Hop · Step · Jump
A triple jump propels Germany to the forefront as a fund domicile

The most comprehensive regulatory initiative of recent years has significantly strengthened Germany’s position as a fund domicile for alternative asset classes through coordinated reforms of investment law, tax law and the Investment Ordinance. investments.  

The key elements of this reform agenda are the recently enacted Location Promotion Act (Standortfördergesetz – StoFöG), the Fund Risk Limitation Act (Fondsrisikobegrenzungsgesetz – FRiG), and the earlier Future Financing Act (Zukunftsfinanzierungsgesetz – ZuFinG). Together, these measures introduce significant improvements, particularly alternative investment funds (AIFs). Most notably, a number of the amendments facilitate investments in market segments that attract strong investor demand. These include infrastructure, renewable energy, private equity and private credit funds.

Key feature is that in order to improve the investment environment for alternative asset classes, provisions across several statues of legislation have been simplified in a coordinated manner and aligned with EU requirements. This applies in particular to the German Investment Tax Act (Investmentsteuergesetz – InvStG) and the German Investment Act (KAGB), in conjunction with the Investment Ordinance (Anlageverordnung). As a result, if Germany were to become a preferred fund domicile for alternative investments, many investment projects could now be implemented under conditions that are on a par with those available in other international jurisdictions.

Hop – KAGB amendment facilitates investments for Special AIF

A significant part of these packages of measures consists of major amendments to investment law under the KAGB. One change, for example, is the significant extension of the list of eligible assets for property investments under § 284 in conjunction with § 231(3) KAGB. Open-ended special AIFs with fixed investment guidelines may now invest in a wider range of assets; in addition to property-related assets, they may also acquire assets used for the management of renewable energy or the operation of charging points for electric vehicles. This means that a special fund may also invest, in particular, in enterprises whose business purpose relates to assets connected with real property or renewable energy, as well as in infrastructure project companies. The latter, however, has already been possible since the Fund Location Act of 2021.

A further regulatory amendment makes it possible to invest broadly in target funds in the private equity sector and other illiquid asset classes also via open-ended investment funds. This is because, until now, open-ended special AIFs with fixed investment guidelines under § 284(2)(2) KAGB, point (g), were only permitted to invest in units or shares in open-ended target funds. Closed-ended target funds have, until now, generally been prohibited. Here, too, the legislator has introduced a change: Open-ended domestic special AIFs are now permitted to invest in closed-ended private equity, venture capital or infrastructure funds with legal certainty. The restriction to ‘open-ended target funds’ has been removed from the Act.

Step – Tax clarity for credit and infrastructure funds

Another key factor in the choice of fund domiciles is the degree of clarity and legal certainty surrounding tax matters. For funds investing in infrastructure or renewable energy assets in particular, there has been a degree of uncertainty in Germany as to whether trade tax (Gewerbesteuer) would arise at fund level. In addition, investments in infrastructure and renewable energy projects carried the broader risk that an investment fund might not qualify for investment fund status for tax purposes. The German Investment Tax Act has introduced a number of important improvements for Germany as a fund domicile, particularly with respect to alternative investments.

The revised § 1(2), second sentence of the German Investment Tax Act clarifies that an investment vehicle may continue to qualify as an investment fund for tax purposes even where the assets it holds are managed, in whole or in part, through active business operations. In other words, active management does not prejudice the fund’s status as an investment fund or the resulting tax treatment. The only requirement is that the criteria for qualifying as an investment vehicle under § 1(1) KAGB continue to be met. Funds investing in real assets, such as infrastructure and real estate funds, for which active entrepreneurial management is an inherent feature, stand to benefit particularly from this clarification. In addition, the amendment significantly broadens the range of structures recognised as investment funds.

In the past, German-law governed credit funds were also at a significant disadvantage compared with those established in other leading fund jurisdictions. In this respect, the Fund Risk Limitation Act implements the European requirements for loan funds into German law, thereby creating a more harmonised framework. For example, a German Special AIF may now, subject to clearly defined conditions, be structured as a credit fund and grant loans, either directly or indirectly through subsidiaries or special-purpose lending vehicles, for example to small and medium-sized enterprises (SMEs) or for infrastructure projects.

These measures have resulted in amendments not only to the investment law framework under KAGB, but also to the tax regime set out in the Investment Tax Act. For example, for investment tax purposes, the granting of loans to non-consumers is now expressly not regarded as active business management for investment tax purposes (§ 6(5) InvStG). In addition, infrastructure debt funds may allocate such loans to the newly introduced infrastructure quota.

Jump – Investment Ordinance (Anlageverordnung) in line with investment law

Germany has long been recognized as a fund domicile for alternative investments. However, there have repeatedly been instances where legislative changes were made without corresponding amendments to the Investment Ordinance (Anlageverordnung). The resulting uncertainty meant that pension schemes were, in some cases, unable to take full advantage of the flexibility available under investment tax law. In the infrastructure sector in particular, the amendments to investment and tax legislation have been accompanied by corresponding changes to the Investment Ordinance.

Apart from the introduction of the five per cent infrastructure quota, this is also evident in relation to real estate funds. § 2(1) no. 14c of the Investment Ordinance now generally permits real estate funds to invest in infrastructure project companies in the renewable energy sector, as well as in assets used for the management of renewable energy within the meaning of the KAGB or required for the operation of electric vehicle charging stations.

In this respect, the Investment Ordinance has been brought into line with investment law and now allows specialist real estate funds to allocate up to 15 per cent of the property quota to infrastructure project companies operating renewable energy facilities.

A leap forward – next steps for Germany as a fund domicile

The technique and sequence for a leap forward are in place, as the regulatory initiative has been successful in many respects. Asset managers and institutional investors can now implement their investment strategies very effectively in Germany, regardless of their domicile. In this context, it is important that they work with service partners and advisers who possess the specific legal and tax expertise, and who offer a wide range of domicile jurisdictions and services.

To take a leap forward, it would also be desirable for the legislator to regulate the tax neutrality of funds structured as partnerships – as is the case in other fund jurisdictions. With respect to partnerships, the Private Equity Decree (Private-Equity-Erlass) currently remains applicable for tax classification purposes, which may result in such investments being classified as commercial activities. The Start-up and Scale-up Strategy, adopted by the Federal Government on 22 July 2026, is now set to address this issue.