Germany is catching up with Luxembourg

Munich, 22 May 2023 – Germany is known to have a high tax rate. This applies not only to income tax and corporate taxation, but also to financial investments. The federal government is now taking a step forward in this area: the new Future Financing Act is intended to reduce bureaucracy and to expand options for energy infrastructure investments. It also includes tax relief initiatives. “This removes a significant competitive advantage, particularly in comparison to Luxembourg”, argues Daniel Knoblach, General Manager of Super Global GmbH. “Germany will therefore become far more appealing to investors.”

The Federal Government passed the Future Financing Act, and the new legislation will enter into effect on 1 January 2024. The bill aims to mobilise more private capital for climate protection and digitalisation, as well as to make the German capital market more international and less bureaucratic. “It looks like this has succeeded”, Knoblach says.

This is due to the law’s numerous regulatory and supervisory changes for the German fund industry. Barriers to investing in renewable energy will be reduced, for instance. As a key item, the management of all investment funds will be exempt from VAT in the future. Previously, this exemption only applied to the administration of undertakings for collective investment in transferable securities (UCITS) and comparable alternative investment funds (AIFs), as well as venture capital funds. “This resulted in the launch of investment funds investing in infrastructure, particularly renewable energies, abroad”, Knoblach notes. “Luxembourg was one step ahead of the game here.”

With the Future Financing Act, the VAT exemption is now extended to the administration of all AIFs, irrespective of asset classes, as well as the regulation of AIF management and investor qualification. This brings the tax status in line with that of the other EU member states. “The step means a strengthening of Germany as a financial and investment location”, said Oliver Decker, a member of Super Global’s supervisory board since March. “In the future, there will be no compelling reason to establish funds in Luxembourg rather than Germany.” Tax-motivated migration to neighbouring countries should thus be halted.

The new law’s indirect consequences on the Investment Ordinance, which applies to pension funds and pension schemes, among other things, are also considered positive. There have been adjustments, such as the distribution of investments to the real property quota, which has resulted in expanded investment alternatives.

free & non-binding