I am trying to decide between investing in a distributing ETF or an accumulating ETF and to me the distributing ETF seems clearly to be the better option. Since so many people invest also in accumulating ones, that makes me think that I might be missing something here. So I figured I better ask here first:) Here is what makes me think that the distributing ETFs are superior to accumulating ones:

In the country I live in (Germany), the tax law is set up in such a way that in both distributing and accumulating ETFs you pay exactly the same capital gains tax on the gains made via the dividends. However, when you want to take some cash out of your account (and that will happen at some point either at retirement or earlier - otherwise what is the point in investing) then there does a significant difference occur. Let me compare the two using a concrete scenario.

Accumulating Scenario: Suppose that you invest 50k to an accumulating ETF today and 10 years later it becomes worth 100k. Now if you want to withdraw 2k from your account at the 11.year then you'll have to sell some shares and pay capital gains tax for the profit you made in that trade (which is 1k, as your ETF has doubled in value). In Germany, that tax would be around ~200.

Distributing Scenario: This time you invest 50k to a distributing ETF and whenever you receive a dividend payment you invest all of it back to the fund (for simplicity assume that your brokerage account does not charge you anything for these share purchases). Since (as pointed out above) for dividends there is no difference in tax in either ETF type, after 10 years your portfolio is again worth 100k. Now if you want to withdraw 2k as before, (assuming that your ETF has a dividend yield 2%) you can just get it from dividend payments throughout the year. As you did not have to sell any shares in this scenario, you don't suffer the capital gains tax, which was ~200 in the prev scenario.

Am I missing something here?

  • Depends on what you want to do with the dividend money. You are likely missing compound interest when you buy distributing ETFs Feb 15, 2021 at 23:14
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    If you 'invest the dividends back to the fund', there are none remaining to draw from after ten years. Either you keep the dividend in cash, or you invest it back - you don't get both.
    – Aganju
    Feb 15, 2021 at 23:42
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    In your distributing scenario, you pax taxes on the (1000 €) dividend every year. That's 200 €.
    – glglgl
    Feb 16, 2021 at 9:07
  • @Aganju Well you can reinvest everything but the last 2 years (resp. the last year, as then we have 2% of 100k€)
    – glglgl
    Feb 16, 2021 at 9:07

3 Answers 3


In the country I live in (Germany), the tax law is set up in such a way that in both distributing and accumulating ETFs you pay exactly the same capital gains tax on the gains made via the dividends.

I am not sure you are right here.

In both cases, the Vorabpauschale is calculated as the gain which you could have made in a "safe way". As the interest rate for calculating the VAP becomes lower and lower, it tends to be irrelevant.

If there still was a positive VAP with a base interest rate (Basiszinssatz) of, say, 1%, we could look at it via the following example:

  • you invest 1000 € into a DIS and an ACC ETF each.
  • At the end of the year, the DIS has paid 4 € of dividends and, nontheless, has increased in value to, say, 1007 €.
  • The ACC ETF has now a value of 1011 €, so it has increased by 11 €.
  • As the base interest rate is 1 %, as we assumed, your "Vorabpauschale" is 10 €, which is taxed then as capital gain.
  • The DIS one has gained only 0.7%, so the VAP isn't 10 €, but only 7 €. But the distributions you have received are reduced from this, so the final VAP is only 3 €.

Now, with a base rate of 0.5%, the VAP for the ACC would be 5 € and for the DIS would be 1 €, plus taxes on the 4 €.

With a base rate of 0%, the VAP for the ACC would be 0 € and fot the DIS 0 € as well, plus taxes on the 4 €. So in this case, the DIS is taxed higher then the ACC.

For the VAP calculation, it is irrelevant whether the NAV of the ETF gets higher because of reinvested dividends or whether it only consists only of shares which don't pay any dividends.

So the initial claim "ACC and DIS are taxed the same way" is only partially valid.

So let's take your scenarios with the 50000 € and a payout of 2000 € after 10 years:

Assume (compounding aside) you have a plus of 10 % per year and a base rate of 2 % (much higher than today).

ACC case:

  • For taxes, you are assumed to have gained 2 % per year, so you are assumed to have a gain of 1000 € in the first year, 1100 € in the second year, etc., and 2000 € in the last year, totalling about 15000 €.
  • If you now sell some ETF shares for 2000 €, it is 2% from what you purchased originally, so 2% of the totally assumed gains are assigned to these sold shares. That's 300 €. But you made a gain of 1000 €, so you are taxed for 700 € at the time of sale. Totally, you are taxed 1000 € for this gain, as you should: your original investment has doubled, so your 2000 € originate from an investment of 1000 €.
  • The remaining gains continue to be taxed via the Vorabpauschale method and are "finally taxed" when they are realized, ideally after retirement where you might have a personal tax rate of < 20 % and can elect to be taxed with this rate.

DIST case:

  • In each year, you have gained 1000 € (of dividends). They are taxed as they occur, even if you reinvest them.
  • We further assume that the ETF gains in value despite paying dividends. But it is quite likely that the nominal gains from this ETF via the VAP method don't apply, as the VAP is reduced by the dividends paid (and taxed).
  • If you keep 2000 € of these dividends, these 2000 € are fully taxed.

So to conclude: the ACC case is much better for now, as only a part of the nominal gains are really taxed each year using the VAP method. For the 2000 €, it doesn't matter in the end, as you pay your 20 % taxes of the 1000 € made as gains. But for the remaining money, it is more tax efficient to keep it as an ACC ETF.

(Correction: For the 2000 €, it makes a difference as well: if you take it out of the ACC ETF, only 1000 € are gains, the other 1000 € were already here. For the DIS ETF, you have 2000 € as gains, all being taxable.)

You'll have to pay taxes on all gains eventually, but as said, they might occur at a time where your personal tax rate is below the 20% rate and you might get taxed lower ("Günstigerprüfung", i. e. check whether it is more advantageous to pax a lower tax).

  • Yeah, I was wrong at the part you quoted from my question. Thanks for pointing that out! Your calculation above seems not 100% correct, though. In this link (justetf.com/de/news/etf/…) I found another comparison of DIS and ACC and their calculation does not agree fully with yours if I am not mistaken. However, the take away for me from your answer and from the link I shared is: It does not matter at the end of the day which one you choose so I don't have to worry about it :) Feb 16, 2021 at 20:07
  • @IrfanKadikoylu It could be that I forgot the factor 0.7 somewhere, I am not quite sure about that.
    – glglgl
    Feb 18, 2021 at 13:46

German tax laws have found a very complicated way to compute the tax for ETFs. Additionally to the Vorabpauschale (VAP) which changes every year depending on the value of your portfolio and current interest rates, there is also the tax exempt amount (Sparerpauschbetrag) of 801€. Ideally you want to use this amount every year to save on taxes. So what does this mean in practice:

  • If you have a small portfolio and no other gains relevant for the Sparerpauschbetrag, you are better off with a distributing ETF. Dividends will be taxed immediately (with 0% as they are exempt) and tax obligations created by the VAP can also be fulfilled by the Sparerpauschbetrag. Once you sell those ETFs they are only taxed on the realized gains exceeding the VAP
  • If you have a very large portfolio or other gains counting towards the Sparerpauschbetrag (e.g. from active trading), the dividends will exceed the tax free amount and you are required to pay taxes on the exceeding dividends and the VAP. In this case it would be in your advantage to defer paying taxes as much as possible and only pay taxes on the VAP.

There is an online calculator to compute the taxes for your dividends and VAP. Some people use this to mix distributing and accumulating funds to ensure they will get as much as tax-free taxable gains as possible. Keep in mind that you might also realize gains during rebalancing.

Besides taxes you should also consider that for a distributing ETF is is your responsibility to reinvest the dividends to receive compound interest. You will need the discipline to invest the dividends and not spend them otherwise. An accumulating ETF will do this automatically for you and guarantee a compound interest effect.

  • 3
    I am not sure you are right here. For both types of ETF, the "Vorabpauschale" is used, but this one tends to become smaller and smaller and is in this year even 0. The distributions which are paid out are taxed as they are, but the accumulating ETFs are in fact not taxed as of now. Am I missing something here?
    – glglgl
    Feb 16, 2021 at 7:22
  • @Manziel so do you agree that if one does reinvest the dividends in a disciplined manner to get compound interest & there is no brokerage fee for share purchases then the distributing ETF is indeed more advantageous than the accumulating one? Feb 16, 2021 at 8:18
  • @glglgl Actually I am not sure as well. I failed to wrap my head around this last night so I stuck with the source. Your answer seems quite good
    – Manziel
    Feb 16, 2021 at 12:15
  • Note: I reworked this answer entirely
    – Manziel
    Apr 19, 2021 at 14:00

(Using $ because that's what's on my keyboard.)

The $50,000 growth in the Accumulating ETF are known as Capital Gains. In the US, you only pay taxes on those gains when you realize (aka sell) some shares in year 11.

Also in the US, a "Distributing" ETF distributes dividends every year, and so tax must be paid every year on the dividends (but not any capital gains).

Thus, your question needs to be, "How does Germany tax unrealized capital gains?" That will tell you whether an Accumulating ETF or Distributing ETF is better.

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