Key Facts
- BMF and BMJ are planning a comprehensive VAT exemption for the management of all AIFs.
- This would bring the German VAT situation into line with the legal situation in other EU Member States, such as Luxembourg, and would thus eliminate competitive disadvantages for Germany as a fund jurisdiction in a consistent continuation of the objective of the Act to Strengthen Germany as a Fund Jurisdiction (“Fondsstandortgesetz”).
- The proposed new provision would apply to AIFs of all asset classes and irrespective of the AIFM’s regulatory status and the qualification of the investors.
- The new provision is to become effective as of 1 January 2024.
The effects of the planned new regulation on practice
The Act on Financing of Future-Proof Investments is intended to extend the VAT exemption currently only provided for the management of Undertakings for Collective Investment in Transferable Securities (UCITS) and of Alternative Investment Funds (AIFs) comparable to UCITS as well as of venture capital funds (“Wagniskapitalfonds”) to the management of all AIFs.
This would mean that the management of AIFs would be exempt from VAT in the future regardless of asset class (i.e., expanding the exemption from PE/VC funds to also encompass funds including debt funds, real estate funds, infrastructure funds, project development funds, crypto funds, litigation funds, and funds of funds, etc.). The type of regulation of the AIF or its alternative investment fund manager (AIFM) would no longer be relevant, nor would be the qualification of the investors. Accordingly, the management of all AIFs (special AIFs and retail investment funds) managed by fully authorized AIFMs, EuVECA managers and nationally registered alternative investment fund managers (subthreshold AIFMs) would be exempt from VAT.
The objective of this proposed new provision is to eliminate competitive disadvantages for Germany as a financial jurisdiction. Last year we reported that such competitive disadvantages continue to exist despite the recent extension of the VAT exemption to the management of venture capital funds because other EU Member States treat the management of all AIFs as VAT-exempt turnover. In this respect, the Act on Financing of Future-Proof Investments would align German law with the VAT regimes in other EU Member States, such as Luxembourg, and make a further significant and welcome contribution to strengthening Germany as a financial and fund jurisdiction.
According to the current discussion, the proposed new provision shall only become effective as of 1 January 2024, without retroactive effect.