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MONEY

DAX hits record high: What you need to know about investing in German index funds

Germany’s leading index of blue-chip stocks - or the country’s 40 largest companies - hit record heights early on Wednesday. Here's what you need to know if you're interested in (ideally) getting a piece of the pie.

Published: 13 March 2024 16:56 CET
bronze bull
A statue of the famous bronze bull in front of the Frankfurt stock exchange. Photo: picture alliance/dpa | Arne Dedert

The DAX rose 0.2 percent and surpassed the 18,000 point mark for the first time. The index climbed to 18,001.42 points minutes after the Frankfurt Stock Exchange opened. 

The DAX, which is made up of the top 40 large German corporations including Daimler and BMW, continues to build despite a wavering German economy. Some analysts say positive inflation indicators in the US and the eurozone contributed to the rally.  

But how can you get a piece of the pie? Here’s what to know about investing in Germany before you shell out your hard earned cash. 

Can foreigners invest in Germany?

Yes, but US citizens may face some limitations. International banks must report to the IRS when serving Americans, so several German banks do not offer investment services to this population. If you are a US citizen interested in investing in Germany, you should speak with an expert or financial advisor about your options. 

In Germany, the main fund managers that offer index funds include the Allianz Global Investors, Deutsche Bank, iShares, and Vanguard. 

How can I invest in Germany?

Germany offers residents several different investment options including:

  • Securities (e.g., Stocks, ETFs, Bonds)
  • Real estate
  • Gold
  • Crypto

Each of these options carry different levels of risk. Interactive Brokers, Trade Republic, Saxo Bank, eToro, and Lightyear are some of the popular online brokerage account providers operating in Germany. These accounts allow you to invest in index funds. Traditional banks like ING and Commerzbank also offer some expats securities accounts where stocks and other investments can be purchased. 

READ ALSO: What to know about cryptocurrency in Germany

What is an index fund?

An index fund is either a mutual fund or an exchange-traded fund (ETF) that invests in a mix of stocks, bonds and other securities. Index funds are grouped to mirror regional markets or capture the growth of an industry like tech or oil. 

Index funds are considered a safer and more passive way of investing because they are intended to mimic the performance of a financial market index. 

What are some of the biggest index funds in Germany?

There are four indices available to invest in the German stock market. The DAX tracks the 40 largest German blue chip companies including Adidas, Deutsche Bank, and Zalando. This index grew more than 26 percent over the last three years.  

Deutsche Bank

A photo taken on August 13, 2021 shows the Deutsche Bank headquarters in Frankfurt am Main. (Photo by ARMANDO BABANI / AFP)

The FTSE Germany All Cap follows a mix of large, medium and small sized companies based in Germany. The performance of companies like Siemens, Deutsche Telekom, and Mercedes play a role in this fund’s performance. This index fund grew 15.04 percent in the same period. 

The F.A.Z. tracks the 100 largest German stock corporations across 12 industries. Companies like Hugo Boss, Bayer, and Lufthansa are included in this index fund which rose 13.25 percent over the last three years. 

The Solactive Germany 30 follows the performance of the country’s largest 30 companies including Porsche, BioNTech, and DHL. The index rose nearly 22 percent in a three year period. 

How are index funds taxed in Germany?

All investment income (capital gains and dividends) is subject to a flat tax in Germany. The tax rate is 25 percent plus the church tax and solidarity surcharge (5.5 percent). Without the church tax the effective tax rate on gains is 26.375 percent. When the church tax is included, the effective tax rate rises to 27.82 percent for Bavaria/Baden-Württemberg and 27.99 percent everywhere else. 

While the Solidarity Tax no longer applies to the majority of German taxpayers who make below  €73,000 as singles or €151,000 for married couples, it still applies to all capital gains, regardless of the amount.

The German government also offers a tax-free allowance for investment gains. Up to €801 when single or €1,602 when married is tax free. 

READ ALSO: What you should know about investing in Germany

Can you invest in foreign index funds in Germany?

Yes, but don’t forget to keep track of how much taxes you may owe if you invest abroad. When investing in Germany, banks automatically deduct the tax to pay to the authorities. 

But expat investors must keep track of profit gained from foreign banks and exchanges because the tax is not automatically deducted by banks not affiliated with the German tax authorities. The taxation rate remains the same for capital gains from foreign index funds.

As with all of our financial and tax summaries, this is a guide only. For financial advice which is personalised to your situation, please contact an accountant or other specialist.

Member comments

  1. Hi – I believe the tax free allowance for capital gains was raised to 1000 EUR from 801 EUR for singles.

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For members

CLIMATE CRISIS

How installing solar panels at home is set to become easier in Germany

As part of its drive to roll out renewable energy, Germany has passed a new law that will make it easier to install solar panels on your balcony. Here's what homeowners and renters need to know.

Published: 30 April 2024 09:22 CEST
How installing solar panels at home is set to become easier in Germany

With rising prices affecting almost every area of life, many people are looking for ways to cut costs wherever they can. 

When it comes to electricity, this could include looking at renewable options like installing solar panels on your balcony.

According to data from the Federal Network Agency’s Market Data Register, this is an increasingly popular choice. As of April 2nd this year, there were around 400,000 balcony solar units in operation in Germany, compared to just 230,000 in the summer of last year.

These little photovoltaic systems can be a great way to become more self-sufficient by producing your own energy for the home – but despite the benefits, you may have been put off by fears of mountains of paperwork and an uncertainty around the rules.

READ ALSO: How to install a solar panel on your balcony in Germany (even if you rent)

The government’s new Solar Energy Package, passed on Friday, aims to solve this issue by making it simpler for people in apartments or single-family homes to install solar panels and use their own energy.

It’s part of a major drive to roll out renewable energy in Germany, pushing up photovoltaic capacity from 7.5 gigawatts in 2022 to 22 gigawatts in 2026 and ultimately 215 gigawatts by 2030. 

But what exactly is changing for homeowners and renters? Here’s what we know so far.

Streamlined registration process

Rather than having to register with your local network operator when installing solar panels on your balcony, in future simply registering with the Federal Network Agency’s Market Data Register will suffice. This streamlined process has been in place since April 1st, 2024. 

Increased capacity allowance

Solar devices installed in the home are allowed to be more powerful in future. If your future device has an installed output of up to 2 kilowatts and an inverter output of up to 800 volt-amperes in total, you can register it quickly in a simple and unbureaucratic registration process.

Previously, devices were only allowed an inverter output of up to 600 volt-amperes. 

No barriers on meters

In a transitional measure designed to encourage more people to switch to solar energy, balcony installations can be run through any type of meter on the market.

Solar panels on a German balcony

Solar panels on a balcony in Germany. The government is making it easier for people to produce – and use – their own solar energy. Photo: picture alliance/dpa/iStock.comMaryanaSerdynska | Maryana Serdynska

This includes meters without a backstop, which run backwards when more energy is produced than is used. These, alongside normal one-way meters with a backdrop, will be permitted for a limited time until modern digital meters can be installed. 

Under previous rules, both older types of meter were prohibited. 

Simpler energy storage

In future, balcony solar systems will be able to store energy with a conventional shockproof plug. This will make installation way easier than it was before.

READ ALSO: German government to subsidise up to €30,000 of heating revamp costs

Easier operation of multi-unit buildings

To enable tenants in apartment blocks to use cheaper solar power from roofs, garages or battery storage systems directly, the new instrument of “communal building supply” is being introduced. This eliminates the complicated requirement to feed energy into the general electricity grid and permits residents to use the energy generated themselves.

In future, tenants will also be able to take out an affordable supplementary tariff themselves for electricity that is not covered by their solar installation. Some rules on this still need to be clarified though, so watch this space. 

Tenant subsidies in commercial buildings

In future, tenant electricity will also be subsidised for commercial buildings and ancillary facilities such as garages if the electricity generated there is consumed immediately, i.e. without being fed through the grid.

This allows several energy systems to be combined and should avoid the overwhelming technical barriers that were previously a problem in residential neighbourhoods. 

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