Germany: Discussion draft issued on reform of investment taxation

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Germany: Discussion draft issued on reform of investment taxation

wenzel.jpg

vana.jpg

Alexander Wenzel


Thomas Vana

A discussion draft for a reform of Germany's Investment Tax Act published by the Ministry of Finance on July 22 2015 contains fundamental and wide-reaching changes to the taxation of income received by German investors through investment funds. The changes would follow the recent changes effective from December 24 2014. After the release of the discussion draft, a formal legislation procedure might be initiated later in 2015, up until September. If adopted, the new rules would apply as from 1 January 2018.

Under the current tax system, German investors in an investment fund are taxed under the 'tax transparency' principle, that is, profits and income earned by the fund are taxable only in the hands of the investors; the fund is not subject to tax.

The transparent tax system generally would continue to apply to investment funds that do not have more than 100 (non-individual) investors. However, significant changes would be made to the tax treatment of other investment funds and their German investors:

  • The scope of application of the Investment Tax Act would be broadened to capture a number of investment vehicles (except, for example, for typical private equity funds);

  • Taxation would apply at the fund level regardless of where the fund is tax resident.

Investment funds would be subject to the 15% corporate income tax (including the 5.5% solidarity surcharge) on income that is subject to non-resident taxation in Germany, that is, German dividends (including compensation payments), income from real estate assets located in Germany and other income. A tax exemption would be possible only to the extent eligible persons invest in the fund.

At the level of the German investor, the discussion draft provides for taxation of any (1) distributions; (2) lump sum amounts if distributions and appreciation in fund value do not exceed a threshold based on a deemed interest-free rate of return; and (3) capital gains from the disposal of fund units.

To (partially) compensate for the taxation at the fund level, there would be tax relief at the investor level for equity and real estate funds, although stringent requirements would have to be met.

Alexander Wenzel (alwenzel@deloitte.de) andThomas Vana (tvana@deloitte.de)

Deloitte

Tel: +49 69 75695 6111 and +49 89 29036 8891

Website: www.deloitte.de

more across site & shared bottom lb ros

More from across our site

The US president also unveiled a new 50% levy on copper imports; in other news, a UK wealth tax proposal has been criticised by the Institute for Fiscal Studies
Wim Wuyts, who had been head of the specialist tax network since 2017, is moving on to a new role with WTS’s Belgian member firm
MNEs are increasingly using algorithmic tools in TP. Sahasranshu Dash argues that data ethics should therefore plug directly into the TP design process
The Institute of Chartered Accountants in England and Wales also queried whether HMRC resources could be better spent scrutinising larger entities
Grant Thornton’s Austria tax head likens his practice to an escape room, shares his football coaching ambitions, and explains why tax is cool
Awards
ITR is delighted to reveal all the shortlisted nominees for the 2025 EMEA Tax Awards
Awards
ITR is delighted to reveal all the shortlisted nominees for the 2025 Asia-Pacific Tax Awards
The fates of pillars one and two hang in the balance after the US successfully threw its weight around in G7 and Canadian negotiations
Rafael Tena tells ITR about the ‘crazy’ Mexican market, ditching the hourly rate, and refusing to grow his fledgling firm in an ‘unstructured way’
It should be easy for advisers to be transparent about costs, Brown Rudnick partner Matthew Sharp said in response to exclusive ITR in-house data
Gift this article