turn, is individual. Both the solidarity and the church tax are due on the calculated amount of the capital gains tax.

Example: You have earned a return of 1,000 EUR.

Capital gains tax: 250.00 EUR

+ solidarity contribution: 13,75 EUR 

+ church tax (e.g. 9%): 22.50 EUR

→ The total tax amount is, therefore: 286.25 EUR

This leaves you with around EUR 750 to EUR 713.75, depending on which state you live in and whether you have a religious denomination. 

The highlight: tax allowance?

Even if you have to give away a lot of your earned return at first glance, the state has granted us tax relief on capital gains that you should know about: the tax allowance (or also called “tax lump sum”). 

With the tax allowance, everyone can earn an annual profit from an investment income of 801 EUR without paying tax. For married couples, the tax allowance is as high as EUR 1,602.

This means, for our example, with a return of 1,000 EUR:

1,000 EUR return – 801 EUR tax allowance = 199 EUR to be taxed.

Capital gains tax: 49.75 EUR

+ solidarity contribution: 2.74 EUR

+ church tax (e.g. 9%): 4.48 EUR

→ The tax amount is, therefore: 56.97 EUR

Depending on the federal state and denomination, this leaves between EUR 950.25 and EUR 943.03, and thus up to around EUR 230 more.

What do I have to do for capital gains tax? 

Typically nothing. What you should do, however, is set up an exemption order. Domestic financial institutions and banks automatically deduct capital gains tax when you earn profits. If you already have a custody account, you probably already know the annual statement of your bank.

Foreign financial institutions will do the calculation and listing for you once a year so that you can file that with your tax return. 

At UnitPlus, we also make sure that taxes are paid properly. Our fully regulated partner bank will take care of this calculation, and together we will, of course, provide you with the appropriate annual certificate.

However, you should indicate an exemption order to benefit from the above-mentioned tax allowance. You can also do this very easily in the UnitPlus app, thus benefiting from tax relief.

Conclusion: Investment vs. capital gains tax?

Learning No. 1: You don’t need to worry about doing anything wrong in terms of taxation – in most cases, the payment of tax is organized by banks and brokers so that everything runs automatically and is correctly paid to the tax office.

Learning No. 2: It is worthwhile to set up the exemption order to take the tax allowance with you. With UnitPlus, you can easily enter this in the app and sit back and relax. 

Note: We would like to point out that the above information does not constitute legal or tax advice and cannot replace it. Please consult your tax advisor if you have specific tax questions about your personal situation.

Kerstin Schneider