What is a tax exemption order (Freistellungsauftrag)?

A tax exemption order is an optional instruction to your bank to exempt capital gains up to a certain amount (currently a maximum of €1,000 for singles and €2,000 for married couples) from withholding tax in Germany.

This means that interest, dividends, and profits up to this amount are paid out to you tax-free, without the bank withholding any taxes. Tax exemption orders are only possible for German residents.