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Investor tax reporting services

The German Investment Tax Act, applicable since 1st January 2018, provides two possible tax regimes for alternative funds (AIFs) qualifying as a fund. Transparent funds (partnerships) fall under a specific tax regime where the taxable income of the AIF flows through to the investors at the end of the AIF's tax year ("look-through" principle) and is reported on the investors tax returns.

German Investment Tax Act ("GITA")

German Investor Taxation

Under the Germain Investment Tax Act (GITA), two regimes are possible for AIFs qualifying as a fund: the "Mutual Fund" regime or "Special Fund" regime.

Key Features

Up-front registration

Taxation mechanism

Asset based

Annual reporting

✅*

Periodic reporting (daily)

*Under the GITA 2018, there is no tax filing to tax authorities. The tax prelevement is applied by German banks to German investors accounts by the end of January based on information available  on WM Datenservices, financial data platform in Germany. It is necessary to verify the correctness of the information available to German banks and to provide a calculation of the annual lump sum together with the partial exemption status applicable to investors so as to ensure the correct application of the preliminary taxation.

Main features

German investors in foreign and domestic investments funds, are taxed :

  • on dividend distributions made by the investment fund;

  • on an annual upfront prepayment charge (“annual lump sum taxation”); and 

  • on capital gains upon disposal of the shares of the investments.

The annual lump sum taxation is calculated on the basis of, among other components, the initial net asset value and the German reference interest rate. The taxable basis is capped at the performance of the share which may lead to a nil taxation in case of negative performance.

The payment of tax is due by German investors within 30 days after the calendar year-end and German paying agents are expected to withhold the tax. They are relying on information provided by WM Datenservice, a financial service firm in Germany. The correctness of the annual lump sum taxation will be very much dependent on the completeness and accuracy of the information available on the WM Datenservice database.

The possibility to benefit from exemption depends on the investment policy (= “partial tax exemption status for Mutual Fund”). The partial tax exemption applies to the dividend distribution, the annual lump sum, and the capital gains. 

  • There are three principal categories: Equity Fund / Mixed Fund / Other Fund

  • The partial exemption status or the reference to the minimum investment in equity (“Equity” in the meaning of Germany tax definition) has to be defined in the contractual documents of the AIF (prospectus). 

  • Any breach to the ratio may trigger a fictitious sale with the taxation of the fictitious capital gain. The equity ratio of each sub-fund has to be monitored on a daily basis. 

  • For funds of funds, a daily equity ratio from the target funds is required to apply a look -through approach on the daily equity ratio computation.Publishing the daily equity ratio for “Equity” and “Mixed” funds has become a market practice but it can also apply to “Other” funds.

  • AIF not registered but meeting the conditions of an “Equity” or “Mixed” fund have the possibility to apply for a retroactive qualification according to the Art.20.4 of the Law.

Operationally, to benefit from the access to the regime, AIFs must register their share classes to WM DatenServices under the retail fund regime with the identification of the applicable partial exemption status. In addition, the AIF manager has to request A WKN number (WM Daten single identifier).

Main partial exemption categories:

Fund category / % exemption

Equity ratio

Private investor

Business investor

Corporate investor

Equity fund

> 50%

30%

60%

80%

Mixed fund

>= 25%

15%

30%

40%

Other

< 25%

0%

0%

0%

Benefits of the regime

The partial tax exemption is an opportunity for the fund to enable investors to benefit from a reduction of the taxable basis and refers to equity investments ("equity ratio") which should be determined daily. Thus, depending on the funds' tax classification (i.e. equity/mixed fund) and its disclosure in the prospectus' investment policy and/or calculation of the daily equity ratio, the investor can benefit from a partial tax exemption.

Key Features

Up-front registration

Taxation mechanism

Income based

Annual reporting

Periodic reporting (daily)

Main features

Under certain conditions a fund, including a non German domiciled fund, can qualify as a Special Fund and still benefit from the transparency regime (“look-through” principle). The income earned by the fund is broken down by tax category and reported to each investor based on their holding in the fund.

The German Investment Tax Act (section 26 of the German Investment Tax Act) defines the conditions to be considered as a Special Fund are defined in. A Special Fund is a fund dedicated to institutional investors only, with a maximum of 100 investors. The Special Fund (or its Management Company) has to be supervised and has to respect certain investment restrictions (eligible assets, risk diversification, limitation of borrowings, etc.).

 

Benefits of the regime

The main difference between the Special Fund regime the Retail Fund regime is that the former applies a full look-through principle on the fund’s income. Annually, investors are reporting the different taxable income components of the AIF (dividend, interest, REIT income…) , distributions and capital gains determined based on daily tax figures on their tax returns. Also, losses can be carried forward for several years.


German Investment Taxation (GITA)

German and foreign Funds are subject to the German corporate tax regime on their German source income – whether distributed to German investors or not. Income not subject to the appropriate withholding tax should be declared to the competent German tax authorities via the annual corporate tax return (or via the simplified notification procedure). 

Fund Status certificate

Foreign AIF can directly benefit from the reduced tax rate at source of 15% (without introducing reclaims) on their German source income by obtaining the so-called Fund Status Certificate. The certificate is valid for 3 years and is relevant to any investment funds investing in German assets (mainly equities), regardless of the distribution of the fund in Germany.


Tax regime for Partnerships

AIF with the legal form of a partnership (e.g. Lux SCS, SCSp) do not fall under the scope of the German Investment Tax Act and are treated as a transparent entity according to German income tax law. The taxable income or loss of the partnership flows through to the partners at the end of the partnership’s tax year (“look-through” principle). The partners report their allocable share of the partnership’s profit or loss on their tax returns.

The German investors are subject to German tax compliance obligations including the filing of German tax returns for a separate and uniform tax assessment (Erklärung zur gesonderten und einheitlichen Gewinnfeststellung); hence, the fund needs to provide the German investors with the relevant information for them to file their respective tax returns.

Scope of services

  • Annual lump sum reporting;

  • Partial tax exemption status / daily reporting;

  • Distribution reporting according to the WM Datenservice template before the pay-date;

  • Preparation of the Fund Status Certificate application;

  • Monitoring of WHT exposure of the fund, reclaim for overpaid WHT (if any);

  • Preparation of the fund tax return / notification procedure;

  • Preparation of the annual reporting at investor level for special funds;

  • Assistance in fund structuring: assistance in transforming an existing fund, assistance in the creation of a new fund, review of legal and marketing documentation;

  • Preliminary analysis of the fund: assessment whether the fund qualifies as Special Fund according to section 26 German investment Tax Act based on the review of the prospectus;

  • German joint partnership tax return;

  • German CFC/PFIC reporting;

  • Classification of underlying entities.

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Regulatory reporting services

Asset managers are exposed to additional reporting requirements when distributing their AIF to German institutionals (credit institutions, pension funds, insurance companies). Providing regulatory reporting is key to these specific investors as it allows them to apply a look through on the assets of the AIF and meet their own regulatory requirements.

GroMiKV Reporting - Reporting for German credit institutions

Key Features

Target investors

German credit institutions

Periodicity

Monthly

Deliverable

Breakdown of the fund’s investments in a specific template

Format

Standard excel/csv format

Main features

The "Groß- und Millionenkreditverordnung" (GroMiKV) is a German regulation which transposes the Committee of European Banking Supervisors (CEBS) guideline regarding the large exposure regime according to Art. 390 (7) of the Capital Requirements Regulation (CRR) into German law.

This regulation is relevant to German credit institutions which are obliged to report their large exposures to the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).

German credit institutions might ask investment funds to provide them with a look-through reporting according to the GroMiKV. Especially under CRR II, an intransparent approach might have an unfavourable impact on the institutional investor. 

It’s necessary to provide these investors with a monthly reporting to enable them to fulfil their large exposure reporting requirements according to the GroMiKV.

VAG Reporting - Reporting for smaller German insurance companies and German pension funds

Key Features

Target investors

German insurance companies and German pension funds

Periodicity

On a quarterly or monthly basis (Deadline: 10 BD)

Deliverable

Breakdown of the fund’s investments in a specific template

Format

Standard excel format

Main features

The "Versicherungsaufsichtsgesetz" (VAG) is a German regulation regarding investment restrictions for smaller German insurance companies and German pension funds. These entities have to report the composition of their portfolio to the BaFin.

Smaller German insurance companies and German pension funds might ask investment funds to provide them with a look-through reporting according to the VAG.

As in the previous case, providing these investors with quarterly reporting is necessary for them to fulfil their portfolio reporting requirements according to the VAG.

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Contact us

Thierry Braem

Alternatives Tax Leader, PwC Luxembourg

Tel: +352 49 48 48 5106

Oliver Weber

EMEA AWM Tax leader, Luxembourg AWM leader, PwC Luxembourg

Tel: +352 49 48 48 3175

Christian Heinz

Global Tax Compliance Leader, PwC Luxembourg

Tel: +352 621 33 2247

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