What is the Sparerpauschbetrag and how do I use it?

Without action, your German broker will automatically withhold the standard capital-income tax (around 26.375% combined with Solidaritätszuschlag) on every euro of dividends, interest or realised gains. The Sparerpauschbetrag exempts the first slice of that income each year — currently €1,000 per person or €2,000 for a jointly filing couple.

The mechanism is the Freistellungsauftrag, a simple instruction you submit to your broker (usually with a few clicks online) telling them how much of your allowance to apply at that institution. You can split the allowance across multiple brokers if you have more than one, but the total across all of them cannot exceed your individual cap.

Without a Freistellungsauftrag, the broker just withholds tax from the first euro of capital income, and you have to reclaim the difference through your annual tax return. That's not the end of the world — the money is recoverable — but it is unnecessary friction.

Practically, every expat opening a German brokerage account should submit a Freistellungsauftrag in the first weeks. Married couples should coordinate which broker they assign the joint allowance to, especially if one partner has more capital income than the other.

The cost of forgetting is small but real — about €250 a year of unnecessary tax for a fully unused individual allowance. Multiplied across a long German life, that adds up.