ARTICLE
7 April 2017

Investment Fund Managers Prepare For German Tax Reform

KL
KPMG Luxembourg

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As Luxemburg is a hub for asset servicing and asset managers in Europe, the upcoming reform in German investment tax will necessitate a fundamentally new set up here in the Grand Duchy.
Luxembourg Finance and Banking

German investment fund taxation is poised to have a significant impact on Luxembourg's fund world in 2018. As Luxemburg is a hub for asset servicing and asset managers in Europe, the upcoming reform in German investment tax will necessitate a fundamentally new set up here in the Grand Duchy, if the country is to remain the ideal spot to administrate, sell and manage UCITS and AIFs for German investors

It's key to remember that the effective tax rate paid by investors for their investments is becoming increasingly important. Demand for your product, whatever it is, will increase as the investor tax rate lowers. However, interestingly, the German tax reform will bring into existence significant partial tax exemptions on an investor level for equity, mixed and real estate funds. Despite their profitability being less than other products, e.g. bond funds, these tax-exempt funds will be especially prized by investors.

It is therefore crucial for fund managers to analyse their current product portfolio from a German tax point of view, and to start penning in eventual amendments for products in demand.

The factsheet

The main facts and impacts of the reform may be summarised as follows:

  • Fund managers must ensure that their legal and reporting departments are in line with the new law (e.g. in terms of equity quote and treatment of tax exempt investors).
  • A status certification will need to be applied in 2017 already.
  • Contracts with third parties, fund administrators, and data providers (i.e. WM data) need to be reviewed and adjusted in accordance to the new law.
  • Asset managers will need to set up clear investor communications that provide a precise overview of their products and show the readiness of the AM for the German tax reform.
  • Certain new products will be more attractive in the future (e.g. alternative investments, special investment funds) which will require an assessment of the current product line.
  • The interaction between fund managers' different departments (e.g. reporting, tax, product development and legal) will be much more important as each decision they take could change the product's tax treatment on an investor level.

Get in gear

Interested in getting in shape for this upcoming reform in German investment fund tax? Have a look at our newly developed KPMG GIFT Map (see below), which we've designed to help you recognise which areas could be affected by the reform.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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