GERMANY Law and Practice Contributed by: Tarek Mardini, Antonia Puglisi and Enzo Biagi, POELLATH
German Act to Modernise the Law on Partnerships (“MoPeG”) After a transition period of around two years six months, comprehensive reform of the German Law of Partnerships essentially came into force on 1 January 2024. The reform adapts German partnership law to the requirements of a modern, diverse economic life, and codifies certain legal developments of the past decades that have already been carried out in case law, science and practice. Among other important innovations (eg, a special new register for a standard German partnership), the law has certain implications for German limited partnerships as well (eg, the rules governing legal challenges to partnership resolutions). 3. Fund Managers 3.1 Origin of Promoters/Sponsors of Alternative Funds Promoters/sponsors of German alternative funds are typically established in Germany. 3.2 Legal Structures Used by Managers Managers almost always use a corporate entity (typi - cally a GmbH) for a managing entity. However, techni - cally speaking, German regulatory law allows the legal form of a GmbH, AG or KG (limited partnership), in which the general partner is exclusively a GmbH, as legal forms for an external AIFM. In the case of internal management of the fund, the management is carried out by the fund’s own management bodies (managing directors or board members). A big driver for choosing the corporate entity as the managing company is to protect the management from unlimited liability. Incentives and equity participations in the fund are typically granted via two separate vehicles participat - ing in the fund. Such entities are described as the team vehicle and the carry vehicle. While smaller first- time fund managers tend to use just one vehicle to combine the team commitment and the carry distri - butions, bigger management teams often split both streams to increase flexibility in terms of participation. When choosing the right legal form for those vehicles, tax-efficiency in addition to the limited liability of indi -
vidual team members, as well as freedom of structur - ing under companies’ law, are key drivers. Carry and team vehicles are usually structured as GmbH & Co KGs (limited partnerships with a corporate body as the general partner) in Germany. 3.3 Regulatory Regime for Managers The German regulatory regime for AIFs is based on the AIFMD, which has been implemented in Germany in the KAGB. See 2.2 Regulatory Regime for Funds and 2.3 Disclosure/Reporting Requirements for more details. 3.4 Tax Regime for Managers Overview With respect to the tax regime applicable to income received from the fund by fund managers, several income streams need to be distinguished. Fund managers typically invest their own money (usually through a separate team commitment vehicle organ - ised as a German limited partnership considered to be engaged in private asset management). With respect to income in relation to such capital commitment, the fund managers are treated like normal investors in that no special rules apply. In addition, fund managers may receive, according to the so-called distribution water - fall in fund agreements, additional income which does not correspond to their capital commitment – that is, which is capital disproportionate – so-called “carried interest”. In Germany, special tax rules apply – with certain requirements and qualifications – to carried interest received by fund managers (see 3.6 Taxation of Carried Interest ). The third type of income stream that fund managers may receive from the fund is the management fee, which is typically accrued by the management company itself. As (external) manage - ment entities are generally structured as corporations, the management fee is typically subject to corporate income tax and trade tax at the management com - pany level. That said, from an income tax perspec - tive, all management fee income is taxable as income received for services provided (ie, no special tax exemption is applicable). In practice, the greatest issue in relation to manage - ment fees arises in relation to value added tax (VAT) treatment.
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