New German withholding tax regime for foreign investment funds

11.10.2017

The new German Investment Tax Act will enter into effect on

1 January 2018

and will significantly change the taxation of dividends and similar income from investments in German equities, participation rights and convertible bonds held by foreign investment funds.

Dividends paid to a foreign investment fund

Currently, German dividends paid to a foreign investment fund are subject to 26.375% Withholding Tax and Solidarity Surcharge (WHT).

Under the new rules, if the foreign investment fund obtains and provides a Fund Status Certificate for classification of the fund pursuant to § 1 Investment Tax Act or if special investment funds opt for transparency pursuant to § 26 of the Investment Tax Act, the German WHT will be reduced to 15% at source irrespective of the location of the fund.

If the Fund Status Certificate is submitted after the payment date of the event the overpaid WHT amount (11.375%) can be claimed back within a period of 18 months.

The Fund Status Certificate must be requested from the German Tax Authorities. Customers should contact their tax advisor or lawyer for further information.

Distribution of tax liquidity for accumulation funds

The distribution of tax liquidity for accumulation funds (Thesaurierenden Fonds) will no longer be applicable for income with fiscal payment date from 1 January 2018. Distribution of tax liquidity due to corrections or due to income with fiscal payment date before 1 January 2018 can still take place in 2018.

Fund income distribution

From 1 January 2018 the current logic with deduction of 25% withholding tax plus solidarity surcharge on funds income distributions will not be applicable if the fund is an investment fund in compliance with § 1 of the Investment Tax Act.

Foreign investment funds with tax privileged German or comparable foreign investors (for example, churches, non-profit organisations, foundations, corporations under public law) may be able to obtain full reclaim of German WHT for this specific investor type if certain formal requirements are met. Clearstream Banking S.A. is still in discussion with its depository, Clearstream Banking AG, in order to identify all formal requirements to be delivered  in the foreign custody chain including a confirmation of minimum holding period of 45 days over the dividend entitlement date.

The following remain unchanged:

  • The requirements of the Federal Central Tax Office (Bundeszentralamt für Steuern - BZSt) for processing tax reclaims that result from a double taxation treaty.
  • The requirements to issue a tax voucher to a Clearstream Banking customer for their own holdings or holdings of their clients.

Further information can be found in Announcement A16051 of 29 March 2016.

Clearstream Banking1 was informed by its depository that the template for the German Tax Voucher will be changed, but the German Tax Authorities have not published the final version.

Further information

Additional details about tax instructions and documents required for tax reduction will be announced in due course as well as detailed information concerning the deadlines for submission and the format of the requests.
For further information, customers can contact the Clearstream Banking Tax Help Desk.

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1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for Clearstream Banking AG customers using Creation Accounts), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.