Exit taxation planned for investment funds
Based on the Foreign Tax Act
The planned amendment to the Investment Tax Act is to apply to investment units held as private assets by taxpayers. The regulation is closely modelled on the Foreign Tax Act (AStG): It is linked to the termination of the investor's unlimited tax liability by giving up their place of residence, the transfer of the shares free of charge to a person without unlimited tax liability or any other restriction of the Federal Republic of Germany's right of taxation. To date, only shares of at least 1% in corporations have been subject to exit taxation. Investment shares were not previously included.
Prerequisite for the planned exit tax
In principle, all types of investment units are covered by the new regulation (special investment funds, ETFs, etc.). However, a "materiality threshold" must be checked for each individual investment fund:
- Investors must have held a direct or indirect interest of at least 1% in the investment fund within the last five years or
- directly or indirectly hold shares whose acquisition costs (per investment fund) amount to at least € 500,000.
For example, if an investor has acquired investment units in five different investment funds and has spent €400,000 on the acquisition costs of each, this does not qualify for the planned exit taxation, even if the investor has spent a total of €2,000,000 on all of his investment units. The fixed amount limit is intended to make it easier for the tax authorities to identify the relevant cases, as the percentage held in an investment fund can change on a daily basis.
The regulation is to be applied to all departures after 31 December 2024.
Practical consequences
The planned new regulation represents a significant tightening of exit taxation for investors. As the investment units are not actually sold and investors therefore generally have no corresponding liquidity, there is a risk of taxation of so-called "dry income". In the event of a planned departure or free transfer, for example to children living abroad, investors should definitely have their portfolios reviewed with regard to the regulation.
The law still has to be passed by the Federal Council.