Today, Germany is recognised as one of the key markets for cross-border fund distribution. This is evidenced by the fact that about 3,500 foreign regulated UCI products, compared to 1,200 local investment funds, are offered to German investors.
Importantly, since 2004, the same tax regime has applied equally to domestic and foreign investment funds but only provided the same tax reporting requirements are satisfied. Not satisfying these reporting requirements will in most cases result in a disadvantageous lump-sum taxation at the investor level, which makes non compliant funds very unattractive for German private and institutional investors.
Registration with the German regulator is no longer regarded as a condition to achieve the most favourable tax status for German investors. Although public marketing still requires undertaking a complex registration process, private placement permits the same tax treatment afforded registered funds. Thus, private placement provides certain funds, e.g. Hedge Funds with easier market access.
Overview on reporting requirements
To ensure that German investors benefit from the most advantageous tax regime, the following requirements (amongst others) need to be satisfied:
This is even more challenging for foreign funds as all profit and loss information to be considered within the tax reporting process must be determined under German rules, which often vary from local accounting practice
After an overwhelming euphoria swept the German market when it was opened to Hedge Funds in 2004, actual figures on funds raised now demonstrate a level of reluctance. Nevertheless, further clarification and liberalisation of the tax and regulatory environment has made it easier to access Hedge Funds, especially for regulated entities, such as insurance companies. Such professional investors are quite tax sensitive, making full compliance with tax reporting rules a key driver of their investment decision.
Does this concern my Private Equity or Real Estate structure? Possibly yes! The German tax legislation includes its own definition of funds, which are required to comply with reporting requirements. Not only does this apply to Hedge Funds and other alternative investment schemes but also to Private Equity and Real Estate funds.
The risk: Being unaware that your structure is required to meet tax reporting and publication requirements. Late identification of the requirements meaning that the legal deadline passed will provide no further possibilities to make your product compliant and your investors are subject to the disadvantageous lump-sum taxation.
To support non-German based funds in complying with these tax reporting provisions, and thus being an attractive investment option for German investors, PricewaterhouseCoopers provides a tax consulting and compliance service offering through a dedicated hub which aims to:
As these services require significant input from a fund's administrator, they will be provided in a tailored manner in order to meet the promoters' requirements and to respect the administrator's operational capabilities.
Based on our significant experience in this area, we offer a comprehensive, bespoke and efficient tax reporting service for funds looking to satisfy these tax reporting obligations. Our approach involves close cooperation with fund promoters and their administrator operations. PwC Luxembourg has a dedicated tax team consisting of 25 specialists working exclusively in this area.
Apart from ensuring the satisfaction of the tax reporting obligations, we understand that part of our role is to help minimize the related administrative and operational burden of all parties. This is supported by a close cooperation with other PricewaterhouseCoopers professionals and competencies, e.g. with the fund's statutory audit teams.
Given our global market leadership position in the Investment Management industry, we advise the vast majority of major industry players, which welcome our multi-competency client approach. This strength also forms the basis for our German tax reporting services. Multi competency teams, bringing together all PwC knowledge on your products and led by recognised senior experts with a long industry experience, ensure a seamless and cost efficient service approach