Gimme a break

Germany will introduce VAT exemptions for private equity funds as part of its Zukunftsfinanzierungsgesetz (ZuFinG), a financial reform package designed to make the country more attractive for the capital markets.

“Previously, VAT exemptions were only attainable for very specific fund vehicles and only if a substantial list of criteria was fulfilled,” explains Yvonne Hohler, senior associate at law firm CMS. “Under the reform, VAT exemption looks more like a blanket across all fund types.”

The measure aims to make Germany more attractive as a fund domicile, as governments are increasing their efforts to house private capital in their countries. Particularly when it comes to the participation of the public in the private markets.

“This reform is particularly interesting for Germany-based LPs,” shares Marcelino Berger, associate at CMS. “The burden of reporting, audits and other administrative duties is considerably lowered for them compared to investments in other fund locations.”

While the imposition of VAT has been a thorne in the side of Germany’s private equity industry, it is questionable whether the introduction of this exemption will considerably swing the odds in its favour.

“Other important considerations are the targeted industries and LPs’ taxation requirements, which depend on their legal nature and how well it interplays with regulatory and company law requirements,” concludes Hohler.

According to the German financial ministry, the law will come into force later in 2023. On 16 August, the draft was adopted by the cabinet.