Regulatory and Investment Tax Law Changes Create Opportunities for Marketing Funds to the German Institutional Market

October 04, 2017

Germany is the largest inbound market for alternative and traditional fund investments by institutional investors in the European Union. German insurers, pension funds, pension schemes (Versorgungswerke), corporate investors and family offices are all seeking attractive yields in the current low interest rate environment.

Obstacles to investment by German institutional investors in non-German funds had been created in the past by provisions of German investment tax law and insurance regulatory law. With respect to the latter, German insurers until recently were permitted to purchase only certain assets that met specific eligibility criteria and which could be allocated from certain quota (e.g., a “private equity quota” limited to 15% of total invested assets). From an investment tax perspective, German investors in foreign non-tax transparent funds have to date been subject to a punitive lump-sum taxation; however, a new tax regime will come into force in 2018.

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