11H·

Do you already know about the tax advantage of dividends?

Thanks to @gloinvest for the hint. @lawinvest brings a second calculation for US shares:


Example for US shares:

  • You receive 100 $ dividend.
  • 15 € will be withheld in the USA. (Provided form W-8BEN has been filed)
  • In Germany you pay another $ 25 tax on the $ 100 + $ 1.375 solidarity tax
  • But: 15 € are credited → you pay only an additional $11.375.

For the ETF in Ireland:

  • You receive $100 dividend.
  • 15 € will be withheld in the USA. (at font level)
  • In Germany you pay another $14.875 tax on 70% of $85 + $0.8181 solidarity tax
  • No crediting of withholding tax


So there is a 4.31% advantage here with direct investment in US shares


For countries with higher withholding tax (e.g. Switzerland 35%, France 25%, Italy 26%) it is much more complicated because the credit is often capped and you have to get the rest via refund procedures.

ETFs often have better withholding tax efficiency because large fund companies can sometimes carry out refunds/reclaims that you would not be able to do as a private investor.


📊 Taxing dividends cleverly - ETF vs. individual share?

( Does this apply to D, other countries too? in AT, funds are taxed at a flat rate ( KEst) in CH there is wealth tax ..... )


You have Colgate in your portfolio and wonder why the dividend of 26,36 % while the same dividend via a dividend ETF is only taxed at 18,46 % is charged? Here is the explanation - and a smart tip for all dividend fans!


💡 The difference: partial exemption for ETFs

Benefit in Germany equity ETFs benefit from the so-called partial exemption:

  • 30% of the income is tax-freeif the ETF invests at least 51% in shares.
  • This reduces the effective tax burden on dividends from 26.375 % to approx. 18.46 %..

Individual shares such as Colgate, on the other hand, are subject to full withholding tax - despite partial crediting of the US withholding tax.


🧾 Conclusion

🔹 Individual shares = full tax but deduction of withholding tax

Dividend ETFs = tax-optimized, particularly interesting for non-US equities with higher withholding tax. Important for broad diversification!

🔹 Partial exemption = compensation must be calculated to determine whether it is worthwhile.


Can it be an ADVANTAGE in the long term? According to the above calculation, the advantage lies in direct investment for pure US equities, otherwise ETF is simpler and more profitable.


Here are a few examples:


🌍 Global dividend ETFs

  • Vanguard FTSE All-World High Dividend Yield UCITS ETF $VHYL (+0,31%)
    ISINIE00B8GKDB10
  • Distributing, quarterly
  • TER: 0,29 %
  • Partial exemption: 30 %
  • Invests worldwide in high-dividend companies
  • iShares MSCI World Quality Dividend UCITS ETF $WQDS (+0,18%)
    ISIN : IE00BYYHSQ67: IE00BYYHSQ67
  • Focus on high quality dividend payers
  • TER: 0,38 %
  • Distributing, with global diversification
  • SPDR S&P Global Dividend Aristocrats UCITS ETF $ZPRG (+0,34%)
    ISIN : IE00B9CQXS: IE00B9CQXS71
  • Contains companies with long-term dividend history
  • TER: 0,45 %
  • Distributing

🇩🇪 Dividend ETFs on German equities

  • Deka DAXplus Maximum Dividend UCITS ETF $EL4X (-0,25%)
    ISINDE000ETFL235
  • Focus on highest dividend yields in the HDAX
  • TER: 0,30 %
  • Distributing
  • Amundi DivDAX UCITS ETF Dist $E903 (+0,23%)
    ISIN: DE000A0F5UH1
  • TER: 0,25 %
  • Distributing, based on DivDAX Index

🇺🇸 US dividend ETFs with good withholding tax structure

  • Vanguard Dividend Appreciation ETF (VIG) $VIG (+0,44%)
    ISIN: US9219088443
  • Focus on high-growth dividend payers
  • Attention: US domicile → note withholding tax
  • SPDR S&P US Dividend Aristocrats ETF (SDY) $SPYD (+0,58%)
    ISINUS78464A7634
  • Contains US companies with at least 25 years of dividend growth


Which ETF do you have in your portfolio? Or why individual shares?


P.S. Before everyone says, it's common knowledge. You can never give out information like this too often. Maybe I heard it 5 years ago, but I didn't think about it now. Surely others will feel the same way, right?

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39 Comentários

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About all the dividend ETFs

https://youtu.be/RGxhve3D03c?si=GsoOdQZk6QAc2c0Q

You can achieve better returns with a Wolrd ETF 😂

Why individual shares? My dividend growth portfolio has risen by around 17% diluted over 1 year, and the best no ter fee and upfront lump sum 😁
5
@Simpson the VanEck Morningstar has outperformed the S&P over the last 5 years. Are you a bit incompetent?
And your grin is a bit wide for your small portfolio 🤷‍♂️
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I'm a bit surprised that people here didn't know that.
That was one of the first things I stumbled across when I started investing and learning about ETFs and taxes in general. 👀
(As a German investor...)
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@Metis Everyone has a different path, you must not forget that. That's why we're here to help each other.
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@MainTyp That's not meant to be negative or anything, I'm just genuinely surprised.

Because when you start with ETFs, you're faced with the question of whether to use distributing or accumulating funds and that's when you come to the subject of taxes, advance lump sums and partial exemption.
No matter which video, no matter which article I came across, they all dealt with these points in acc vs dist.
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@Metis I'm surprised too. Maybe I should get my bathrobe ready because Klingbeil will soon be missing another 4 billion.
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I'm missing a key component... assuming Colgate is the only stock in the ETF.

100 USD distribution of the share in the ETF (simplified USD price = Euro price)

The ETF pays 15% withholding tax like everyone else
=> 85€ remain

It distributes this. You then pay your partially exempt taxes on this
Simplified approx. 17€ tax burden
Your account will therefore receive: 68€
___
Colgate pays 100 USD directly to me (as above = Euro)
15% withholding tax => 85
Then: withholding tax and solidarity surcharge on the full income.
Approx. 28€... of which 15€ US withholding tax creditable => further payment of 13€

Therefore my account receives 72€
...
Where am I better off now?
1
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@lawinvest @gloinvest What do you think? For me it seems understandable.... for US stocks! But there are others....
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@lawinvest I have added this calculation to the amount. It's now complete for US equities. good that we are talking about this topic!
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@MainTyp thank you :)
As for the table from @gloinvest. Frankly, it's too long for me to read it all completely... But I'm missing the withholding tax component. Please correct me if I am wrong and it is there
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@MainTyp if you allow me to make a correction: of course 15% is withheld on 100 USD. I had only set USD = Euro for the sake of simplicity. I would perhaps clarify this in the post above for you
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@lawinvest I took EURO . could have taken stones :) But since it only applies to US stocks. I'll change it, thanks :)
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@MainTyp yes, I just mean that someone might get the idea to correct it
;)
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@lawinvest You are very welcome, because your calculation does not take into account the cap and the imputation surplus. Here is the explanation of the partial exemption for a dividend ETF taking into account US withholding tax. The interaction of these two rules is crucial for investors' net returns.
First things first: two tax advantages at a glance
If you invest in an ETF that distributes dividends from US companies, two key tax rules come into play:
1. US withholding tax: the US levies a tax on dividends paid to foreign investors. Thanks to the double taxation agreement (DTA) between Germany and the USA, this is generally reduced from 30% to 15% for German investors. This 15% is withheld directly at source in the USA.
2nd German partial exemption: In Germany, 30% of income (dividends and capital gains) from equity ETFs (equity ratio > 50%) is tax-free. This means that you only have to pay tax on 70% of the dividend in Germany.
The crucial point is how these two regulations interact. The US withholding tax already paid can be credited against the German withholding tax, but only up to the amount of the German tax actually due on this income. And this is precisely where the partial exemption comes into play.
The interaction: explained step by step
1. dividend payment & US withholding tax: A US company in the ETF distributes a dividend. Before the money reaches your broker, 15% US withholding tax is automatically deducted.
2. arrival at the investor (gross): The gross dividend (before deduction of German tax, but after US withholding tax) is credited to your settlement account.
3. application of the partial exemption: Your German broker now applies the partial exemption of 30%. This means that only 70% of the gross dividend is taxable in Germany.
4. calculation of the German tax: The German withholding tax (25% plus solidarity surcharge and church tax, if applicable) is calculated on this taxable portion (70%).
5. crediting the US withholding tax: The US withholding tax paid (15% of the original dividend) is now credited against the German tax liability just calculated. Important: The credit is capped. You cannot offset more withholding tax than you would have to pay in Germany. Due to the partial exemption, the German tax liability is lower, which may mean that the US withholding tax cannot be fully credited. This is often referred to as "excess withholding tax".

Conclusion of the calculation
Although the 15% US withholding tax can be fully credited against the German tax liability in this case, the combination of withholding tax and partial exemption is more favorable for the investor than German taxation alone (which would be €26.38 on the full €100). The total tax burden is effectively only 18.46%.
The role of the fund domicile is decisive
The above explanation applies to ETFs domiciled in Germany or Luxembourg that invest directly in US equities. ETFs domiciled in Ireland often offer an even more advantageous tax structure:
- Due to a special tax treaty between the USA and Ireland, only 15% withholding tax is also withheld on dividend payments from US companies to Irish funds.
- Between Ireland and Germany, there is no further withholding tax on the ETF's distributions to you.
- As a German investor, you still benefit from the 30% partial exemption on the income of the Irish ETF.
Effectively, with an Irish ETF that invests in US equities, you have the same reduced US withholding tax at fund level, but there is no complicated imputation overhang at your personal level. This often makes Irish domiciled ETFs the most tax efficient choice for investing in US equities.
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@gloinvest Yes, that's exactly how I understood it, but with numbers there is an advantage for direct investment. ( See calculation in article )
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@gloinvest
1. there is no room for a cap because my withholding tax deduction does not exceed the German tax burden.

2. the above calculation is incorrect in my opinion. It suggests that in the case of a German ETF, the US withholding tax paid by the fund is credited against the distribution. This is not correct. According to the explanatory memorandum to the Investment Tax Act BT-Drucksache 18/8045, this non-credit is precisely the reason for the creation of the partial exemption.
With regard to Ireland, it is true that the partial exemption applies. Nevertheless, as stated, the Irish fund paid 15% withholding tax. I have calculated nothing else. The difference is that I cannot offset it against my tax burden. This compensates for the partial exemption (but not completely).
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@lawinvest everyone's head is in the same place :)
Ver todas as 3 restantes respostas
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Its definitely not common knowledge. Thanks for sharing
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THANK YOU 🤩 An important and helpful contribution for me.
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Thanks for the mention. For me, DiviEtfs are the extension of my pot2 (see Andreas Beck: 3 pots strategy).

I see them as a complement to interest rate investments with the explicit advantages:

- relatively lower vola than pot3 (MSCI ACWI)
- higher yield than Fixed Income One
- steady income
- ~25% less tax burden on total return
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Didn't know that, thanks!
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Analysis of taxable excess return: Colgate-Palmolive dividends in direct investment vs. ETF wrapper for German private investors

Introduction: The crucial role of tax optimization in the dividend strategy
In the world of investing, the pursuit of yield is a key concern for any investor. While the selection of the right securities and the timing of market transactions are often at the forefront, an equally effective, albeit more subtle component of yield generation is often neglected: the tax optimization of the investment structure. The net return, i.e. the amount that actually remains in the investor's portfolio after deduction of all taxes and costs, is the only relevant measure of asset growth. The ability to minimize the tax burden through intelligent and legally compliant structuring of investments generates a form of excess return that is often referred to as "tax alpha". This alpha is not generated by superior market forecasting, but by a deep understanding of the regulatory framework.
This analysis addresses precisely this issue and examines a fundamental question for German private investors who invest in foreign dividend stocks: How does the choice of investment vehicle - specifically, buying a stock directly versus holding the same stock within an exchange-traded fund (ETF) - affect net dividend yield? The case study is Colgate-Palmolive Company (CL), an established US dividend aristocrat whose distributions are of interest to many income-oriented investors.
The core of the study lies in the analysis of the German Investment Tax Act (InvStG) and its central provision on the partial exemption for equity funds. This legal provision grants investors in equity ETFs a significant tax advantage that does not apply to direct investments in the underlying shares. The aim of this paper is to precisely quantify the resulting financial advantage. It calculates the absolute and relative excess return on the Colgate-Palmolive dividend resulting from the investment in the ETF wrapper compared to a direct investment.
To ensure a clear and comprehensible analysis, the report will proceed systematically. First, the financial basis - the gross dividend of Colgate-Palmolive - is determined and converted into the reference currency, the euro. This is followed by a detailed explanation of the German taxation model for capital gains, which forms the basis for all further calculations. Building on this, two scenarios are calculated: taxation of the dividend in the direct investment and taxation in the ETF wrapper, taking into account the partial exemption. Finally, a comparative analysis quantifies the exact additional return. Finally, the strategic implications of these results are discussed in order to derive a well-founded recommendation for the tax-optimized structure of a dividend portfolio.
1. fundamental analysis of the dividend: Colgate-Palmolive (CL)
Introduction of the underlying
Colgate-Palmolive Company, traded under the ticker symbol CL on the New York Stock Exchange (NYSE), is a global leader in the consumer goods sector. The company is considered a classic representative of the so-called "dividend aristocrats". This designation is awarded to companies that have continuously increased their dividend payouts over a long period of time, typically at least 25 years. In the case of Colgate-Palmolive, this history even spans more than 50 consecutive years, which is a strong indication of financial stability, a robust business model and a shareholder-friendly dividend policy. This reliability makes Colgate-Palmolive's dividend an ideal and relevant base value for this tax analysis, as it represents a predictable source of income for long-term, income-oriented investors.
Determination of the gross dividend (USD)
The exact amount of the gross dividend is the decisive starting point for a precise tax analysis. Various financial data providers consistently report an expected annual dividend (forward dividend) of $2.08 per share for Colgate-Palmolive. This amount is derived from the company's quarterly distributions. The most recent and forecast distributions amount to $0.52 per quarter, which annualizes to $2.08. For all subsequent calculations, this value is used as the definitive gross dividend per share in US dollars.
Currency conversion (USD to EUR)
Since taxation for a German investor is in euros, a conversion of the dividend paid in US dollars is essential. The available data provides a range of exchange rates from different providers. However, to ensure maximum accuracy and official recognition, the European Central Bank (ECB) euro reference exchange rate is used for this analysis. This rate is considered the authoritative and neutral standard in European finance. On the cut-off date for the analysis, the ECB reference rate was quoted at 1 \text{ EUR} = 1.1754 \text{ USD}.
The conversion factor from USD to EUR can be calculated as follows:
The gross dividend per share in euros is therefore:
This value of €1.7696 per share represents the gross assessment basis from which the tax burden is determined in both investment scenarios.
Methodological differentiation: The irrelevance of share price and dividend yield
It is crucial to understand that for the specific question of this analysis - the quantification of the taxable excess return of a dividend - the current share price and the dividend yield derived from it (e.g. 2.61% ) are deliberately disregarded. The analysis aims to isolate the tax effect on a specific, absolute cash flow (the dividend of €1.7696). Including the share price would confuse the calculation with the volatility of the market and distract from the actual variable being tested: the tax efficiency of the investment vehicle (direct investment vs. ETF wrapper). By focusing exclusively on the absolute dividend per share, a stable and reproducible calculation is created that demonstrates the tax effect in its purest form. The final calculated relative excess return will be identical in percentage terms, regardless of the underlying share price, as it represents the ratio of two net figures derived from the same gross figure. This methodological approach ensures the clarity and unambiguity of the conclusion.
2 The German taxation model for capital gains: A detailed overview
In order to correctly determine the net dividend in the two scenarios, a sound understanding of the German capital gains tax system is essential. Since its introduction in 2009, most investment income of private individuals in Germany has been subject to the so-called flat-rate withholding tax. This system is designed as a withholding tax, which means that the custodian bank in Germany automatically withholds the tax due and pays it to the tax office. For the investor, the tax liability is thus generally "settled". The analysis assumes that the annual saver's allowance of €1,000 for single people and €2,000 for married couples has already been exhausted by other investment income and is therefore no longer available for the dividend under consideration here.
The total tax burden on investment income is made up of three components: the final withholding tax itself, the solidarity surcharge and, if applicable, the church tax.
Basics of the final withholding tax
The final withholding tax is levied as a flat-rate tax on interest, dividends and realized capital gains. The statutory tax rate is a uniform 25% on taxable capital gains.
The solidarity surcharge (Soli)
The solidarity surcharge is levied in addition to the flat-rate withholding tax. It is important to note that this is a supplementary tax that is not levied on the capital income itself, but on the amount of withholding tax assessed. The rate for the solidarity surcharge is 5.5%.
For an investor without church tax liability, this results in an additional tax burden of 25\% \times 5.5\% = 1.375\%. The effective total tax burden is therefore 25\% + 1.375\% = 26.375\%.
The church tax
Members of a religious community in Germany that levies church tax are also subject to church tax on capital gains. The church tax rate varies depending on the federal state: in Bavaria and Baden-Württemberg it is 8%, in all other federal states it is 9%.
There is a crucial tax subtlety to consider here, which is essential for a precise calculation. As the church tax paid is tax-deductible as a special expense, it reduces the assessment basis for the final withholding tax itself. This effect is taken into account directly by the banks when deducting tax and leads to a slight reduction in the final withholding tax rate before church tax and solidarity surcharge are added.
The formula for calculating the reduced withholding tax rate is as follows:
In the case of 8% church tax (Bavaria/Baden-Württemberg), the result is:
In the case of 9% church tax (other federal states):
The church tax and the solidarity surcharge are then calculated on the basis of these reduced rates, resulting in the effective total tax rates. The following table summarizes the calculation of the total tax burden for all three relevant investor profiles and serves as a reference for the following scenarios.
Table 1: Effective total tax burden on investment income in Germany (without partial exemption)
| component | investor without church tax | investor with 8% church tax (BY/BW) | investor with 9% church tax (other BL) |
|---|---|---|---|
| Capital gains (example) | €100.00 | €100.00 | €100.00 |
| Applicable withholding tax rate | 25.00% | 24.51% | 24.45% |
| Withholding tax | €25.00 | €24.51 | €24.45 |
| Solidarity surcharge (5.5% on final withholding tax) | €1.375 | €1.348 | €1.345 |
| Church tax (8% / 9% on withholding tax) | €0.00 | €1,961 | €2,201 |
| Total tax burden | €26,375 | €27,819 | €27,996 |
| Effective total tax rate | 26.375% | approx. 27.82% | approx. 27.99% |
Sources: Own calculations based on. The total effective tax rates correspond to the values stated in the sources.
These three rates - 26.375%, 27.82% and 27.99% - represent the full tax burden on fully taxable investment income for a German private investor and form the basis for the following scenario analysis.
3 Scenario A: Taxation of the dividend in the direct investment
In the first scenario, the base case is analyzed: A private investor liable for tax in Germany holds shares in Colgate-Palmolive Company directly in his securities account at a German bank. In this constellation, the distributed dividend is fully subject to German withholding tax. No tax exemptions apply to the income.
Calculation of the tax burden
The gross dividend of €1,7696 per share, as determined in section 1, forms the assessment basis. The total effective tax rates derived in Table 1 are applied to this amount in order to calculate the absolute tax burden for the three different investor profiles.
* Scenario 1: Investor without church tax liability
The tax burden is calculated by applying the total effective tax rate of 26.375%.
\text{tax burden} = 1.7696 \text{ EUR} \times 26.375\% \approx 0.4667 \text{ EUR}

* Scenario 2: Investor with 8% church tax (Bavaria/Baden-Württemberg)
The effective total tax rate of 27.82% is applied here.
\text{tax burden} = 1.7696 \text{ EUR} \times 27.82\% \approx 0.4923 \text{ EUR}

* Scenario 3: Investor with 9% church tax (other federal states)
In this case, the effective total tax rate is 27.99%.
\text{tax burden} = 1.7696 \text{ EUR} \times 27.99\% \approx 0.4953 \text{ EUR}

Calculation of the net dividend
The net dividend is the amount remaining to the investor after deduction of the total tax burden. It results from the difference between the gross dividend and the previously calculated tax burden.
* Scenario 1: Investor without church tax liability
\text{net dividend} = 1.7696 \text{ EUR} - 0.4667 \text{ EUR} = 1.3029 \text{ EUR}

* Scenario 2: Investor with 8% church tax (Bavaria/Baden-Württemberg)
\text{Net dividend} = 1.7696 \text{ EUR} - 0.4923 \text{ EUR} = 1.2773 \text{ EUR}

* Scenario 3: Investor with 9% church tax (other federal states)
\text{Net dividend} = 1.7696 \text{ EUR} - 0.4953 \text{ EUR} = 1.2743 \text{ EUR}

The following table summarizes the results of this scenario and shows the exact net dividend per share that an investor would receive from a direct investment in Colgate-Palmolive.
Table 2: Net dividend analysis for the direct investment in Colgate-Palmolive
| Tax scenario | Gross dividend (EUR) | Total effective tax rate (%) | Tax burden (EUR) | Net dividend (EUR) |
|---|---|---|---|---|
| Without church tax | €1.7696 | 26.375% | €0.4667 | €1.3029 |
| With 8% church tax | €1.7696 | 27.82% | €0.4923 | €1.2773 |
| With 9% church tax | €1.7696 | 27.99% | €0.4953 | €1.2743 |
These net values represent the reference value against which the results of the ETF scenario are measured in order to determine the taxable excess return.
4 Scenario B: Taxation of the dividend in the ETF shell
In the second scenario, the alternative investment structure is analyzed: The investor does not hold the Colgate-Palmolive share directly, but indirectly as part of an equity ETF. This structural change has far-reaching tax consequences arising from the German Investment Tax Act (InvStG).
Explanation of the partial exemption
The central legal basis for the tax advantage of the ETF shell is Section 20 of the German Investment Tax Act (InvStG). This law provides for a so-called partial exemption for income from investment funds. The purpose of this regulation is to compensate for economic double or multiple taxation, which would arise because taxes are already incurred at company level (through corporation tax) and potentially at fund level. The partial exemption thus provides a flat-rate equalization from which the end investor benefits.
The partial share exemption is relevant for the present analysis. This is applied if the fund is an "equity fund". According to the legal requirements, this is the case if the fund continuously invests at least 51% of its value in equity investments (shares) in accordance with its investment conditions. For private investors who hold their units as private assets, the partial equity exemption rate is 30%.
This means that 30% of all income from the fund - including distributions (dividends), the annually taxable advance lump sum for accumulating funds and realized capital gains - is exempt from taxation. Consequently, only the remaining 70% of income is subject to withholding tax.
Calculation of the reduced assessment basis
The partial exemption is applied in the first step of the tax calculation. The gross dividend of €1,7696 per share is reduced by the exemption portion of 30% in order to determine the new, taxable assessment basis.
Only this reduced amount of €1,2387 is now subject to final withholding tax including solidarity surcharge and, if applicable, church tax.
Applying the tax to the reduced basis
The same effective total tax rates from Table 1 are now applied to this new assessment basis as in the direct investment scenario.
* Scenario 1: Investor without church tax liability (26.375%)
\text{tax burden} = 1.2387 \text{ EUR} \times 26.375\% \approx 0.3267 \text{ EUR}

* Scenario 2: Investor with 8% church tax (27.82%)
\text{tax burden} = 1.2387 \text{ EUR} \times 27.82\% \approx 0.3446 \text{ EUR}

* Scenario 3: Investor with 9% church tax (27.99%)
\text{tax burden} = 1.2387 \text{ EUR} \times 27.99\% \approx 0.3467 \text{ EUR}

Determining the net dividend in the ETF wrapper
The final net dividend is calculated by deducting the significantly lower tax burden just calculated from the original gross dividend.
* Scenario 1: Investor without church tax liability
\text{net dividend} = 1.7696 \text{ EUR} - 0.3267 \text{ EUR} = 1.4429 \text{ EUR}

* Scenario 2: Investor with 8% church tax
\text{Net dividend} = 1.7696 \text{ EUR} - 0.3446 \text{ EUR} = 1.4250 \text{ EUR}

* Scenario 3: Investor with 9% church tax
\text{Net dividend} = 1.7696 \text{ EUR} - 0.3467 \text{ EUR} = 1.4229 \text{ EUR}

The following table shows the calculation steps and results for the ETF scenario transparently.
Table 3: Net dividend analysis for the investment in Colgate-Palmolive via ETF sleeve
| Component | Without church tax | With 8% church tax | With 9% church tax |
|---|---|---|---|
| Gross dividend (EUR) | €1.7696 | €1.7696 | €1.7696 |
| Partial exemption (30%) | €0.5309 | €0.5309 | €0.5309 |
Taxable assessment base (EUR) | €1.2387 | €1.2387 | €1.2387 | €1.2387 |
| Total effective tax rate (%) | 26.375% | 27.82% | 27.99% |
| Tax burden (EUR) | €0.3267 | €0.3446 | €0.3467 |
| Net dividend (EUR) | €1.4429 | €1.4250 | €1.4229 |
A direct comparison of the net dividends from Table 2 and Table 3 already reveals a significant advantage in favor of the ETF structure at first glance. The exact quantification of this advantage is the subject of the next section.
5 Comparative analysis: Quantification of the absolute and relative excess return
Now that the net dividends for both investment scenarios - direct investment and ETF wrapper - have been calculated in detail, the results are compared directly. This section synthesizes the previous analyses and answers the core question of the study: How high is the absolute and relative additional return achieved by using the partial exemption in the ETF wrapper?
Calculation of the absolute additional return
The absolute additional return is the additional euro amount that an investor receives per share and per year by choosing the ETF wrapper compared to a direct investment. It is calculated by simply subtracting the net dividend of the direct investment from the net dividend of the ETF wrapper.
* Scenario 1: Investor without church tax liability
\text{Absolute excess return} = 1.4429 \text{ EUR} - 1.3029 \text{ EUR} = 0.1400 \text{ EUR}

* Scenario 2: Investor with 8% church tax
\text{Absolute excess return} = 1.4250 \text{ EUR} - 1.2773 \text{ EUR} = 0.1477 \text{ EUR}

* Scenario 3: Investor with 9% church tax
\text{Absolute excess return} = 1.4229 \text{ EUR} - 1.2743 \text{ EUR} = 0.1486 \text{ EUR}

Interestingly, the absolute tax advantage for investors subject to church tax is even slightly higher. This is due to the fact that the higher overall tax rate in the direct investment is more significant than in the already reduced assessment basis in the ETF scenario, which means that the tax relief from the partial exemption is greater in absolute terms.
Calculation of the relative additional return
The relative additional return expresses the percentage increase in net income and is an excellent indicator to illustrate the increase in efficiency. It is calculated by setting the absolute excess return in relation to the net dividend of the direct investment.
* Scenario 1: Investor without church tax liability
\text{Relative excess return} = \left( \frac{1.4429}{1.3029} - 1 \right) \times 100\% \approx 10.75\%

* Scenario 2: Investor with 8% church tax
\text{Relative excess return} = \left( \frac{1.4250}{1.2773} - 1 \right) \times 100\% \approx 11.56\%

* Scenario 3: Investor with 9% church tax
\text{Relative excess return} = \left( \frac{1.4229}{1.2743} - 1 \right) \times 100\% \approx 11.66\%

The results show that the ETF shell increases net dividend income by more than 10%. This effect is purely structural and independent of the market performance of the share. The following master comparison table summarizes all final results and provides a clear and concise answer to the original research question.
Table 4: Master comparison table: Additional return through the ETF shell
| Tax scenario | Net dividend direct investment (EUR) | Net dividend ETF wrapper (EUR) | Absolute excess return (EUR per share/year) | Relative excess return (%) |
|---|---|---|---|---|
| Without church tax | €1.3029 | €1.4429 | €0.1400 | +10.75% |
| With 8% church tax | €1.2773 | €1.4250 | €0.1477 | +11.56% |
| With 9% church tax | €1.2743 | €1.4229 | €0.1486 | +11.66% |
The figures clearly demonstrate a significant and consistent financial advantage in favor of investing via an ETF vehicle for all German private investors considered.
6 Strategic implications and further considerations
The quantitative analysis has demonstrated a clear tax advantage of the ETF wrapper for the receipt of dividends. However, a comprehensive strategic assessment must go beyond this calculation and shed light on other aspects. The true significance of the partial exemption only unfolds in the context of the overall investment horizon and the total return perspective.
The universal advantage of the ETF wrapper: more than just dividends
The calculated advantage in dividend taxation is just the tip of the iceberg. The fundamental strategic insight is that the 30% partial exemption pursuant to Section 20 InvStG does not only apply to distributions, but is universally applicable to all types of income from the equity fund. This explicitly includes:
* Realized capital gains: if the investor sells his ETF shares at a later date at a profit, 30% of this gain is also tax-free. In the case of a direct investment in the share, the entire capital gain would be fully taxable. Over a long investment period, in which capital growth often accounts for a much larger proportion of the total return than dividends, this tax advantage increases considerably.
* Advance lump sum: In the case of accumulating (reinvesting) ETFs that do not distribute dividends, a notional, taxable return, the so-called advance lump sum, is applied annually. The 30% partial exemption is also granted on this advance lump sum, which reduces the annual tax burden during the holding period.
The ETF wrapper is therefore the superior tax structure for German private investors, not only for dividend income, but also for the total return from equity investments. The dividend advantage quantified in this analysis is a recurring annual benefit that is strategically multiplied by the identical tax advantage on capital appreciation.
Analysis of cost factors: the Total Expense Ratio (TER)
A balanced view must take into account the costs of the ETF vehicle. The primary cost component is the Total Expense Ratio (TER), which indicates the annual operating costs of the fund as a percentage of the fund assets. To evaluate the net benefit, the tax savings must be compared to the ETF costs.
Let's assume a share price for Colgate-Palmolive of about $79.59, which is about €67.70 at the exchange rate used. The absolute annual tax savings per share, as shown in Table 4, is between €0.1400 and €0.1486.
Assume an investor uses a broadly diversified ETF on the global equity market with a market TER of 0.20% per annum. The annual cost per Colgate-Palmolive share held would be €67.70:
A comparison shows that the annual tax saving (€0.1400 to €0.1486) exceeds the annual ETF cost (€0.1354) even with this conservative example. For shares with a higher dividend yield or ETFs with a lower TER, the net benefit would be even greater. The tax alpha effect of the partial exemption is usually more than sufficient to compensate for the ongoing costs of the ETF wrapper.
Qualitative differences
In addition to the purely financial aspects, there are qualitative differences between the two forms of investment:
* Diversification: the most obvious advantage of an ETF is the immediate and cost-effective diversification across hundreds or thousands of individual stocks. This reduces the unsystematic risk associated with investing in a single stock (concentration risk).
* Complexity reduction: The ETF wrapper considerably simplifies investment in foreign stocks. In particular, the often complex offsetting or reclaiming of foreign withholding taxes (e.g. US withholding tax on dividends) is handled professionally at fund level and is no longer an issue for the end investor. This represents a considerable "convenience advantage".
* Voting rights: One aspect in which direct investment is superior is shareholder rights. As a direct shareholder, you have voting rights at the company's Annual General Meeting. These rights are lost when investing via an ETF, as they are exercised by the fund company. For most private investors, however, this point is of secondary importance.
Conclusion and recommendation for action
The analysis carried out provides a clear and quantitatively sound result. The use of an ETF wrapper to invest in high-dividend foreign shares such as Colgate-Palmolive generates a significant additional tax return for German private investors compared to direct investment.
The quantitative analysis has shown that the 30% partial exemption under the Investment Tax Act increases the net dividend yield by 10.75% to 11.66%, depending on the individual's church tax status. This corresponds to an absolute additional return of €0.1400 to €0.1486 per share and year from the dividend alone. This advantage is structurally anchored in the German tax system and represents a reliable source of additional alpha.
The strategic consideration reinforces this conclusion. The tax benefit of the partial exemption extends beyond the dividend to realized capital gains and the upfront lump sum, making the ETF wrapper the superior structure for maximizing total return. The costs incurred by the ETF in the form of the TER are in most cases more than compensated for by the tax savings. Add to this the qualitative advantages of diversification and administrative simplification and a clear picture emerges.
Based on this comprehensive analysis, the recommendation for action for a private investor liable for tax in Germany is unequivocal: for holding foreign dividend-paying shares such as Colgate-Palmolive, the use of an equity ETF structure is not just a mere alternative, but a financially rational imperative to maximize after-tax returns under current German legislation. While direct investment may have its justification for specific purposes (e.g. exercising voting rights), it is clearly the inferior option from a purely tax and return-oriented perspective.
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Here is a detailed podcast on the Colgate share in the ETF shell vs. direct investment

https://g.co/gemini/share/1ac276cf53dd
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Hmm, I thought the partial exemption was only relevant for the advance lump sum, i.e. the tax disadvantage of funds, i.e. having to pay tax on unrealized gains. In any case, 25% withholding tax plus 5.5% solidarity surcharge is always deducted from my ETF distributions. The deduction of the advance lump sum on the (profitable) sale of a position will also only be made on a nominal basis. I consider the advance lump sum to be more of a violation of the ability-to-pay principle of German income tax law, because unrealized gains (thanks to partial exemption, at least initially not fully) are taxed.
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@amanaplanacanalpanama 25% + 5.5% is deducted. But only on 70% of the gains, and not on 100%. Prerequisite: 51% equity component in the fund.
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@amanaplanacanalpanama which etf is it ?
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@amanaplanacanalpanama here it is also an equity ETF with > 51% so it fits as described above. In addition, you have no withholding tax on dividends due to Ireland. With 0.10% also very favorable (TER)
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The state gives you nothing. I would forget that very quickly.
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ETFs are already taxed at corporate level. The partial exemption only compensates for this.
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@Psychedelic_Sunflower but according to the above calculation not completely
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Not every calculation that someone posts on the Internet is correct. In fact, despite the partial exemption, you have less with an ETF because the fund itself is taxed and the withholding tax is lost at fund level.
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@Psychedelic_Sunflower I have cross-checked and recalculated :)
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@MainTyp
Direct investment in shares:
Dividend € 100 → full € 100 is taxed at 26.375 % (compensation + solidarity surcharge) = € 73.63 net.

Via equity fund/ETF:
Dividend € 100. At fund level, €15 corporation tax is deducted → €85 is received.
Only 70% of this = € 59.5 is taxable for the investor.
Tax on this: € 59.5 × 26.375 % = € 15.7.
Net for the investor: € 85 - € 15.7 = € 69.3.

→ Result:

Direct investment: € 73.6 net.

Via funds: € 69.3 net.

Difference: approx. 4.3 % points disadvantage (i.e. a certain additional burden).

As you can see, there is even a certain tax disadvantage to investing via funds. But I'm happy to accept this in favor of diversification and simplicity
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@Psychedelic_Sunflower I have the same result :)
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