German Tax Reporting and Partial Exemptions for German Investors
Following the introduction of the new German Investment Tax Act (“InvStG”) of 1 January 2018, the new regulations must be taken into account for the first time at the level of the investors based in Germany when preparing tax returns for the tax year 2018.
1. Transmission of Relevant Data for German Investors
German (taxable) investors require a wide range of information for their tax returns, which must be made available to them in the first few months of 2019 as part of the tax reporting process or via e.g. the WM Datenservice database.
The most relevant information relating to the taxation of German investors includes:
1. qualification as mutual fund (Publikums-Investmentfonds) or specialized investment fund (Spezial-Investmentfonds);
2. information on the distributions made in the calendar year 2018;
3. NAV calculation at the beginning of the year (1 January 2018) and at year-end (31 December 2018);
4. calculation of base proceeds to determine any tax reliefs on retained earnings (the so-called “Vorabpauschale” (advance lump-sum amounts) under Section 18 of the InvStG);
5. qualification of the fund as “equity fund” (Aktienfonds), “mixed fund” (Mischfonds), “real estate fund” or any other fund according to Section 2(6-9) of the InvStG (see also below).
2. Partial Exemption of Income of German Investors Pursuant to Section 20 of the InvStG
In accordance with the provisions set forth in Section 20 of the InvStG, German investors may claim a partial exemption of their income generated from the investment fund if the conditions for an “equity fund”, a “mixed fund”, or a “real estate fund” are met at the level of the investment fund (or at the level of the sub-fund assets). Thus, investors investing in equity funds and real estate funds can expect to receive a tax exemption of up to 80%, whereas for mixed funds, a tax exemption up to a maximum of 40% may be granted.
According to the investment requirements, an equity fund under Section 2(6) of the InvStG invests at least 51% (or at least 50% for foreign funds) of the value of its assets in equity participations, while a mixed fund under Section 2(7) of the InvStG invests at least 25% of its assets in equity participations. For a precise definition of equity participations, please see the circular on the letter issued by the Federal Ministry of Finance (Bundesministerium der Finanzen) addressing partial exemptions available on our website www.aiqunited.com (only in German).
The deadline set for adjusting the investment requirements was 31 December 2018. However, partial exemptions pursuant to Section 20(4) of the InvStG may still be applied if actual minimum investment ratios were reached throughout the calendar year 2018. In this case, it must be determined at the level of the fund or the individual compartments, what the assets consisted of during the calendar year 2018.
Actions to Be Taken:
If no decision has yet been made, it is now time to determine in which form tax-relevant data should be prepared and made available to German investors. Since they require such data to prepare their corporate income tax returns, it should be submitted 1-2 months before the expiry of the filing deadline on 31 May 2019.
AIQUNITED can assist you:
– in preparing tax reporting for German investors;
– by analyzing if a fund qualifies for the partial exemption as “mixed fund”, “equity fund”, or “real estate fund” based on the assets acquired in 2018; or
– by adjusting the investment requirements in order for the fund to be classified as “mixed fund”, “equity fund”, or “real estate fund” in the future.