GERMANY Law and Practice Contributed by: Tarek Mardini, Antonia Puglisi and Enzo Biagi, POELLATH
of the partners, in accordance with the rules of the tax regime applicable to the respective partners. On the other hand, if the fund vehicle qualifies as being engaged in a trade or business, the fund itself is not subject to German income tax, but it is subject to Ger - man trade tax. There are no withholding tax implications at the level of a partnership itself. However, withholding tax impli - cations can arise from the underlying investments made by the fund. Funds as Corporations or Contractual-Type Funds (Investment Funds) The German Investment Tax Act applies to all funds other than partnerships. Thus, it covers so-called “investment funds” – funds that are structured as corporations or contractual-type funds ( Sonderver- mögen ). The Act generally applies to UCITS and AIFs (both retail AIFs and special AIFs). Also covered are certain other entities that do not qualify as “investment funds” under the KAGB (in particular, single-investor funds). Prior to the 2018 revision of the Act, the German Investment Tax Act provided for a tax regime known as the “restricted transparency” regime. This has been replaced by two different concepts, the “opaque regime”, which is the general regime under the revised Act, as well as the “restricted transparency option” regime, which is an option that is available for spe - cialised investment funds pursuant to the German Investment Tax Act. Under the opaque tax regime, there are two levels of taxation: the fund and the investors. This tax regime is applicable to all retail funds. Further, it also applies to all other investment funds (including non-retail funds) that do not satisfy the specific criteria for specialised investment funds, or specialised investment funds that do not use the transparency option. Opaque regime Under the opaque regime, the fund itself is subject to taxation. However, the fund is only subject to taxa - tion with respect to certain types of income: certain domestic German income (in particular, dividends and real estate income, but not capital gains from the sale
of securities unrelated to real estate and unrelated to a permanent establishment in Germany). In respect to such income, a 15% tax rate (ie, German corpo - rate tax rate) applies to the fund. The exemption for dividends (Section 8b of the German Corporation Tax Act) is not applicable at fund level even if the relevant threshold (ie, 10%) is exceeded. In addition, German trade tax may apply at fund level if the fund itself is engaged in trade or business in Germany (subject to a potential exemption if the fund does not engage in “active entrepreneurial manage - ment” in relation to its assets). Investment funds are required to withhold tax for the taxable income of their (domestic) investors, but not for the income from the sale of fund units. In general, there are no tax exemptions at the level of the fund. In return, at the level of the investor, pro - ceeds received from the fund are subject to partial exemptions depending on the respective fund type (equity fund, mixed fund or real estate fund). At the investor level, there is lump-sum taxation (designed for the needs of retail funds with a large number of investors, but applicable to all funds cov - ered). In particular, distributions from the fund, pre - determined tax bases and capital gains realised upon sale or redemption of the fund interests are covered. The objective of the predetermined tax base is to sub - ject the retained income of the investment fund to tax. Different investor types For individual investors, the actual rate of investor- level taxation depends on whether the investor holds the fund interests as part of their “non-business” or “business” assets. If individuals hold their investment fund interests as part of their non-business assets, such items are subject to flat income tax. If individu - als hold their investment fund interests as part of their business assets, generally, the full amount of such items is subject to income tax at their personal rate. For corporate investors, the full amount of such items is subject to corporation tax. In addition, German trade tax may be triggered at the corporate investor level. The partial income taxation and the exemption pursuant to Section 8b of the German Corporation
117 CHAMBERS.COM
Powered by FlippingBook