Client Information dated 12 December 2012 we informed
about the ministerial draft of a German Act on the Adaption of
Investment Fund Taxation in Connection with the AIFM Directive
("Ministerial Draft"). On
30 January 2013 the governmental draft that will be introduced
in tsheltering debt under a secured party's security he
legislative process has been published*
("Governmental Draft"). Please find
below a summary of the material changes in the Governmental
1. Qualifying Investment Funds
The term "qualifying investment funds" – i.e.
UCITS and certain open-end AIFs, that will be subject to a tax
regime similar to the investment fund taxation currently in place
– has been modified:
It is sufficient if at least 90% of the value of an AIF
comprises of eligible assets.
PPP project companies will be treated as eligible assets.
The term "participation in an enterprise" has been
restricted to shares of a corporation. Hence, interests in
closed-end funds organized as business partnerships are no longer
eligible assets (with respect to non-business partnerships see
A real estate fund may hold 100% of the shares of a real estate
company. Moreover, the restrictions for leverage applicable to real
estate funds have been eased.
The scope of the future tax regime applicable to qualifying
investment funds will be converged with the scope of the investment
fund taxation currently in place. However, there are certain
restrictions as the 20% threshold for participations in enterprises
only covers shares of a corporation.
However, the reasons set forth in the Governmental Draft
indicate that tax rules shall be applicable with respect to
attribution of eligible assets. In particular, an investment in a
non-business partnership seems to be an eligible investment for a
qualifying investment fund. In this case a qualifying investment
fund as partner of such partnership shall be treated as if it held
its pro rata share of the assets of the partnership directly.
2. Non-Qualifying Investment Funds
Nevertheless, the so called partial income taxation and the
exemption for dividends and capital gains derived by corporate
shareholders shall only apply if the income of the respective
corporate-type non-qualifying investment fund is subject to tax at
the level of the respective corporate-type non-qualifying
In addition, the provisions of the German controlled foreign
companies legislation and the passive foreign investment companies
legislation shall be applicable to such corporate-type
non-qualifying investment funds in order to ensure that retained
proceeds are subject to tax.
3. Transitional Provisions/Grandfathering
The transitional provisions of the Ministerial Draft and the
Governmental Draft are substantially the same. However, such
provisions have been modified to focus on the relevant issues:
Investment funds that fall within the scope of the investment
funds taxation currently in place but that will no longer qualify
as qualifying investment funds under the future provisions, will
nevertheless be subject to the tax regime applicable to qualifying
investment funds (as amended from time to time).
A specific proceeding has been introduced in cases where a
preexisting fund no longer fulfils the criteria under the
investment tax law currently in place. This proceeding is similar
to the proceeding introduced for future qualifying investment funds
client information dated 12 December 2012).
The Governmental Draft does not provide for transitional
provisions regarding non-qualifying investment funds. Such funds
have to apply the new rules as of 22 July 2013. As a
consequence the full amount of dividend distributions of tax-exempt
corporations (e.g. Luxembourg S.A./S.C.A. SICAV) will be subject to
German corporate income tax as of 22 July 2013 (i.e. § 8b
German Corporate Income Tax Act is no longer applicable).
The Cyprus Tax Department recently issued Forms T.D 38, T.D 38Qa and T.D 38Qb applicable to individuals being Cyprus tax residents but non-Cyprus domiciled.
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