After discussing the amendment of the German Investment Tax Act, the Ministry of Finance proposes new changes to be brought to the participation exemption rules that would further consolidate the legislation. The new rules would reduce even more the taxes imposed on capital gains of corporate shareholders. Our lawyers in Germany will provide you with information about the current provisions of the Investment Tax Law.

What are the new proposals referring to the amendment of the Investment Act?

The discussions have started when realizing that under the current participation regulations, the capital gains realized by German companies owning shares in other companies are subject to a 95% tax exemption, the other 5% being added to the taxable income. The new legislation aims to abolish this tax exemption. The proposal is not new, as the Government wanted to reform the German Investment Tax Act since 2013, except it did not have the necessary mechanisms and legislation to do so. The 95% tax exemption currently applies to dividends received by German corporate shareholders without a minimum shareholding investment. For details about the current provisions of the legislation on the taxation of investment, please contact our law firm in Germany.

The new proposal aims to repeal the participation exemption for capital gains in companies German shareholders own directly less than 10% of the share capital. Also, the capital gains would have to result from the sale of shares in the company.

Lower tax rate for venture capital investments

The debate also revolved around another hot topic: that of the reduction of the capital gains from certain venture capital investments. This amendment would help German startup companies to reduce their capital gains tax during 2017 and 2018. The tax on the eligible capital gains would be reduced to 30% of the purchase costs of the shares sold. In order to benefit from this reduced tax rate, German companies would have meet all the requirements below:

• -          the shares would have to be newly issued and bear voting rights,
• -          the company must not be listed on the German Stock Exchange,
• -          the shares would have to be owned for at least three years before the sale.

The draft legislation is currently under advisement and could be voted by the end of the year. However, its implementation could happen in 2017. For an update on the situation you can check with our German lawyers.