Investors' next scheduled payment due early in 2026
Prepping for 2026: Here's the Lowdown on ETF and Managed Fund Prepayments
Get ready, investors! It's officially confirmed—starting from 2026, prepayments will apply to ETFs and managed funds. Here's the lowdown on what you need to know.
The Deal:
Here's the skinny on the latest decision. As of January 2, 2025, the Bundesbank set a base rate of 2.53 percent. This figure serves as the basis for the prepayment due in 2026, and it's slightly higher than the beginning of 2025's rate of 2.29 percent.
The Math:
The prepayment amount is calculated by taking the fund share value at the beginning of the year and multiplying it by 70 percent of the base rate. This is based on the long-term achievable yield of public bonds. Then, a 25 percent withholding tax is levied on the prepayment, along with a 5.5 percent solidarity surcharge and, if applicable, 8 or 9 percent church tax. The total tax burden caps out at 27.99 percent.
The Fine Print:
If your custodian bank or fund platform is registered in Germany, they'll handle the prepayment calculation and collection. Just make sure there's enough credit on your settlement accounts to cover the debit. In case there isn't, custodian banks can sell fund shares of the equivalent value to settle the prepayment. It's been a rare occurrence so far, but it's worth knowing. If your custodian bank is based overseas, it's on you to ensure the correct taxation of accumulating funds via the KAP attachment.
Avoiding the Prepayment:
You can issue a tax exemption order (worth up to 1,000 euros for singles and 2,000 euros for joint assessment) with the custodian, provided it's not already allocated elsewhere. For equity ETFs, the guideline for tax exemption amounts is 33 euros per 10,000 euros of fund volume. Additionally, the levy isn't imposed on accumulating investment funds with a negative annual result.
The Legal Stuff:
The Investment Tax Act aims to level the playing field between managed funds and ETFs by eliminating the disparity between funds that distribute dividend payments and those that reinvest capital gains ("accumulate"). As a result, a prepayment is levied on accumulating investment funds, which custodians must calculate annually as of January 2. The prepayment is considered taxed on the first banking day of the new year, but it's not an additional levy; it's a prepayment for the withholding tax levied on the sale of fund shares on realized price gains.
Plan ahead for 2026, as personal-finance considerations extend beyond traditional investments. With the introduction of prepayments for ETFs and managed funds, it's essential to factor in the consequences of these finance-related adjustments when planning your investing strategies.
