Preliminary annual lump sum according to the German Investment Tax Act ("GITA") for the calendar year-end 2021 will be nil


In brief

Preliminary annual lump sum according to the German Investment Tax Act ("GITA") for the calendar year-end 2021 will be nil.

The German Ministry of Finance (Bundesministerium der Finanzen (“BMF”)) has issued a circular stating that the reference interest rate published by the German Central Bank is negative and hence there will be no tax charge levied based on the preliminary lump sum to German investors in January 2022 ("Vorabpauschale" according to § 18 InvStG).  

Under the German Investment Tax Act 2018 (“InvStG”), German investors of mutual funds are subject to an annual tax advance (preliminary annual lump sum), which is determined, among other factors, in accordance with Section 18, Paragraph 4, InvStG, based on the German reference interest rate published on the first business day of the year by the German Central Bank.

The German reference interest yield published on 4 January, 2021, has a value of -0.45%. 

What is the impact this year?

This new applicable rate has no effect on the annual lump sum as of 31 December, 2020, which is based on the reference interest rate published in January 2020.

Therefore there is no immediate impact for the funds and their German investors at this point in time.

The negative reference interest rate for the 2021 preliminary annual lump sum does not imply that German investors will not suffer any taxation on their income received from their investments in funds. They remain taxable on distributions and capital gains upon disposal of their shares by taking into account the regime of partial tax exemption, depending on the fund classification. It is therefore important to ensure that shares of funds distributed to German investors are properly registered with WM DatenService (or any other relevant media) with correct information and publications relevant for investor taxation. In addition, the asset managers are still obliged to continue to monitor the daily compliance to minimum equity (or real estate) investments according to the defined fund classification. 

In conclusion

The new negative reference interest rate is applicable for the next year's annual lump sum determination as of 31 December, 2021. There is no action to be taken at this stage and the annual lump sum for calendar year 2020 is to be calculated and reported as normal.

We highly recommend asset managers to continue closely monitoring accuracy and completeness of the information reported to WM DatenService (initial registration, static information, distribution, etc.).

We will keep you posted about further evolution in the German investor taxation.

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