GERMANY Law and Practice Contributed by: Tarek Mardini, Antonia Puglisi and Enzo Biagi, POELLATH
sponsor. The burden of proof lies with the sponsor, and BaFin considers even informal outreach by the fund sponsor as disqualifying. According to BaFin, reverse solicitation remains an exception and cannot be used as a marketing strategy. BaFin takes a conservative view of fund distribution and monitors compliance closely. Since 2021, harmo - nised EU pre-marketing rules have further restricted the reliance on investor initiative: if a sponsor provides pre-marketing materials to potential professional or semi-professional investors, any subsequent sub - scription within 18 months is considered marketing. Sponsors should therefore ensure their distribution strategy – whether under the AIFMD passport or the NPPR – is fully aligned with German regulatory requirements to avoid enforcement risks and maintain lawful access to the market. 4.7 Compensation and Placement Agents Placement Agents Some fund managers (in particular, mid-size and larger fund managers) solicit investors for the fund through a placement agent. Placement agents often provide investment brokerage services, which require a regu - latory set-up (ie, either acting with a licence as a MiFID II firm for investment brokerage (reception and trans - mission of orders – RTO) and/or investment advice or, alternatively, acting as a tied agent on behalf of and under the liability shield of a licensed MiFID II firm). See 4.4 Rules Concerning Marketing of Alternative Funds for the regulatory requirements. The remunera - tion of placement agents is usually based on a certain percentage of the capital raised. Such payments are typically excluded from the category of organisational expenses of the fund, and therefore cannot generally be charged into the fund. This is in line with inter - national market practice. In addition, some German regulated investors have internal policy or regulatory requirements that do not allow for placement agent fees to be charged as fund expenses. In addition to being engaged in fundraisings and larger secondary transactions (especially portfolio sales and GP-led transactions), placement agents are also regu - larly engaged, by sellers as well as fund managers, as
intermediaries for the sale on the basis of an advisory agreement. Manager Personnel Manager personnel are usually not compensated by the fund for the distribution of fund units to potential investors (but will indirectly profit as the management fee is typically tied to the amount of total capital com - mitments of investors). 4.8 Tax Regime for Investors Overview Different investor groups trigger different tax regimes with respect to their investments in German funds. Also, the taxation differs based on whether the gen - eral tax rules apply (in the case of funds in the form of a partnership) or whether the special tax regime of the German Investment Tax Act applies (in the case of funds in the form of a corporation or a contractual- type fund). The following is a short summary of the tax effects at investor level under the German general tax rules in the case of partnerships (see 2.4 Tax Regime for Funds for the tax effects at investor level in the case of the applicability of the German Investment Tax Act). There is no special treatment of income from a fund in the form of a partnership. The income is taxed at the level of German-resident investors in accordance with the general rules applicable to the respective investor and the respective type of income. German Investors In the case of German-resident investors, the taxa - tion rules will depend on the type of investor as well as whether the fund (ie, the partnership) is treated as being engaged in a trade or business, or engaged in private asset management. Individual investors For individual investors, the actual rate of investor-lev - el taxation depends on whether the investor holds the fund interests as part of their non-business or busi - ness assets. For individuals that hold their investment fund interests as part of their non-business assets, such items are generally subject to flat income tax (effectively at 25% plus solidarity surcharge, in aggre -
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