Draft bill to improve attractiveness of Germany as a Financial Services location

The German government presented to the public a memorandum on future legislative measures to improve the financing of investments and to facilitate capital market access for companies, especially start-ups, growth companies and SMEs. The Memorandum intends to take a holistic approach to strengthen both the supply as well as the demand side of the investment sector. On the one hand, the legislator aims to adjust aspects of German regulatory law and company law, while on the other hand the tax framework is to be improved. 

In particular, the following tax measures are set out:

1. Introduction of a tax-free allowance for capital gains realized from the sale of stocks and of equity fund units for private investors,
2. Improving the framework conditions for investing in shares by abolishing the separate loss offset regarding the sale of shares,
3. Simplification of the withholding tax procedure, the separate loss offset for losses from forward transactions and from bad debts in private assets are to be abolished,
4. In order to strengthen Germany as a fund location from a tax perspective, the VAT exemption for venture capital funds is to be extended to the extent permitted by EU VAT rules.
    

The initiative of the German legislator to abolish the offsetting restrictions for losses from common stock and to introduce a tax-free allowance for shares to promote equity culture and start-ups in Germany is generally commendable. However, it remains to be seen just how investor-friendly the actual draft bill will be.

From the investor's point of view, it would be desirable if losses from common stock, from derivative transactions and losses from non-recoverable debt assets realized in previous tax periods could be offset against all realized gains or income from capital assets as of the date of the abolition of the restriction on loss offsetting. Another desirable feature would be the possibility to recognize directly at the level of the depositary the tax-free allowance for gains from the sale of stocks and equity fund units, instead of having to file the tax allowance as part of the annual tax return. 

The regulatory adjustments include in particular:

1. Simplification and facilitation of stock exchange listing requirements and post-admission obligations,
2. Improvement of the legal framework for modern forms of transactions in order to facilitate an IPO, such as related regulations on share-based options (naked warrants) and the use of SPACs (Special Purpose Acquisition Companies),
3. Expanding the possibility to issue digital assets including equity stocks (based on DLT) 
4. Improving the legal framework for the transfer of crypto assets,
5. Easing the rules for increases of the statutory capital,
6. Modernization of the German financial supervisory authority (BaFin) via digitalization and by enhancing the possibility for communicating with the regulator in the English language 
    

A first draft of the bill is expected before the end of 2022. If the announced measures can be implemented effectively, this initiative promises to significantly increase the attractiveness of Germany as a Financial Services location.

If you wish to discuss this topic, please contact: WTS Germany, Frankfurt

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