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DE - Reform of the German Investment Tax Act

On 26 July 2016, the finalised Investment Tax Reform Act has been released in the Federal Law Gazette.

On 26 July 2016, the finalised Investment Tax Reform Act has been released in the Federal Law Gazette. The bill provides for a change of the tax regime for public investment funds. Accordingly, public investment funds will be treated as non-transparent for tax purposes, i.e., the investment fund itself will be subject to corporate income tax and trade tax on certain domestic-sourced income (e.g., dividends received from resident corporations and rental income including capital gains from real estate). The investors will be taxed on distributions (a lump-sum amount is due if the investment fund retains its income) and gains from the redemption or sale of the fund units. In order to reduce the effect of double taxation, the income will be partially tax exempt in the hands of the investors depending on the income sources (e.g., in the case of an equity fund, a private individual holding the fund units as private assets will be granted a tax exemption of 30% on income).

The German special funds will continue to be treated as transparent for tax purposes if the investment fund fulfils certain investment criteria. The amendments will take effect from 1 January 2018.