GERMANY Trends and Developments Contributed by: David Jansen, Wulf Kring, Maria Risse and Marcel Seemaier, Willkie Farr & Gallagher LLP
from investments in German partnerships carrying out genuine commercial activities will generally be subject to corporate income tax at the fund level. The latter is particularly relevant for investments in German partnership-type private equity funds. These changes will also extend to investment funds with tax-exempt investors, making it advis - able to review investment structures, especially for such investors. • The existing exemption from trade tax for Ger - man investment funds requires, in particular, that the fund does not actively manage its assets in an entrepreneurial manner to a significant extent. An existing exemption from trade tax at the fund level for investments in real estate companies will be extended to investments in infrastructure project companies, renewables project companies, and PPP companies. • The draft legislation may introduce substantial improvements for special investment funds, which are typically established for a limited group of German institutional investors. It is proposed that these funds will, in future, be permitted to acquire
fund units in both domestic and foreign investment funds of any legal form, provided that such funds satisfy the prerequisites of Section 1, paragraph 1 of the German Capital Investment Code ( Kapitalan- lagegesetzbuch or KAGB). If implemented, the new law will significantly broaden the range of eligible assets for such Chapter 3 funds, including their ability to invest in partnership-type venture capital funds. • These enhancements will be accompanied by cor - responding changes regarding the permissibility of active entrepreneurial management being carried out by a Chapter 3 fund. The current 5% limitation set forth in Section 26 No 7a of the German Invest - ment Tax Act will no longer apply to, among other things, investments in partnership-type commercial funds or investments in infrastructure project com - panies, renewables project companies, and PPP companies. Hence, the pending legislative procedure regarding the Act to Promote Investment and Innovation in Ger - many should be closely followed.
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