Taxes on Startup Investments: What the Custodian Bank Handles and What It Doesn’t

Investors who back startups through Companisto mostly receive profit participation certificates (Genussscheine) or shares. How the income from them is taxed depends mainly on whether the money is invested by a private individual or by a company. At a Companisto masterclass in June 2022, tax adviser Dr. Rainer Schenk and accountant Susanne Schenk explained the basic rules. For most private investors, things are simpler than the forms suggest, because the custodian bank takes care of much of the work.

One investor had received word from Companisto that a startup in his portfolio had filed for insolvency. During the Q&A session of the masterclass, he wanted to know where on his tax return he had to report the loss. There was no blanket answer. Losses go on the investment income schedule (Anlage KAP) and, in some cases, on the trade or business income schedule (Anlage G), Rainer Schenk said. It depends, he explained, on how large the stake is and whether it is held as private or business assets. Schenk had little good to say about the form in any case: “Anlage KAP is the worst form in the tax return. There’s nothing worse. It looks so simple, just two pages, but it’s a nightmare.”

At the masterclass, Rainer and Susanne Schenk represented the firm Kanzlei Dr. Schenk, based in Ostheim in Lower Franconia, which at the time also provided tax advice to issuers on Companisto. In just over half an hour, the two walked through how profit participation certificates and shares are taxed. At the end of the talk, Rainer Schenk stressed that this had not been tax advice. They had put out tax information “at breakneck speed,” he said, and had “probably added to the general confusion.”

Profit participation certificate or share? It depends on the legal form

Which security investors receive on Companisto depends on the startup’s legal form. If it is a stock corporation (AG), they usually get shares. If it is a GmbH, a special purpose vehicle (SPV) from the Companisto group takes a stake in the startup and issues profit participation certificates to the investors. Through the certificates, investors participate indirectly in the startup’s earnings, including any proceeds from a sale, in each case after the SPV’s costs have been deducted. They do not become shareholders of the startup. As a rule, the certificates are securities with their own identification number (ISIN), and in most financing rounds they are credited to the investor’s securities account; depending on the round, the same goes for shares.

Not all profit participation certificates are alike

Tax law distinguishes between two types. Debt-like profit participation certificates (obligationsähnliche Genussscheine) give their holders a share of profits only, and the income is taxed much like interest. Equity-like certificates (beteiligungsähnliche Genussscheine) also grant a share of the liquidation proceeds, meaning whatever is left over when the company is dissolved, and thus a share of its hidden reserves (stille Reserven). For tax purposes, they are treated largely like shares.

Rainer Schenk classified Companisto’s profit participation certificates as equity-like; for tax purposes, he said, they should be viewed “almost like a share.” That fits with the current terms of the certificates, which grant holders “participation in the hidden reserves” of the issuing company. This classification is not binding; if there is any doubt, the tax office decides. Legally, the certificates remain qualified subordinated claims (qualifiziert nachrangige Forderungen) against the SPV, with no participation or control rights under corporate law. In practice, the difference matters little for private investors, because the flat-rate withholding tax applies in both cases.

Private investors pay the flat-rate withholding tax

The vast majority of Companisto investors invest as private individuals. For them, taxation is relatively straightforward, for profit participation certificates and shares alike. When a distribution is paid, the custodian bank withholds investment income tax (Kapitalertragsteuer): 25 percent plus a 5.5 percent solidarity surcharge on the tax, for a combined 26.375 percent, or just under 28 percent with church tax. The solidarity surcharge is still levied on investment income, even though most taxpayers have not paid it on their wage and income tax since 2021. The custodian bank also issues the tax certificate, as Rainer Schenk explained. For shares not held in a securities account, the stock corporation itself withholds the investment income tax on dividends; for certificates held outside a securities account, the SPV does.

Normally, the deduction settles the tax for good, which is what the German name Abgeltungsteuer refers to. Investors who are not otherwise required to file a tax return have nothing more to do; for them, “it’s a done deal,” Schenk said. Nor does such income have to be reported on a tax return, the tax adviser confirmed during the Q&A. If you accept that the withholding settles the tax, he said, the matter is closed.

Saver’s allowance and exemption order

Since 2023, the saver’s allowance has been €1,000 a year, or €2,000 for couples filing jointly; at the time of the masterclass, it was €801 and €1,602. It covers all of a year’s investment income combined, including interest on a savings account or dividends from other securities accounts. To keep the bank from withholding tax on income up to that amount in the first place, investors need to file an exemption order. For profit participation certificates and shares held in a securities account, the order goes to the custodian bank, not to Companisto.

Investors with exemption orders at several banks have to check for themselves that their combined orders do not exceed the allowance. “You have to keep track of it yourself,” Rainer Schenk said. “Nobody does it for you, because it’s your own responsibility.” Exemptions that are too high get noticed anyway, because the banks report the amounts every year to the Federal Central Tax Office (Bundeszentralamt für Steuern), which cross-checks them using the taxpayer identification number. The banks can tell investors where their orders currently stand; the orders can also be changed there, but not reduced below the amount already used in the current year.

When filing a tax return pays off

If the bank withheld investment income tax even though the allowance had not yet been used up, the tax office will refund it. Anyone who doesn’t claim the refund is giving money away, Rainer Schenk warned.

Investors whose personal tax rate is below 25 percent, as is the case for many retirees or students with low incomes, can also apply for a favorability test (Günstigerprüfung). To do so, you “just have to check a little box,” Susanne Schenk said. The tax office then checks whether taxing the income at the investor’s personal rate works out cheaper; the application can be made anew every year. Under the flat-rate withholding tax, however, actual income-related expenses (Werbungskosten) such as securities account fees cannot be deducted, not even with the favorability test.

Taxes on a sale or exit

Gains on the sale of shares bought after 2008 are taxable regardless of how long they were held; in the past, gains became tax-free once shares had been held for a year. Private investors pay the same flat-rate withholding tax on these gains as on dividends, and the same applies to profit participation certificates. The gain is the proceeds minus acquisition costs and selling costs. There are hardly any selling costs, Rainer Schenk said in response to a question from the audience; only expenses directly connected with the sale are deductible, he added. These are mainly bank fees and commissions. According to a 2025 ruling by the Federal Fiscal Court (BFH), a tax adviser’s fees for calculating the gain are not among them, at least for holdings of 1 percent or more.

If the profit participation certificates are held in a securities account, the proceeds from an exit also flow through the custodian bank. When the SPV sells its shares in the startup, it first deducts its own taxes and costs. In addition, a Companisto company receives a profit share: under the current terms, 15 percent of the increase in value of the stake in the startup, to the extent that this increase exceeds a minimum return of 6 percent a year on the purchase price. The SPV passes whatever is left on to the investors: as a repayment of the nominal amount, to the extent the proceeds are sufficient, and as a distribution, to the extent that a profit remains beyond that. The distribution is subject to the flat-rate withholding tax. For investors who subscribed at the issue price, the repayment of the nominal amount is not a gain; if it comes in lower, the result is a loss.

Things are different when investors sell their certificates or shares before an exit, for instance on Companisto’s secondary market, provided a buyer can be found. There, the buyer pays the seller directly, and the securities change hands through a transfer between securities accounts. The custodian bank therefore does not know the agreed price and cannot calculate the gain correctly. As a rule, it treats a transfer to another person’s securities account like a sale and withholds tax on a flat-rate amount. Sellers should therefore report the sale on their tax return and keep the paperwork. Buyers should also hold on to their proof of purchase, because their bank does not know the price paid either. For shares not held in a securities account, no bank handles the settlement; investors then have to report gains from a sale or exit on their tax return themselves.

Section 17 applies to holdings of 1 percent or more

Section 17 of the Income Tax Act (Einkommensteuergesetz, EStG) makes an exception; Rainer Schenk called it a “somewhat unpleasant section.” If, at any point in the five years before the sale, a private investor held at least 1 percent of the capital of the company whose shares he is selling, the gain counts as income from a trade or business, even though the shares are held as private assets. Instead of the flat-rate withholding tax, the partial-income method (Teileinkünfteverfahren) then applies: 60 percent of the gain is taxed at the personal tax rate, and 40 percent remains tax-free. Depending on the personal tax rate, that can cost more or less than the flat-rate withholding tax. The gain then goes on Anlage G; under certain circumstances, 60 percent of losses can also be offset against other income.

Schenk assumed that the threshold would not matter for most investors, because their stakes were too small. Things could look different for business angels or for relatively large amounts, he said. For profit participation certificates, the question has not been definitively settled. The law does expressly list profit participation certificates among the interests to which Section 17 can apply. Under a 2005 ruling by the Federal Fiscal Court, the percentage for certificates that also give their holders a share of the liquidation proceeds would then be measured against the SPV’s equity, including the certificate capital. An investor who puts €10,000 into a round that raises €1 million in total would thus already reach the 1 percent threshold. Investors who subscribe for a larger part of a round should discuss this with their tax adviser.

How losses are treated

The speakers deliberately left losses aside. Rainer Schenk called the topic “very complicated.” How losses are treated depends, among other things, on whether they arise on profit participation certificates, shares, or interests in a GmbH, and on which loss offset pot (Verlusttopf) they fall into, he said. In November 2022, Companisto devoted separate masterclasses with Schenk to the topic.

Under current law (as of October 2026), private investors can offset investment losses only against investment income, not against salary or rental income; any remainder is carried forward to later years. Losses on shares, moreover, may be offset only against gains from share sales; the banks keep a separate loss offset pot for this. Since 2021, the Federal Constitutional Court has been reviewing whether this restriction is constitutional; tax assessments are issued provisionally on this point. Profit participation certificates are not shares; losses on them are not subject to the restriction. To offset a loss at one bank against gains at another, investors need a loss certificate (Verlustbescheinigung), which must be requested by December 15 of the current year.

The Annual Tax Act 2024 (Jahressteuergesetz 2024) scrapped the €20,000 annual cap on offsetting losses from investments that had become worthless; the change applies to all cases still open. Since then, however, the tax authorities have assigned losses on shares that have become worthless to the share loss offset pot.

When a loss takes effect for tax purposes often depends on the individual case, especially since insolvency proceedings can drag on for years. The current terms of the profit participation certificates provide that a Companisto company can buy the certificates if the startup becomes insolvent, usually for a token price. That sale normally realizes the loss for tax purposes. Investors affected should check their bank’s statement. If it does not show the actual acquisition costs, the loss can be claimed through the tax return using the subscription documents.

When the securities account shows no value

Some custodian banks display the securities without a value, as participants reported during the Q&A. Companisto supplies the German securities identification number (WKN), the ISIN, and the value when the securities are credited, the moderator explained, but not all banks can display the value of securities that are not traded on an exchange. According to Companisto, this still happens today. Rainer Schenk noted that the value matters for the taxation of gains.

If the bank does not know the acquisition costs when it processes a sale itself or handles a repayment, it treats a flat 30 percent of the proceeds as the gain under current law. If the actual gain is lower, the tax can be corrected through the tax return with proof of the acquisition costs. If it is higher, for instance with securities bought on the secondary market well below the later proceeds, or with shares after a successful exit, investors must report the actual gain on their tax return; the tax is then settled only to the extent the bank has withheld it. The portfolio overview, which can be downloaded as a PDF from the Companisto account, can be useful as proof; for each investment, it lists the WKN, ISIN, number of units, price, and amount invested, among other details. For purchases on the secondary market, the purchase agreement and the bank transfer receipt serve as proof. To be on the safe side, investors should also keep subscription documents, transfer receipts, and tax certificates.

Investors from abroad

Two participants asked about the rules for investors from Austria. When a German company pays dividends, investment income tax is first withheld in Germany, even if the investor lives abroad, Rainer Schenk explained. “That applies to everyone.” The tax withheld then has to be reclaimed through an application procedure, he said, conceding that the process was “a bit cumbersome.” As he put it, “Germany makes all of this very complicated.”

How much Germany may keep is governed by the applicable double taxation agreement (DTA). For private investors from Austria, it is no more than 15 percent on dividends. The Federal Central Tax Office refunds any amount withheld above that on application; Austria generally credits the remaining 15 percent against its own tax. Contrary to how it sounded in the talk, then, the German tax is not refunded in full. Whether the 15 percent cap also applies to distributions on profit participation certificates depends on how they are classified for tax purposes: the DTA treats them as dividends only if they are taxed in Germany like income from shares.

Investing through your own company

Some investors deliberately invest through a company, for example to finance the investment through the business. The investment income tax withheld is then not final; it is credited against income tax or corporate income tax, and in the case of partnerships against the partners’ tax. Commercial businesses are also subject to trade tax (Gewerbesteuer), which has its own thresholds; the masterclass largely left it aside.

Sole proprietorships and partnerships

If shares or equity-like profit participation certificates are held as business assets of a sole proprietor or a partnership, the partial-income method applies: 60 percent of distributions and capital gains on sales are taxable, and 40 percent remain tax-free. Correspondingly, only 60 percent of costs and losses can be deducted.

The dividend exemption requires a stake of at least 10 percent

When a GmbH or AG invests, the size of the stake matters. Under the Corporate Income Tax Act, dividends are generally tax-exempt, but a flat 5 percent of them are deemed nondeductible business expenses. The net result is that 95 percent remains tax-free, and the actual costs are fully deductible. The flat-rate amount is “simply something you have to accept,” Susanne Schenk said. However, this tax exemption, known as the dividend exemption (Schachtelprivileg), applies only if the stake amounts to at least 10 percent of the share capital at the beginning of the calendar year, or 15 percent for trade tax. Smaller stakes count as portfolio holdings (Streubesitz), and their dividends are fully taxable. Investments through Companisto should generally be assumed to be portfolio holdings, both speakers said.

The picture is more favorable when shares are sold. For corporations, 95 percent of capital gains on sales effectively remain tax-free, even for portfolio holdings. In return, a corporation cannot deduct losses on such shares for tax purposes, for example after an insolvency.

Some questions are disputed when profit participation certificates are held as business assets of a corporation. The 10 percent threshold refers to the share capital, in which certificate holders have no stake. And because the gain from an exit on Companisto certificates is paid out as a distribution, the 95 percent rule for capital gains on sales cannot simply be applied to it. Companies that invest through profit participation certificates should clarify this with their tax adviser beforehand.

How income from shares is taxed (as of October 2026, excluding trade tax)

According to the speakers, distributions on equity-like profit participation certificates are in principle subject to the same rules as dividends, with the uncertainties described above in the case of corporations.

The bottom line

For most private investors, the custodian bank does the bulk of the work, and many are spared Anlage KAP, in Rainer Schenk’s view the “worst form in the tax return.” Investors should take action themselves mainly in three cases: if the bank withheld tax even though the saver’s allowance had not been used up, if their personal tax rate is below 25 percent, and if they have sold profit participation certificates or shares on the secondary market. In any case, investors must report gains on shares held outside a securities account, and gains above the bank’s flat-rate assumption, themselves. Anyone who subscribes for a larger part of a financing round or invests through a company should clarify the tax consequences with a tax adviser in advance.

The custodian bank can take on so much because of the form the investment takes: in most Companisto financing rounds, the profit participation certificates are credited to the investor’s securities account as securities with their own ISIN. Distributions and the proceeds from an exit then flow through the custodian bank, just as with other securities; the bank withholds the tax, takes the exemption order into account, and issues the tax certificate.

Whether there will be any gains to tax in the end is an open question. Startup investments are venture capital, a total loss is possible, and it often takes many years before an exit. Investors should therefore invest only money they can do without over the long term, and spread it across several investments.

Note: This article is based on the Companisto masterclass of June 1, 2022. Amounts and rules that have changed since then have been updated as of October 2026; some of the information, including the material on losses, the secondary market, profit participation certificates held as business assets, and investors from abroad, goes beyond the masterclass. This text is for general information only and does not constitute tax, legal, or investment advice. Tax consequences depend on individual circumstances and may change as a result of legislation and case law. Investing in startups involves considerable risks and can result in the total loss of the capital invested.