GERMANY Law and Practice Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
Venture Tech Growth Financing The KfW’s “Venture Tech Growth Financing” pro - gramme supports emerging technology-orient - ed companies through funding provided by the German federal government (via the KfW bank - ing group). The programme is part of the Tech Growth Fund initiative. Financing is exclusively facilitated through collaboration with profession - al, private credit, or venture debt providers. KfW participates under identical terms as the corre - sponding private lender, sharing the risk, which usually ranges between EUR0.5 to EUR125 mil - lion. The standard risk-sharing ratio between KfW and private lenders stands at 50:50. ERP-EIF Facility The ERP-EIF Facility is a partnership between the German federal government and the Euro - pean Investment Fund (EIF) aimed at bolstering venture and growth capital financing, in particu - lar for high-tech growth companies in Germany. The facility’s funding has been successively increased, and volume is currently EUR4.6 bil - lion. The ERP-EIF Facility invests as a fund-of- funds and consists of four sub-programmes (ERP-EIF VC Funds of Funds, EAF Germany, ERP-EIF Growth Facility and ERP co-investment in GFF-EIF Growth Facility). With more than 4,000 small and medium-sized enterprise (SME) investments in Germany and across Europe, the ERP-EIF Facility covers all technology areas through supported funds and forms a relevant part of the pan-European VC ecosystem. 4.2 Tax Treatment Direct Investment Shares held by individual shareholders as non-business assets (Privatvermögen) Capital gains from the sale and other disposals of shares which an individual shareholder holds as non-business assets (generally, participa - tions below 1%) are generally subject to a 25%
flat tax (plus 5.5% solidarity surcharge thereon, resulting in an aggregate withholding tax rate of 26.375% plus church tax, if applicable). Losses from the sale of shares may be subject to loss offset restrictions – eg, can only be used to off - set capital gains or other investment income. The amount of the taxable capital gain from the sale is the difference between: (a) the proceeds from the sale; and (b) the cost of acquisition of the shares (including sale-related expenses). Shares Held as Business Assets (Betriebsvermögen) In respect of gains on the disposal and other disposals of shares held by an individual or cor - poration as business assets, taxation generally depends on whether the shareholder is a corpo - ration, an individual or a partnership. • For corporations, capital gains from the sale of shares are, as a general rule and currently irrespective of any holding period or percent - age level of participation, effectively 95% exempt from corporate income tax (includ - ing solidarity surcharge) and trade tax plus solidarity surcharge. • For individuals, 60% of capital gains from the sale of shares are taxed at the individual income tax rate plus a 5.5% solidarity sur - charge (plus church tax and trade tax, if applicable) on such income tax if the shares are held as business assets by an individual who is subject to unlimited tax liability in Ger - many. All or part of the trade tax levied may be credited on a lump sum basis against the individual income tax. • If the shareholder is a partnership, the indi - vidual income tax or corporate income tax is not levied at the level of the partnership but at the level of the respective partners. The taxation of each partner depends on whether they are a corporation or an individual. Thus,
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