Increase in value of shares | Base income

Value at 01.01.: EUR 20,000 Value at 31.12.: EUR 25,000 increase in value thus EUR 5,000 | Value of the shares at 01.01. (EUR 20,000) x Base interest 2.5% x 70% (§ 18 (1) sentence 2 InvStG) Base income thus EUR 357.00

Investors who invest their money in funds and here in particular in ETFs can sometimes find the item “preliminary allowance” on their annual tax certificate of the bank. This advance lump sum represents a capital gain within the meaning of § 20 EStG and is therefore also subject to the 25% withholding tax according to § 32d EStG. But what is actually behind the somewhat cryptic name and how is the calculation of advance packages done?

Determination of Fund income: The principles of the InvStG

With the advance lump sum, the legislator wants to tax the current income of mutual funds – in practice, these are in particular Exchange Traded Funds, ETFs for short (§ 18 InvStG). Without calculating and taxing an advance lump sum, the Treasury would have no right to tax the “final” income from the fund until the sale of the respective fund shares by the investor.

The reason for this is the establishment of a thesaurating fund. If, for example, it has a value of EUR 100,000 at the beginning of the year and a value of EUR 150,000 at the end of the year, EUR 50,000 in profits were achieved in the “fund envelope”. However, if there is no distribution to the investor, but the fund invests the profits directly in further shares (such as shares), there is no taxation right according to § 20 EStG, which is based on the inflow principle of § 11 EStG.

The state can only access the profits “stored” in the ETF if the investor sells his fund shares. The purpose of the advance lump sum is to circumvent this fiscal disadvantage by taxing profits on an ongoing basis and independently of the sale of shares.

2nd calculation of the advance fee under investment tax law

In § 16 (1) no. 2 InvStG, the legislature determines that advance packages within the meaning of § 18 InvStG belong to the investment income. At the same time, § 20 (1) no. 3 EStG refers to the relevant standards of the Investment Tax Act and subordinates investment income to income from capital assets. § 32d EStG including the savings lump sum thus also applies to the advance lump sum.

2.1 Principle: Approach to Increase in Value

The advance fee is calculated in principle from the increase in the value of the respective fund shares between 01.01. and 31.12. of a calendar year.

Example: The shares in an ETF are worth EUR 30,000 on 01.01.2024. On 31.12.2023 its value is EUR 50,000.

The result is an advance lump sum of EUR 20,000, which is subject to taxation pursuant to § 20 (1) no. 3 EStG.

2.2 Exception: taxation of the base income

When calculating the advance fee, a comparison between the increase in value on the one hand and the so-called base income on the other hand has to be made. Taxation is always subject to the lower value.

§ 18 InvStG specifies the formula with which the advance fee for the respective year is to be calculated. It reads:

advance lump sum = basic income of the investment fund in the calendar year – distributions from the fund in the calendar year

The base yield is again calculated using the following formula:

Base income of the investment fund = value of shares at 01.01. of the calendar year x interest according to § 18 paragraph 4 InvStG x 70%

The interest rate according to § 18 paragraph 4 InvStG corresponds to the long-term yield of public bonds on 1.1. of a year, specifically over a period of 15 years. The BMF publishes the corresponding values at the beginning of the respective year; in calendar year 2023, for example, the applicable interest rate was 2,55 %.

2.3. Example: comparative calculation for the determination of the advance fee

Let us now calculate the advance fee based on an example in order to present the completely abstract regulations of the InvStG in a more tangible way.

We assume a classic investment fund that invests in corporations worldwide and does not distribute income to investors. The fund shares had a value of EUR 20,000 at the beginning of the year, at the end of the year their value was EUR 25,000. As an interest rate, we use the value of 2.5% for the year 2023.

According to § 18 (1) sentence 3 InvStG, the lower value of EUR 357.00 is used. It must be subject to taxation pursuant to § 20 EStG as an advance lump sum.

3rd partial exemption of the advance fee for certain investors

Investment income does not in principle constitute profits within the meaning of § 3 no. 40 EStG and § 8b KStG. The reason for this is that investment tax law with the so-called partial exemption knows an independent tax exemption norm. It also applies to advance packages and, depending on the investor, exempts a large part of the investment income from taxation.

Tax exempt according to § 20 (1) sentence 1 and 2 InvStG