What is the advance flat rate?

At the beginning of January 2019, the German tax authorities charged investment savers an advance lump sum for the first time for the year 2018. This was used to tax income from accumulating and partially accumulating funds. The advance lump sum is, economically speaking, a pre-taxation of future capital gains. Therefore, it is deducted from the actual capital gain when the fund shares are sold.

The advance lump sum is not based on the actual profits but is calculated using a specific formula. The advance lump sum amounts to 70 per cent of the annual base interest rate of the Bundesbank multiplied by the value of the fund share at the beginning of the year (so-called base return). The base return is limited to the excess amount that results between the first and last redemption price plus distributions. If no redemption price is set, the stock exchange or market price applies instead.

For the year 2020, the BMF announced a base interest rate of 0.07 per cent, which the Deutsche Bundesbank calculated on 2.1.2020 based on the yield curve data. 70 per cent of the base interest rate is 0.049 per cent. The withholding tax of 25 per cent plus solidarity surcharge and, if applicable, church tax is then applied to this. And this amount is to be taxed as an advance lump sum. However, the - fictitious - inflow only occurred in the following year, specifically on 4.1.2021. The inflow regulation results from the legal provision of § 18 para. 3 InvStG (BMF letter of 29.1.2020, BStBl 2020 I p. 218).

Currently, the following applies to the advance lump sum for the year 2023:

• The base interest rate on 2.1.2023 is 2.55 per cent. 70% of the base interest rate is 1.785 per cent. The withholding tax of 25 per cent plus, if applicable, solidarity surcharge and church tax is then applied to this.
• The advance lump sum is deemed to have been received by the investor on the first working day of the following year, i.e. on 2.1.2024 (BMF letter of 4.1.2023, IV C 1-S 1980-1/19/10038:007).