What Is Withholding Tax?

According to the German Income Tax Act (EStG), withholding tax is a tax on capital gains such as interest or dividends. It is deducted directly at the source of payment – typically by the bank in the country where the income originates – and is transferred to the relevant tax authority.

Withholding tax is generally levied by the country where the income is generated, known as the “source country.” The withholding tax rate varies depending on the country and type of income. Many countries have bilateral agreements in place to avoid double taxation and determine which country has the right to tax the income.

Within the EU member states, the taxation of interest income is largely harmonized. However, there are still differences, as some countries levy a withholding tax that varies in amount. Each source country sets its own withholding tax rate.

How High Is the Withholding Tax on Fixed-Term and Overnight Deposits?

For fixed-term or overnight deposits held abroad, a withholding tax of 0.00% to 35.00% may apply, depending on the tax laws of the respective country. The table below provides an overview of withholding tax rates by EU country:

How Is Withholding Tax Calculated?

The calculation of withholding tax depends on several factors, including the country where the income is generated and the applicable tax regulations. Some countries have signed double taxation agreements (DTAs) to ensure that income is not taxed twice. Under these agreements, the withholding tax may be reduced or even set to 0.00%.

Who Is Liable for Withholding Tax?

Any individual or legal entity receiving capital income—such as interest or dividends—is subject to withholding tax if the respective country applies such a deduction. In addition to foreign withholding tax, Germany imposes a capital gains tax on domestic earnings. As a result, foreign interest income may be subject to double taxation in some cases.

Capital Gains Tax and Withholding Tax: Avoiding Double Taxation

The simplest way to avoid double taxation is to invest in countries with no withholding tax on interest products. These include Finland, Estonia, France, Ireland, Italy, Luxembourg, Malta, Norway, and Sweden. For fixed-term or overnight deposits in these countries, no documentation is required. You can find our partner banks in these countries here:

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Refund: Can Withholding Tax Be Reclaimed?

In some countries, investors cannot completely avoid withholding tax, but under certain conditions, they may be able to reclaim it. A refund of the withholding tax is possible if a double taxation agreement (DTA) exists between the source country and Germany.

Germany has concluded double taxation agreements with over 80 countries. These agreements determine how much of the foreign withholding tax can be credited against German capital gains tax. Under the DTA, a maximum of 15.00% of the paid withholding tax is creditable in Germany. If the withholding tax exceeds 15.00%, a refund of the difference can be requested from the relevant foreign tax authority.

Documents for a Reduced Withholding Tax Rate

Certificate of Residence Germany: Why Is It Required?

Due to legal requirements in the respective countries, some banks are obligated to request a certificate of residence in order to apply a reduced withholding tax rate. This certificate, in line with a double taxation agreement, confirms your tax residency in Germany and must be issued by the competent tax authority.

At Allianz, we always strive to make the process as easy as possible for you and will provide all necessary documents in advance in the Postbox of your online banking account.

Sample

Can I Submit a Tax Exemption Order or a Non-Assessment Certificate?

A tax exemption order is a request that German bank customers can submit to their bank or financial institution. This allows interest income up to a tax-free allowance of €1,000 per person or €2,000 (as of 2025) per married couple or registered partnership to remain untaxed by the tax office. A non-assessment certificate (NV-Bescheinigung), on the other hand, is issued by the tax office and confirms that the income level is below the basic tax allowance, and therefore no income tax is due.

For withholding tax on interest from foreign fixed-term and overnight deposit accounts, it is generally not possible to submit a tax exemption order or NV certificate to the foreign bank. However, with Allianz, investors can make use of these allowances even with foreign partner banks operating under a fiduciary model. Further information on the required documents is available in our help center.

Withholding Tax on Foreign Stocks

Those investing in foreign stocks may receive dividend payouts, or earnings may be reinvested (accumulated). Withholding tax can also apply to dividends from shares.

Since the 2018 Investment Tax Reform, foreign withholding tax is no longer credited against the German capital gains tax for funds. Instead, investors receive a partial exemption, which is 30.00% for equity funds. The fund company is responsible for claiming back the withholding tax and typically reinvests the recovered amount.

With interest from bonds, withholding tax may also apply. It is remitted by the investor’s custodian bank to the foreign country’s tax authority if no double taxation agreement exists. Additionally, the custodian bank forwards taxes under the German capital gains tax regime to the German tax office, unless an NV certificate or tax exemption order has been submitted—or if the exemption amount has already been exceeded.

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Note: The content on this page is for general informational purposes only and does not constitute tax advice. For detailed information or personalized clarification of tax matters, we recommend consulting a tax advisor or another person qualified under § 2 StBerG.