The Reddit thread started with pure panic. A German investor with half a million euros in ETFs, barely 40 years old, read about the Netherlands’ 36% tax on unrealized gains and saw his financial future evaporate. “If something like that comes to Germany, my rosy financial future is in the toilet”, he wrote. The post exploded with 129 upvotes and dozens of comments from equally alarmed investors who suddenly questioned whether their ETF strategy made any sense.
This isn’t just another internet scare. The fear taps into a core anxiety among German investors: that the government will find new ways to tax wealth before it materializes. But before you start liquidating your depot, let’s separate Dutch reality from German possibility, and understand what you’re actually facing.
What the Netherlands Actually Does (And Why It’s Worse Than You Think)
The Dutch system sounds brutal because it is. Starting in 2028, the Netherlands will tax fictional gains on your entire portfolio at 36%, whether you sold anything or not. Here’s the kicker: they assume your investments grew by a fixed percentage (currently 6% for most assets) and slap the tax on that imaginary profit. If your actual return was zero, or you lost money? Tough luck. You still pay tax on the fictional 6% gain.
As one commenter calculated, this works out to roughly a 2.16% wealth tax every single year. For a €500,000 portfolio, that’s over €10,000 annually, regardless of market performance. The system forces you to sell assets just to pay the tax bill, potentially triggering real capital gains taxes on top of the fictional ones. It’s a compounding disaster that makes long-term buy-and-hold strategies nearly impossible.
Germany’s Vorabpauschale: The “Mini-Me” Version
Germany already has a form of unrealized gains tax, but it’s nowhere near as aggressive. The Vorabpauschale (advance tax payment) applies only to accumulating ETFs and funds, and only on a fictional return based on the Basiszins (base interest rate) set by the Bundesministerium der Finanzen (Federal Ministry of Finance). For years, this rate was negative or near-zero, making the tax effectively non-existent. That’s changing now.
In 2024, the Basiszins jumped to 2.29% for 2023, meaning your accumulating ETFs got taxed on a fictional 2.29% gain minus any actual distributions. The damage? A €100,000 portfolio might owe around €50-100 in tax, not €2,000+ like in the Dutch model. And crucially, you can use your Freistellungsauftrag (tax exemption order) of €1,000 to wipe out most or all of this liability.
The key differences:
– Rate: 25% capital gains tax on fictional gains vs. Netherlands’ 36%
– Base: Tied to German government bond yields vs. Netherlands’ fixed 6%
– Scope: Only accumulating funds vs. Netherlands’ all assets
– Offset: Can use €1,000 exemption vs. Netherlands’ no exemption
– Refund: No refund if you lose money later (same as Netherlands)
Could Germany Copy the Dutch Model? The Political Reality Check
The Reddit consensus was clear: many investors believe such a system would be “verfassungswidrig” (unconstitutional) in Germany. They’re partially right. Germany’s constitution protects property rights, and taxing fictional gains at confiscatory rates would face immediate constitutional challenges. But “unconstitutional” doesn’t mean “impossible”, it just means the Bundestag (Federal Parliament) would need to craft it carefully and weather court battles.
More importantly, the political appetite for such a move is extremely limited. The Dutch reform passed with a right-leaning coalition under specific fiscal pressures. In Germany, the current traffic-light coalition (SPD, FDP, Greens) would fracture over this issue. The FDP is staunchly pro-investor, the SPD would face union backlash, and even the CDU/CSU would hesitate to alienate their middle-class base.
But here’s the uncomfortable truth: fiscal pressures are mounting. Germany faces a budget bomb with €60 billion in interest payments that will reshape tax policy. Rising social costs and social contributions that could hit 50% create a perfect storm. When governments get desperate for revenue, they get creative.
The Insurance Industry’s Hidden Hand
One Reddit commenter cut through the noise: “The goal is that the insurance industry can squeeze you again.” This isn’t conspiracy theory, it’s regulatory capture 101. Germany’s insurance lobby is powerful, and they hate losing market share to ETFs. Every euro that flows into cheap index funds is a euro not flowing into expensive insurance-based retirement products.
If direct ETF investing becomes painful enough, investors might flock back to “tax-advantaged” insurance wrappers. The Dutch system conveniently exempts certain insurance products. Funny how that works.
The Irish example is instructive: their 41% deemed disposal tax every eight years has made ETFs so unattractive that many investors build convoluted portfolios of individual stocks to avoid the tax. The insurance industry there is thriving.
What Would Actually Happen to Your Strategy
Let’s run the numbers on a German version of the Dutch system. Assume you have €300,000 in ETFs, planning to retire in 20 years with a 7% annual return.
Current German system: You pay maybe €100-200 annually in Vorabpauschale (easily covered by your €1,000 exemption). When you sell at retirement, you pay 25% capital gains tax on actual profits, minus what you already paid. Net result: you keep most of your compounding.
Dutch-style system: Each year, you pay 36% tax on a fictional 6% gain (2.16% wealth tax). That’s €6,480 in year one, growing as your portfolio grows. Over 20 years, you’d pay roughly €250,000 in taxes on fictional gains, potentially more than your actual gains. You’d be forced to sell annually to pay the tax, destroying your compounding and triggering more taxes.
The Reddit commenters nailed it: “Kleinanleger mit einigen 100k im Depot müssten am Ende des Jahres Anteile verkaufen” (Small investors with a few hundred thousand in their portfolio would have to sell shares at year-end). For many, it would make investing in ETFs completely pointless.
The Bigger Picture: Why This Fear Isn’t Going Away
The panic isn’t really about the Netherlands, it’s about Germany’s direction. Investors see a pattern: geopolitical risks hitting European ETFs, rising social contributions, exploding debt service costs, and a political class that views wealth with increasing suspicion.
Many international residents report that German tax bureaucracy already feels punitive. The Vorabpauschale requires you to track fictional gains, file complex returns, and accept that you might pay taxes on profits you never realized and later lost. It’s not hard to imagine this morphing into something more aggressive.
The Irish experience shows how quickly things can change. Their deemed disposal rule was introduced quietly and now traps investors in a tax nightmare. Germany’s Finanzverwaltung (tax administration) already has the infrastructure to implement a similar system through the existing Vorabpauschale framework.
What Smart Investors Are Actually Doing
-
Maximize your Freistellungsauftrag: Use that €1,000 exemption religiously. If you’re married, double it to €2,000 by using both spouses’ allowances.
-
Consider distributing ETFs: While accumulating funds are more convenient, distributing funds can sometimes reduce your Vorabpauschale liability if dividends are high enough.
-
Diversify across wrappers: Don’t put everything in ETFs. Use your Säule 3a (pillar 3a) retirement account, which offers tax advantages, and consider carefully whether insurance products make sense for your situation (despite the fees).
-
Track your Basiszins: The Vorabpauschale is tied to German government bond yields. If rates fall, your tax burden falls. Monitor the annual announcement from the Finanzministerium.
-
Plan for the worst: If you’re really worried, consider holding some assets in jurisdictions with more stable tax regimes. But remember, the German taxman follows you almost everywhere.
-
Focus on what you control: Long-term ETF strategies still work in Germany. The Vorabpauschale is annoying but not wealth-destroying. Don’t let fear of hypothetical future taxes derail a solid investment plan.
The Bottom Line
Will Germany implement a Dutch-style wealth tax on unrealized gains? Probably not in its current form. The constitutional hurdles, political opposition, and practical implementation nightmares make it unlikely.
But will Germany continue to tighten the screws on investors? Absolutely. The Vorabpauschale will rise with interest rates, your Freistellungsauftrag might not keep pace with inflation, and new “fairness” measures will target wealth. The Reddit panic is overblown, but the underlying anxiety is justified.
Your €500,000 ETF portfolio is safe from 36% fictional taxes, for now. But the German tax system operates with the same efficiency as a Deutsche Bahn train: usually predictable, until there’s construction on the line. And right now, the tracks are being relaid.
The smart move? Keep investing, stay vigilant, and maybe send a polite letter to your Bundestag representative explaining why compound interest matters more than fictional gains. Just don’t mention Reddit.
Action steps this week:
-
Check your broker’s Vorabpauschale calculation for 2023
-
Adjust your Freistellungsauftrag if needed
-
Calculate your actual tax burden under current rules (likely under €200)
-
Stop reading Dutch tax law before bed
