On 22 March 2024, the German parliament approved a bill that enacts significant changes applicable to German and non-German Real Estate funds. Some of the changes extend while others reduce the scope of tax exemption on the level of the German fund investor.

• In the future, capital gains from real estate holding vehicles in corporate legal form with a predominantly German property value will be included in the other domestic income subject to tax for investment funds. It does not matter whether the corporation has its registered office or management in Germany or abroad. The only decisive factor is that more than 50 percent of the share value is based on German real estate.

This change leads to an increase of taxation, compared to the current situation.

• In the future, real estate and real estate companies will no longer be included in the (foreign) real estate fund quota if their taxation level is non-existent (or too low). The taxation level is deemed to be too low if more than 50 percent of the real estate income is exempt from taxation.

In the case of Chapter-2 funds, the non-qualifying taxation level means that the property and real estate companies concerned will no longer be taken into account for the – tax beneficial – (foreign) real estate fund ratio. In the case of Chapter-3 funds (special funds), the lack of qualifying taxation level means that the tax exemption for double tax treaty exempt income will not be applicable.

This change leads to an increase of taxation, compared to the current situation.

• The scope of the – tax beneficial – Chapter-3 fund (special fund) will be extended. The threshold for permitted active business income related to the generation and supply of renewable electricity or related to EV charging stations will increase from 10% to 20% of the income of the fund.

This change makes it easier for funds to retain the tax beneficial status of the Chapter-3 fund, compared to the current situation.

If you wish to discuss these topics, please contact:

WTS Germany

Original text you can find here.