Financial Terms Glossary
The most important financial terms - with simple and concise explanations.
Withholding tax
Withholding tax is a tax that is deducted directly at the “source” of the payment and transferred by the paying institution – such as a bank or an employer – to the relevant tax authority.
In a financial context, “withholding tax” often refers to capital yield tax, which is part of the final withholding tax in Germany. It applies to investment income such as interest or dividends. The current rate is 25%, plus solidarity surcharge and, if applicable, church tax. The bank automatically deducts this, unless an exemption order or a valid Non-assessment certificate (NV-Bescheinigung) is on file.
For funds and ETFs, withholding tax is generally not relevant for investors. If a fund includes foreign-source income, the tax treatment is usually handled via the so-called partial exemption, which is automatically applied by the custodian bank.