1. Introduction

On 10 February 2026, the Economic Development Act (“Standortfördergesetz”) came into force, introducing amendments to the German Capital Investment Code (“KAGB”) and the German Investment Tax Act (“InvStG”) in order to expand investments in renewable energy through investment funds.

The German coalition agreement provides for more private funds to be mobilised to support the expansion of renewable energy and infrastructure. However, due to insufficient government funding, investment funds should be able to invest in relevant projects on a broader scale in the future. The context behind this is that, according to the German Federal Ministry of Finance, capital amounts of around €2.8 trillion are tied up in German investment funds, which can only be used to a limited extent for such investments so far. To this end, the German legislator is expanding the investment opportunities for open-ended real estate special funds, closed-ended mutual funds and special funds (special AIFs) in renewable energy, e.g. by investing in so-called infrastructure project companies or, for example, in roof
areas for energy generation. German special AIFs with fixed investment conditions are now allowed to invest in all types of domestic and foreign investment funds, including infrastructure companies, VC and PE funds.

For Luxembourg funds, there are comparable investment opportunities to those of the German funds, provided that they are distributed in Germany or follow the investment provisions outlined in Section 26 of the Investment Tax Act (special funds).

2. Amendments to the German Capital Investment Code (“KAGB”)

The definition of “management of renewable energy” is introduced in Section 1 para 19 no. 6a), specifically referring to the generation, conversion and transportation of renewable energy according to Section 3 no. 21 of the Renewable Energy Sources Act. These include, for example, the management of hydropower including wave, tidal, salt gradient and current energy, wind energy, solar radiant energy, geothermal energy, energy from biomass including biogas, biomethane, landfill gas and sewage gas, as well as from the biodegradable fraction of waste from households and industry.

According to the amendments to Section 231 KAGB (“Permitted Assets”), special funds can now invest 15% of their value in infrastructure project companies whose business object is limited to erecting, operating, managing or holding facilities that are intended and suitable for the management of renewable energy within the meaning of Section 1(19)(6a).

In addition, real estate special funds are allowed to acquire and operate objects that serve the management of renewable energy or are necessary for the operation of charging stations for electromobility, such as roofs, even if these do not or do not exclusively serve the management of the (acquired) property.

The German special AIFs with fixed investment conditions under Section 284 of the KAGB, which under the old legal framework were limited to investing solely in open-ended funds, thereby imposing significant investment restrictions or structuring challenges, are also undergoing a fundamental relaxation. In accordance with the new tax regulations, these special AIFs are now allowed to invest in all types of domestic and foreign fund vehicles. The investment catalogue for closed-ended domestic mutual funds includes investments for the management of renewable energy within the meaning of section 1(19) no. 6a of the KAGB (Section 261(2) no. 4 of the KAGB).

3. Investment Tax Act (“InvStG”)

Active entrepreneurial activity of an investment fund

Investment tax law is not governed by the KAGB with regard to the classification of an investment fund and thus the application of the Investment Tax Act to the investment vehicle and its investors. From a tax perspective, difficulties particularly arose when the fund was predominantly engaged in business or commercial activities, which can result in the loss of its status as an investment fund for tax purposes, as the fund’s asset management is no longer the primary focus. An excessively active entrepreneurial activity can exist in particular through the intervention of the fund in the operational business of its investment companies and is generally assumed by the tax authorities in the case of majority shareholdings of a fund in commercially active (infrastructure) partnerships. Also, under the previous legal framework, special funds were permitted to generate up to 5% or 20% of their income (in the case of income from the operation of renewable energy) from active entrepreneurial activities (Section 26 no. 7a of the InvStG). The further relaxation of the KAGB with regard to investments in renewable energy and thus in related infrastructure companies are also to be implemented in a legally secure tax manner. For this reason, Section 1(2) sentence 2 of the Investment Tax Act now clarifies that it is not detrimental to the qualification as an investment fund if it is entrepreneurially active or invests in commercially active infrastructure companies.

Introduction of a tax liability for commercial income for tax-exempt investors

To the extent that certain tax-exempt investors such as churches, charitable foundations, etc. are involved in German or Luxembourg funds, all German income may be exempt from corporation tax at the fund level (Sections 8 and 10 of the InvStG).
This is still possible, but now excludes German commercial income pursuant to Section 6(5) sentence 1 nos. 2 and 3 of the Investment Tax Act, which is generated, for example, through participations in commercially active infrastructure companies. The rationale for this is that such income would also be subject to taxation in the event of a direct investment by an otherwise tax-exempt investor.

In this context, Section 6 of the Investment Tax Act, which defines taxable income for investment funds, has been restructured. In the case of participations in commercial partnerships, Section 6(5) establishes a legal presumption that active entrepreneurial management should always be present. The newly inserted Section 6(5a) of the Investment Tax Act addresses situations where participations in commercially active partnerships are not considered active entrepreneurial activity but rather constitute asset management. This is to apply, for instance, to participations in deemed commercial partnerships, provided there is evidence that the income originates from asset management activities, or to investments in corporations that are not acquired with the intention of selling. Furthermore, it covers
situations where investment funds grant loans to persons who are not classified as consumers according to Section 13 of the German Civil Code (BGB) in conjunction with Section 16a of the KAGB. This clarification is to be welcomed and is based on the amendments to the KAGB and the Fund Risk Limitation Act, which transpose the AIFMD II into German law.

Special investment funds

Under the previous legal framework, German special investment funds were only allowed to acquire investment units in domestic and foreign Undertakings for Collective Investments in Transferable Securities (“UCITs”) as well as in investment funds that had themselves complied with the investment conditions outlined in Section 26 of the Investment Tax Act. These provisions, for example, prohibited investments in closed-ended infrastructure mutual funds under Sections 260a et seq. of the KGB. The legislator is now broadening the scope to facilitate investments in future technologies. Therefore, according to Section 26 of the Investment Tax Act, special investment funds are now permitted to invest in all types of domestic and foreign funds, including infrastructure, PE and VC funds structured as
partnerships, such as ELTIFs (European Long-Term Investment Funds).

Consequently, special investment funds are also allowed to invest with no limit on the amount of the investment in companies whose business object is aimed at the management of renewable energy (Section 26 no. 4j, no. 6 of the InvStG). The previous threshold regarding income derived from the management of installations for electricity generation from renewable energy has been repealed, provided that such income is related to the letting/leasing of real estate or equivalent participations. Special investment funds are now able to invest in projects such as photovoltaic systems on real estate in a more secure manner. The previous restriction limiting investments to 20% of income no longer applies (Section 26 no. 7a of the InvStG).

Certificate of status

Investment funds may or are required to apply for a status certificate from the Federal Central Tax Office so that the German capital gains tax can be reduced to 15%, for example in the case of distributions from German portfolio companies. In the past, the validity was three years. Now their validity has been extended to five years for follow-up certificates (Section 7 para. 3 of the InvStG).

Peter Kleingarn
Partner
Peter.kleingarn@aiqunited.com

---