Source: https://iclg.com/practice-areas/alternative-investment-funds/alternative-investment-funds-2017/germany
Timestamp: 2018-04-19 23:12:50
Document Index: 453314918

Matched Legal Cases: ['Art. 2', 'Art. 1', 'Art. 7', 'Art. 8', 'Art. 13', 'Art. 23', 'Art. 23', 'Art. 69', 'Art. 23', 'Art. 4', 'Art. 37', 'Art. 21', 'Art. 22', '§ 37', 'Art. 24', 'Art. 12', '§ 5']

Alternative Investment Funds 2017 | Germany | ICLG
Alternative Investment Funds 2017 | Germany
Since July 2013, Alternative Investment Funds have been governed by the Capital Investment Code (Kapitalanlagegesetzbuch or “KAGB”), transposing the Alternative Investment Fund Managers Directive (“AIFMD”) into German law.
Management companies (Kapitalverwaltungsgesellschaft or “KVG”), i.e. anyone conducting risk or portfolio management, need written approval from the German Federal Financial Supervisory Authority, the “BaFin” (Bundesanstalt für Finanzdienstleistungs-aufsicht). The BaFin at its own discretion may restrict authorisation to certain types of AIFs or impose conditions on it.
There are several partial exemptions for “small AIFMs”, i.e. such managers only need to register with the BaFin. Other entities are fully exempt. These KAGB exemptions are mostly in line with those of Art. 2, 3 AIFMD.
An adviser is not required to be licensed, authorised or regulated by a regulatory body. However, an entity that actually takes the investment decisions on behalf of the KVG (outsourcing) is required to be regulated by a regulatory body in its country of domicile; in addition, in the case of a non-EEA domicile, sufficient co-operation of the home country regulator and the BaFin must be ensured. The recipient KVG must have economic substance (i.e. it should not be a letter-box entity).
In general, the AIF as such is not subject to isolated regulation, i.e. the AIF participates in the regulation of the AIFM. However, the KAGB foresees internally and externally managed AIFs. For AIFs of authorised external managers, if marketing of the AIF within the EEA is intended, a notification to the BaFin suffices. In the case of internal management, the AIF itself qualifies as manager and needs to be authorised.
The KAGB distinguishes between open-ended and closed-ended funds on the one hand and, on the other hand, between retail and special funds.
Open-ended AIFs are those pursuant to Art. 1(2) of the Commission’s Delegated Regulation (EU) No 694/2014 of 17 December 2013, i.e. AIFs the units of which are, at the request of unitholders, repurchased or redeemed directly or indirectly out of the assets of the AIF. Closed-ended funds are all funds that are not open-ended.
Special funds (open- or closed-ended) are AIFs the shares of which may only be purchased by professional investors as defined by Annex II of Direction 2004/39/EG (MiFID) or by semi-professional investors. Retail AIFs, open- or closed-ended, are open to all kinds of investors.
Semi-professional investors may gain this status in two different ways:
by committing to invest at least EUR 200,000. Further, the investor needs to declare in written form, its awareness of any risk related to the investment. Finally, in addition, the AIFM has to file a written confirmation with the investor stating that the AIFM, after adequately assessing the expertise, experience and knowledge of the investor in the light of the nature of the investment envisaged, is convinced that the investor is able to make this decision under his own responsibility; or
by committing to invest at least EUR 10 million into one fund.
Semi-professional investors by their nature are executives, directors or certain employees of an external management company if they invest into an AIF managed by this company, or executives and directors of an externally managed AIF if they invest into this AIF.
The information required in connection with an application for authorisation as a management company follows Art. 7(2), (3), Art. 8 AIFMD. This includes proof of the initial capital, information on the persons effectively conducting the business of the AIFM and their sufficiently good reputation and experience, information on the identity of the AIFM’s shareholders or members that have qualifying holdings and on the amounts of those holdings, a programme of activity setting out the organisational structure of the AIFM, including information on how the AIFM intends to comply with its obligations under the KAGB, information on the remuneration policy (Art. 13 AIFMD), and information on delegation and sub-delegation to third parties.
For each AIF the company intends to manage, it has to provide information about the investment strategy, the risk profile and other characteristics of the AIF, information on where the master fund is established if the AIF is a feeder fund, the rules or instruments of incorporation of each AIF the AIFM intends to manage, information on the arrangements made for the appointment of the depositary in accordance and additional information referred to in Art. 23(1) AIFMD.
The BaFin decides no later than three months after a complete application has been handed in. In exceptional cases and upon notification to the applicant, the BaFin might prolong this period for another three months. Authorisations granted are published in the e-Gazette (“Bundesanzeiger”).
The management company needs to have at least two executives. The persons effectively conducting the business must be reliable and experienced. Reliability is judged by their resumé, criminal record certificate and a statement of good conduct. Experience is judged on the basis of their education and professional career and is generally assumed to be sufficient after three years as an executive in a similar position.
The minimum initial capital is EUR 125,000 for an external management company. Where the value of the portfolio of AIFs managed by the AIFM exceeds EUR 250 million, the AIFM shall provide additional capital equal to 0.02% of the amount by which the value of the portfolios of the AIFM exceeds EUR 250 million. However, the required initial capital shall not exceed EUR 10 million.
The registered office of a management company authorised by the BaFin needs to be in Germany. The de facto central management and control must be conducted in Germany. The executives of the management company do not have to be German residents.
A depositary is required for each AIF. The financial statement of the AIFM and the AIF must be audited.
The BaFin has entered into co-operation agreements under the AIFMD with the following non-EEA regulators as of 10 December 2015: Australia (ASIC); Bermuda (BMA); Canada (AMF, OSC, ASC, BCSC, OSFI); the Cayman Islands (CIMA); Guernsey (GFSC); Hong Kong (SFC, HKMA); India (SEBI); Japan (JFSA, METI, MAFF); Jersey (JFSC); South Korea (FSS, FSC); Switzerland (FINMA); Singapore (MAS); and the USA (SEC, CFTC, FED/CC).
The KAGB provides three legal structures for AIFs:
The contractual fund, comparable to a Luxembourg fonds commun de placement (“FCP”) (Sondervermögen).
The joint-stock investment company (Investmentaktien-gesellschaft or “InvAG”) with either fixed or variable capital.
The limited investment partnership (Investmentkommandit-gesellschaft or “InvKG”).
A closed-ended fund may only be structured as a joint-stock company with fixed capital or as a limited investment partnership. An open-ended fund needs to be structured as a contractual fund, a joint-stock investment company with variable capital or a special limited investment partnership.
An open-ended fund of the types named above can be established as an umbrella fund with separate sub-funds.
By law, all three fund types are governed by a limited liability concept. The investor may become liable for distributions received, but not born from the yield of the fund.
An external manager needs to be set up as a management company in the legal structure of a joint-stock company (Aktiengesellschaft or “AG”), a limited liability company (Gesellschaft mit beschränkter Haftung or “GmbH”) or as a limited partnership whose sole fully liable partner is a limited liability company (“GmbH & Co. KG”). There are no such rules regarding advisers.
The statutes of open-ended AIFs contain provisions on the red-emption of shares according to the law. Managers may temporarily suspend these redemption rights in extraordinary circumstances. If deemed necessary in the interest of investors or the public, the BaFin may impose such suspension.
In the case of a special fund, the KAGB requires AIFMs to ensure – either by separate contract with each investor or in the contractual documents of the AIF – that the shares are to be transferred only to (semi-) professional investors. There are no further restrictions in the KAGB. However, the fund’s statutes or other contractual documents may contain such restrictions.
The production and offering of marketing material is regulated in the KAGB. It contains detailed regulations regarding the minimum information (e.g. investment strategy, etc.) and on how and when it has to be provided to (potential) investors. The BaFin may require the manager to include further information as deemed necessary. In addition, certain requirements are stipulated in the Securities Trading Act (Wertpapierhandelsgesetz or “WpHG”) as shares in AIFs qualify as financial instruments from a German law perspective. In particular, the marketing material must not be misleading, which, in legal practice, is especially relevant as far as retail investors are concerned.
Marketing material of a publicly offered or listed closed-ended retail InvAG are primarily subject to the provisions of the Securities Prospectus Act (Wertpapierprospektgesetz or “WpPG”).
Retail funds have to provide a prospectus the required content of which exceeds the information required by Art. 23 AIFMD. It has to contain additional information such as a clear and easily understandable explanation of the fund’s risk profile (cf. Art. 69(1) UCITSD), the legitimacy of leverage and a profile of the investor for whom the fund is typically suitable.
The components of marketing material of special funds correspond with Art. 23 AIFMD.
The investment strategy and objectives of a German-domiciled AIF and any changes need to be approved by the BaFin. In general, the BaFin has to decide within four weeks.
The prospectus has to be provided to the BaFin, who may require the manager to include additional information as deemed necessary for the investors.
Marketing is generally defined in accordance with Art. 4(1)(x) AIFMD. Certain activities are not considered marketing: the mere mentioning of a fund; the publishing of the net asset value (“NAV”); the issue and redemption prices; the listing of another sub-fund in the prospectus of an umbrella fund; the publishing of fund tax data according to the Investment Tax Act; any legally required data in a prospectus; and any information mandatorily published by management companies.
Differing from the general definition, any offering or placement to private investors is considered marketing regardless of whether it occurs at the initiative of the AIFM. Therefore, reverse solicitation is widely restricted for private investors.
Any marketing of AIFs requires a notification to the BaFin and may commence only once the BaFin has informed the AIFM of the respective permission. The period of the approval process ranges from 20 days (German AIFM marketing EEA-AIF) to eight months (i.e. non-EEA AIFM marketing to semi-professional investors a non-German feeder-AIF whose master-AIF is managed by a non-EEA AIFM).
The BaFin has issued an English language FAQ on marketing.
German retail AIFs can be marketed to retail investors. Special funds shall only be marketed to (semi-) professional investors.
The marketing of EEA and non-EEA AIFs is widely restricted. The AIF and the AIFM have to be domiciled in the same state where they need to be subject to effective investment supervision by governmental authorities willing to co-operate with the BaFin. The management of the AIF has to be in accordance with the AIFMD. The AIFM has to appoint a suitable legal representative in Germany performing the compliance function under the AIFMD (cf. Art. 37(3) AIFMD), a depositary in accordance with Art. 21 AIFMD and a German paying agent. Furthermore, the investment objective or statutes of the fund have to meet the requirements for German retail funds under the KAGB. For example, hedge funds cannot be marketed to retail investors.
The KAGB distinguishes between professional, semi-professional and private investors; qualification requirements to be carried out by the AIFM exist in relation to (semi-) professional investors (see question 1.4 above).
Intermediaries require a licence to conduct marketing of shares. The use of intermediaries so licensed is not restricted.
German fund regulation and tax law is influenced by the 2008 financial crisis, but there are no specific restrictions on the participation by financial institutions besides the measures designed to contain systemic risk.
By definition, AIFs cannot act in an entrepreneurial way. Just like the AIFMD, German law defines certain asset stripping restrictions and deal disclosure requirements. The law foresees limitations on the use of leverage, depending on the type of AIF.
Classical short selling, i.e. the sale of an asset (not limited to securities) that the fund does not own at the time of the conclusion of the sale contract, is prohibited, except for hedge funds. These are defined as open-ended special funds which need to foresee the use of short selling or the employment of substantial leverage in their investment objectives.
The KAGB contains extensive provisions on different sets of eligible assets and investment limits depending on the type of AIF. In general, the investments of special funds are less restricted than those of retail funds.
Open-ended retail funds may invest in securities, financial market instruments, bank deposits, shares of UCITS or of funds with comparable investment restrictions, certain kinds of derivatives, precious metals and loans/bank debt (debt assets not in the legal form of a security). Open-ended retail real estate funds may invest only in real estate or comparable assets. Closed-ended retail funds may invest in securities, financial market instruments, tangible assets, shares of PPPs, unlisted equity, shares of funds with comparable investment restrictions and bank deposits.
Investments of a closed-ended special AIF are widely unrestricted; it may invest in any asset of which the market value can be assessed.
A feeder fund needs to be invested in the master fund with at least 85% of the feeder NAV, while 15% of the NAV may be invested in bank deposits or derivatives.
Please note, however, that German tax rules define autonomously the prerequisites for certain fund and fund investor tax regimes, especially certain tax-eligible assets (see question 6.1 below).
For open-ended retail funds, borrowing is generally restricted to short-term credit limited to 10% (“mixed funds”), 20% (“other funds”) and 30% (“real estate funds”) of the NAV. Closed-ended retail funds may borrow up to 60% of the NAV and are not limited to short-term credit.
The borrowing of special AIFs is generally not restricted.
As a general rule, the AIFM has to define a maximum level of leverage for every AIF and needs to demonstrate that this limit is appropriate and will be observed. The BaFin assesses the risk and may restrict the level of the fund’s leverage as deemed necessary for the stability and integrity of the financial system.
All AIFs except for those structured as an open-ended InvKG, which needs to be a special fund, must publish an annual report in the e-Gazette (“Bundesanzeiger”), in accordance with Art. 22 AIFMD. Joint stock investment companies are required to publish an additional management report. Contractual funds have to publish semi-annual as well as dissolution and liquidation reports as the case may be. In addition, reports of contractual funds and closed-ended InvKGs must be published in further media as named in their prospectuses. Joint stock companies and open-ended InvKGs might be required to disclose annual and semi-annual financial statements under securities law (§§ 37v, 37w WpHG).
AIFMs must notify the BaFin before implementing any material changes regarding requirements of their licence (e.g. change of directors, etc.). Furthermore, they have to adhere to reporting obligations pursuant to Art. 24 AIFMD (e.g. the principal markets and instruments in which they trade, arrangements for managing the liquidity of the AIFs, current risk profiles, etc.).
Any of the aforementioned disclosed reports of AIFs have to be provided to the BaFin.
There is no explicit restriction on the use of side letters. However, the AIFM is subject to operating conditions pursuant to Art. 12 AIFMD including the obligation to treat all investors fairly and not to give preferential treatment to any investors unless disclosed in the AIF’s statutes.
The current German Investment Tax Act distinguishes between Investment Funds, Capital Investment Partnerships and Capital Investment Corporations regardless of the domicile of the AIF. These qualifications of the fund vehicle cause different after-tax returns at fund investor level. The current tax rules are applicable until and including 31 December 2017. From 1 January 2018 onwards, a completely revised German Investment Tax Act, leading to substantial changes in the German fund taxation rules, will be applicable.
Under the rules currently in place, some AIFs might qualify as Investment Funds for tax purposes regardless of the legal structure. The tax law prerequisites for qualifying as a (privileged) Investment Fund are independent from the restrictions and requirements under investment law. The tax rules applicable to Investment Funds are usually beneficial compared to the other rules, e.g. because the Investment Fund is not subject to any tax and because the fund investor is not taxed on certain accumulated capital gains realised at fund level.
An AIF needs to fulfil certain requirements to qualify as an Investment Fund – amongst others:
The AIF or its manager is subject to investment supervision in its country of domicile.
Fund shares are redeemable at least once per year or listed on a stock exchange.
Investments are made according to risk diversification.
90% of the fund NAV are invested in eligible assets, e.g. securities, money market instruments, derivatives, bank deposits, real estate and similar assets, shares of Investment Funds, precious metals, loans and bank debt (debt assets not in the legal form of a security) and public-private partnerships.
A maximum of 20% of the fund NAV may be invested in unlisted equity assets.
The AIF holds a maximum of 10% of the statutory capital of a single target company.
Only short-term borrowing is permitted, up to a maximum of 30% of the fund NAV.
Capital Investment Partnerships
AIFs structured as partnerships and similar foreign AIFs that do not qualify as “Investment Funds” are treated as “Capital Investment Partnerships”. The general tax rules for partnerships including tax transparency apply; a potential exemption is that trade tax may be levied at fund level.
AIFs structured as corporations, contractual funds and similar foreign AIFs which do not qualify as “Investment Funds” are treated as “Capital Investment Corporations”. Corporate tax at 15% and trade tax (10–15%, depending on the municipality) apply at fund level for German-resident Capital Investment Corporations and, to the extent that they are subject to limited taxation in Germany, to similar foreign AIFs.
A German-domiciled AIFM structured as a joint-stock company or as an LLC is subject to corporate tax at 15% (plus local trade tax at varying rates, approx. 10–15%). In general, German-resident shareholders of such companies are subject to income tax at a flat rate of 25% (no deduction of expenses). An AIFM set up in partnership form is not subject to income tax; its German-resident partners are taxed at personal marginal rates of up to 45%. The above applies to all forms of management or performance fees. Specific rules exist for carried interest, if the management company in partnership form can be regarded as a tax-transparent (non-trading) entity for tax purposes.
Establishment or transfer taxes are not levied.
Investors of an AIF that qualifies as a (privileged) Investment Fund are taxed upon distribution by the fund, under the deemed distribution concept and upon sale/redemption of the fund unit. The amount of the tax base depends on whether the Investment Fund fulfils the reporting obligations under § 5 of the Investment Tax Act.
Investors of a reporting Investment Fund are taxed on the basis of the distribution. To the extent that the income of the reporting fund is not distributed, certain portions of the fund’s ongoing income (minus expenses) are deemed distributed to the investor at the end of the business year of the fund (fictitious or deemed distribution); most capital gains generated at fund level are not part of the deemed distribution (accumulation privilege). Upon sale/redemption of the fund unit, the investor is taxed on the economic capital gain (/loss) minus holding period related deemed distributions.
Private investors of a reporting Investment Fund are taxed at a flat rate of 25%. Corporate investors of a reporting Investment Fund, in general, are taxed at the corporate tax rate of 15% (plus local trade tax). If the reporting Investment Fund distributes capital gains from equity securities generated at fund level, then such capital gains distributed are 95% tax-free at corporate investor level. The same 95% tax exemption applies to the extent that the corporate investor, upon sale/redemption of the fund unit, realises capital gains from equity generated at fund level but not yet distributed to the investor (holding period related “Aktiengewinn”).
In the case of a non-reporting Investment Fund, the deemed distribution is determined on a lump-sum basis (the higher of 70% of the difference between the last and the first redemption price of the calendar year and 6% of the last redemption price); the corporate investor loses the 95% exemption described above. However, the European Court of Justice ruled that parts of this lump-sum taxation applicable to investors of non-reporting Investment Funds qualify as a violation of the free movement of capital (9 October 2014, C-326/12, “van Caster”).
Private investors of a Capital Investment Partnership are taxed with their personal marginal income tax rate varying from 0–45%. The tax rate of 15% (plus local trade tax) applies to corporate investors including the 95% tax exemption for capital gains from equity generated at partnership level.
In the case of a Capital Investment Corporation, distributions are subject to 25% income tax at private investor level (corporate investor: 15% plus trade tax). In the case of a non-German Capital Investment Corporation that does not distribute, the German investor might additionally be subject to the add-on taxation (comparable to the US tax law Passive Foreign Investment Company or “PFIC” concept) on the basis of so-called “passive income” (fictitious distribution); the 25% flat tax rate does not apply in this case, instead the private investor is taxed at his personal marginal income tax rate (up to 45%). The corporate investor of the Capital Investment Corporation is taxed at a rate of 15% plus local trade tax (the 95% tax exemption does not apply).
In general, withholding tax (“WHT”) on the income generated by the reporting (privileged) fund and levied on its input side can be credited by the resident fund investor. The same applies to WHT levied on the output side of the fund, i.e. levied on its distribution, the German fund’s deemed distribution or upon sale/redemption of the fund unit.
Non-resident investors of a German AIF that qualifies as a (privileged) Investment Fund are taxed on German dividend income, German rental income and capital gains from German real estate generated at fund level. The tax is levied at source (25%).
Non-resident investors of a German AIF that qualifies as an Investment Partnership are taxed in a manner comparable to the investor of an Investment Fund (see above), if the partnership qualifies as asset managing under German tax law. If, however, the partnership is a trading entity for German tax purposes, then the limited partner would have a taxable presence in Germany and be subject to income tax at personal marginal tax rates (plus local trade tax).
Non-resident investors of a German AIF that qualifies as a Capital Investment Corporation (“CIC”) are taxed on dividends distributed; the tax is levied at source (25%). Should the investor hold more than 1% of the statutory capital of the CIC, then a capital gain realised within five years after exceeding the named threshold will also be subject to tax in Germany; the investor must file a tax declaration.
A German investor qualifying as a pension fund can either be a tax exempt or a fully taxable investor. In the latter case, the above description on Resident Investors applies, with specific taxation details depending on the type of pension fund investor.
This is neither necessary nor advisable. Further, such rulings by the German tax administration are uncommon, especially those related to fund investments.
Germany and the USA signed a reciprocal inter-governmental agreement (“IGA”) similar to the “Model 1A IGA” on 31 May 2013 which was approved by Law on 15 October 2013 and became effective on 11 December 2013. It was implemented via a decree which became effective on 29 July 2014 (“FATCA-USA-UmsV”).
Germany implemented the EU council directive on administrative co-operation in the field of taxation (2011/16/EU) on 26 June 2013. Furthermore, the German implementation rules regarding the OECD’s common reporting standard (“CRS”) have been applicable since 1 January 2016; the actual reporting shall start in September 2017.
Germany applies a broad application of the tax concept of permanent establishment by employing the OECD-accepted stand-alone approach. From a German perspective, the VAT exemption for investment management services is applicable only to (privileged) Investment Funds and UCITS-like AIFs.
Germany already has far-reaching anti-abuse legislation. Due to recent developments (e.g. the Panama Papers), there is significant political pressure to implement further such measures. The first details of the legislative implementation of the BEPS Initiative into German law became effective on 31 December 2016. Especially, the German tax legislator introduced an economic substance test requiring certain holding periods and unhedged risk exposure for a refund or credit claim by the fund investor of WHT suffered on German-sourced dividends. Further, in this context, it is worthwhile mentioning a February 2016 decision of the German Federal Constitutional Court that the unilateral double tax treaty override does not infringe upon the German Constitution.
A revision of the current German fund tax law was enacted in July 2016, which, in general, leads to a substantial reduction in the complexity of the funds’ investor tax reporting compliance obligations; an existing soft market entry barrier for many funds is removed. The reform will become effective as of 1 January 2018.
The scope of application of the new German Investment Tax Act is wider than before: almost all asset pools, even including fund vehicles which limit the number of investors to one, will qualify as Investment Funds under the 2018 rules without having to fulfil further specific requirements. However, fund vehicles in the legal form of a partnership, except if they are UCITS, do not qualify as Investment Funds. The new 2018 rules provide two substantially distinct fund tax regimes:
For 2018 Opaque Funds, an opaque two-tier taxation system is introduced as the general and fall-back regime, with tax obligations on both fund level as well as investor level, applying a cash-flow based lump sum tax regime.
For 2018 Special-Investment Funds, the current semi-transparent tax regime of 2013 Investment Funds is, with modifications, continued as the exemption if a fund meets specific additional prerequisites.
Most AIFs are likely to qualify as 2018 Opaque Funds. It might be possible for an AIF to qualify as a 2018 Special-Investment Fund if – amongst others – the following prerequisites are met:
Fund shares are redeemable at least once per year (a listing on a stock exchange does not suffice).
90% of the fund NAV are invested in eligible assets, e.g. securities as defined by the UCITS directive, money market instruments, derivatives, bank deposits, real estate and similar assets, shares of Investment Funds and Special-Investment Funds, precious metals, loans and bank debt (debt assets not in the legal form of a security) and public-private partnerships.
The AIF holds a maximum of 10% of the statutory capital of any single target company.
The number of investors – direct and indirect (via partnerships) – is limited to 100 non-natural persons.
If a 2018 Special-Investment Fund no longer meets its qualification prerequisites, the fund vehicle, from a German tax perspective, is deemed to be liquidated and, if the vehicle still qualifies as a fund under German fund tax law, re-established as a 2018 Opaque Fund.
The 2018 rules introduce a tax liability on fund level for specific German-sourced income (e.g. dividends, income and capital gains from German real estate or income from a German permanent establishment). Such income is taxed at the standard corporate tax rate of 15%. In order to mitigate tax suffered at fund level, certain lump sum partial exemptions apply at German fund investor level if the fund meets specific prerequisites regarding its asset allocation. Only 2018 Special-Investment Funds can avoid the tax obligation at fund level by exercising certain transparency options which directly attribute the respective income to the investor.
For 2018 Opaque Funds, the tax compliance obligations are rather limited: the ongoing NAV-related tax reporting, as well as the business year-end tax certification, are abolished. The tax compliance obligations of 2018 Special-Investment Funds are similar to those of 2013 Investment Funds, consisting of a business year-end reporting (tax filing) and an ongoing NAV-related reporting (Equity Gain, DTT Gain, Partial Exemption Gain).
The tax efficiency of a fund under the German 2018 taxation regime depends on different parameters, such as the portfolio composition, asset allocation, interest rates as well as type and residence of the fund investor. Due to the lump sum based taxation approach of 2018 Opaque Funds, these vehicles can either be more or less tax efficient in certain cases, compared to a semi-transparent 2018 Special-Investment Fund. Therefore, it is advisable to analyse the individual case in order to set up the fund’s structure and documentation. For example, the holding of a long-only physical equity portfolio by a German corporate investor via an 2018 Opaque Fund is disadvantageous compared to a direct holding or a holding via a 2018 Special-Investment Fund (except for German insurers).
There will be a hard cut as of 1 January 2018, irrespective of the fund’s business year-end, regarding the German tax qualification of the fund vehicle and its 2018 tax treatment. Therefore, restructuring and adjustment measures of existing fund vehicles in order to qualify either as a 2018 Opaque Fund or as a 2018 Special-Investment Fund have to be implemented and finalised before 1 January 2018. A switch from the tax regime of the 2018 Opaque Fund to the Special-Investment Fund status is, by law, not possible at a later point in time. However, the switch from the Special-Investment Fund regime to the Opaque Fund regime is available, including a fictitious redemption of the fund units at investor level.
The authors would like to thank Markus Wrogemann and Tim Haffmanns for their invaluable assistance in the preparation of this chapter.