𝐃𝐢𝐞 𝐓𝐞𝐢𝐥𝐟𝐫𝐞𝐢𝐬𝐭𝐞𝐥𝐥𝐮𝐧𝐠 𝐛𝐞𝐢 𝐄𝐓𝐅𝐬 𝐮𝐧𝐝 𝐀𝐤𝐭𝐢𝐞𝐧𝐟𝐨𝐧𝐝𝐬

All ETF disciples and all-world lovers, listen up: It has come to my attention that some of you are still unaware of the partial exemption for ETFs and mutual funds. We should change that.

tl;dr:

👉🏻 There is 30% tax exemption on income on ETFs.

👉🏻 The whole thing is automatic, at least as far as domestic brokers are concerned (DE).

👉🏻 Scroll down to the two questions below to check if the partial exemption applies to you

***

First and foremost, the 2018 Investment Tax Law reform has changed and simplified some things. I think most of you know about the final withholding tax of 25% + Soli of 5,5% ( and if applicable church tax) and the saver's allowance of 801 Euro p.a. (single). These are the basics. Especially concerning funds and ETFs there is a little Easter Egg:

𝐃𝐢𝐞 𝐓𝐞𝐢𝐥𝐟𝐫𝐞𝐢𝐬𝐭𝐞𝐥𝐥𝐮𝐧𝐠

Due to the reform of the law, the crediting of foreign withholding tax on the German final withholding tax has been eliminated for funds. However, in order to "compensate" investors in this respect and to prevent double taxation, the partial exemption on investment income in Germany and abroad has been created (1)

Since then, the following rule has applied to investment funds (as of 2018, everything before that is taxed according to the old principle):

- In the case of an equity fund with an equity component of at least 51%, 30% of the income is tax-free

- In the case of a mixed fund with an equity component of at least 25% (no ETFs), 15% of the income is tax-free.

- In the case of open-ended domestic real estate funds, 60% of the income is tax-exempt (80% if the investment focus is abroad).

By the way, this applies to both distributing and accumulating funds. In the case of reinvesting funds, the partial exemption applies to the advance lump sum, and in the case of distributing funds, it also applies to dividends. And, of course, if you want to sell fund units (partial exemption on the profit alone).

Oh God, what the hell, do I have to fill out 1 million forms for this now? Nope, fortunately not. The bank does it all automatically. You can sit back and enjoy money saved. You can check your statements to see if there is anything about partial exemption if you hold an ETF. There you can follow the calculation quite well. (2)

"𝐀𝐛𝐞𝐫 𝐋𝐨𝐨𝐨𝐨𝐨𝐨𝐨𝐨𝐫𝐢! 𝐈𝐜𝐡 𝐡𝐞𝐢ß𝐞 @SharkAce / @meta / @Daxjaeger 𝐮𝐧𝐝 𝐢𝐜𝐡 𝐬𝐭𝐞𝐡𝐞 𝐯𝐨𝐥𝐥 𝐚𝐮𝐟 𝐠𝐞𝐡𝐞𝐛𝐞𝐥𝐭𝐞 𝐄𝐓𝐅𝐬 🤑🤑🤑 𝐏𝐫𝐨𝐟𝐢𝐭𝐢𝐞𝐫𝐞 𝐢𝐜𝐡 𝐝𝐚𝐧𝐧 𝐚𝐮𝐜𝐡 𝐯𝐨𝐧 𝐝𝐞𝐫 𝐓𝐞𝐢𝐥𝐟𝐫𝐞𝐢𝐬𝐭𝐞𝐥𝐥𝐮𝐧𝐠?"

Let's take a look. Basically, you have to ask yourself two questions to assess whether the partial exemption applies:

👍 Is my financial product an investment fund?

👍 What is the proportion of shares?

✔️ 𝐅𝐫𝐚𝐠𝐞 𝟏: 𝐈𝐬𝐭 𝐦𝐞𝐢𝐧 𝐏𝐫𝐨𝐝𝐮𝐤𝐭 𝐞𝐢𝐧 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭𝐟𝐨𝐧𝐝𝐬?

The FAZ.net Stock Exchange Dictionary defines a mutual fund as follows: An investment fund is a special asset managed by an investment company (investment company) that is invested in valuable assets such as shares, bonds (annuities), real estate, commodities and / or derivatives.

If we delve a little deeper into the subject, we will also come across the terms ETC and ETN at some point, in addition to actively managed funds. No, people didn't just mix up letters here and wanted to write ETF, there are some important differences here.

🔵 ETF (Exchange Traded Funds): Exchange-traded mutual funds. (3)

🔵 ETN (Exchange Traded Notes): Exchange-traded bearer bonds that track a reference index. (4)

🔵 ETC (Exchange Traded Commodities): Openly structured securities. Track commodities traded on commodity exchanges. (5)

Incidentally, the umbrella term for all three is ETP (Exchange Traded Products).

So, based on the definitions, we can now see: ETNs and ETCs are NOT investment funds, but debt securities. Thus, they do NOT benefit from the partial exemption. (Sorry. The WisdomTree S&P 500 3x Daily Lev. is an ETN, not an ETF). By the way, 3x leveraged products are not ETFs per se in our EU. Currently, only products with a maximum leverage of 2 can be represented in an ETF. Thus, it is also clear that ETNs and ETCs do not count as special assets, unlike ETFs (6).

✔️ 𝐅𝐫𝐚𝐠𝐞 𝟐: 𝐖𝐢𝐞 𝐡𝐨𝐜𝐡 𝐢𝐬𝐭 𝐝𝐞𝐫 𝐀𝐤𝐭𝐢𝐞𝐧𝐚𝐧𝐭𝐞𝐢𝐥?

This is best read on the provider's site. Using the Lyxor MSCI EM Asia UCITS ETF as an example, we can find info about the equity allocation right here:

https://www.lyxoretf.de/de/retail/products/equity-etf/lyxor-msci-em-asia-ucits-etf-acc/lu1781541849/eur

Here we can read under the item "German Tax Information" how high the equity quota is. If it is above 50%, we can enjoy tax savings to the highest degree.

" 𝐀𝐛𝐞𝐫 𝐋𝐨𝐨𝐨𝐨𝐨𝐨𝐨𝐫𝐢! 𝐖𝐢𝐞 𝐬𝐢𝐞𝐡𝐭 𝐝𝐚𝐬 𝐆𝐚𝐧𝐳𝐞 𝐛𝐞𝐢 𝐒𝐰𝐚𝐩-𝐄𝐓𝐅𝐬/ 𝐬𝐲𝐧𝐭𝐡𝐞𝐭𝐢𝐬𝐜𝐡𝐞𝐧 𝐄𝐓𝐅𝐬 𝐚𝐮𝐬?"

ETFs replicate the index in different ways. Therefore, different replication methods exist. Physical replication is probably considered the classic method. So either the ETF holds the securities of the index 1:1, or it relies on sampling, i.e. a representative selection. There is also synthetic replication. Here, the ETF does not invest directly, but only replicates the whole and guarantees the index return. This is done by means of an exchange transaction (swap). Everything can be read in the factsheet of the ETF, which replication method it is. (7)

And now to the real question: what influence does the replication method have on the partial exemption? Again, it is simply a matter of how high the equity component is. If the ETF consists exclusively of derivatives, then the partial exemption does not apply. So-called fully funded swaps should therefore be avoided.

There are enough synthetic ETFs that hold shares in the custody account and therefore benefit from the partial exemption (8). By the way, our Asia ETF from above is also a synthetic ETF, which benefits from the partial exemption due to its equity quota of 92%.

It is best to check if the ETF is UCITS ("Undertakings for Collective Investments in Transferable Securities") compliant (this is also stated in the factsheet of the respective ETF). My goodness, this factsheet is insane. Calls on the factsheet.). What is this again? These are funds that meet particularly high quality requirements and comply with certain legal requirements of the EU. You often come across the abbreviation UCITS ("Undertaking for Collective Investment in Transferable Securities") as a German term. Among others, the following points apply to UCITS-compliant funds/ETFs:

- Minimum diversification

- No issuer risk (counts as special assets)

- Liquidity guarantee, no maturity limit -> investors can access the investments at any time

- High transparency

Important: UCITS-compliant is not the same as UCITS-suitable! Please note this difference.

Regarding our partial exemption question, it is anyway the case that the swap portion of UCITS-compliant ETFs may not exceed 10% of the fund assets and you are therefore safe. Furthermore, this also excludes ETCs and ETNs. But always reread and check the two questions from above. (9)

In the end, of course, this is all - as always - a question of personal preference and risk tolerance. So everyone has to weigh that up for themselves. The eternal principle applies: higher return opportunities, higher risk.

#etf
#learn

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SOURCES:

(1)https://www.justetf.com/de/news/etf/quellensteuer-mit-etfs-zeit-und-geld-sparen.html

(2)https://www.finanztip.de/indexfonds-etf/investmentsteuerreformgesetz/

(3)https://www.finanztreff.de/wissen/etf/was-ist-ein-etf/5191

(4)https://www.finanztreff.de/wissen/etc-etn/08-was-sind-etns/6948

(5)https://www.finanztreff.de/wissen/etc-etn/01-was-sind-etcs/5963

(6)https://www.justetf.com/de/academy/was-ist-ein-etn.html

(7)https://www.justetf.com/de/academy/replikationsmethoden-von-etfs.html

(8)https://www.bvi.de/faq/faq-besteuerung-von-investmentfonds/

(9)https://www.justetf.com/de/news/etf/die-rechtslage-bei-etfs-das-ucits-regelwerk.html