Fund Taxation Alert 2022-09

Since the introduction of the new German Investment Tax Act (GITA) in 2018, German investors owning mutual funds, i.e. UCITS or UCITS-like, as at end of December, are subject to the lump sum taxation. The relevant tax figures are calculated based on the reference interest rate, in addition to other parameters, which is published in early January by the German Ministry of Finance. Read more about the GITA revamp here.

For example, the 2022 lump sum tax figures use the reference interest rate published in January 2022. Since 2018, the reference interest rates have been evolving as follows:

Given that in 2021 and 2022 the rates were negative, the respective lump sum taxation realized by German investors on 3 January 2022 for 2021, and on 2 January 2023 for 2022 was / is nil.

Considering the global economic situation, the reference interest rate may again be positive in January 2023.

In case of positive reference interest rate, the so-called preliminary lump sum figures should be calculated to assess if there is a taxable lump sum to publish. In certain conditions (negative performance throughout the calendar year or when sufficient dividend income is distributed), the lump sum amount will remain nil.

What would this mean to asset managers?

The negative reference interest rate has meant that the annual lump sum for the German investors was restricted to nil for two years in a row.

In case this configuration now changes, the German investors will expect the tax figures to be made available, ideally with an explanatory note. Although there is no legal deadline to release the tax figures on the market, we recommend reporting them preferably in January or at the latest in April, so that investors requiring the figures, can complete their tax return appropriately.

For their funds distributed to German investors, asset managers should be prepared to:

• Calculate the tax figures as soon as the reference interest rate becomes positive
• Control what will be automatically released by the German media and reconcile with the figures calculated by the asset manager
• Report the figures to the German investors who invest through non-German banks. In such case, their paying agents may not be able to withhold the tax, hence the German investors will have to declare it in their tax returns based on the reporting made by the asset managers (website, e-mail…).
• Perform a pre-assessment of the potential distribution for share classes invested by German investors.

KPMG can help you provide the appropriate information to your German investors. Contact our experts to discuss more.