Alternative Funds 2026 Comparisons

Germany is not a typical funds jurisdiction, such as Luxembourg or the Channel Islands. Nevertheless, Germany has a sizeable alternative funds sector with German-based funds and managers, including both direct investment funds and FOF. Besides domestic fund structures, many fund managers offer cross-border fund structures (eg, a German master fund with non-German feeder funds for certain non-German investors). Some German fund managers also use pure non-German fund structures (mostly based in Luxembourg).

As for investors, Germany is a top jurisdiction in Europe with regard to large institutional investors, such as insurance companies, pension funds and pension schemes, banks and credit institutions, as well as family offices and high net worth individuals (HNWIs).

German Implementation of AIFMD II – No Gold Plating Intended

The final text of the Directive amending the Alternative Investment Fund Managers Directive (AIFMD) and the Undertakings for Collective Investment in Transferable Securities Directive (UCITS Directive) – AIFMD II – was published in the Official Journal of the EU on 26 March 2024 and came into force 20 days later on 15 April 2024. Germany implemented the adopted amendments into law in April 2026, mostly on a one-to-one basis (ie, with almost no “gold-plating”), through the German Act to Limit the Risks of Investment Funds (Fondsrisikobegrenzungsgesetz).

The amendments in AIFMD II selectively supplement the existing AIFMD. The key developments under AIFMD II are:

• a new regulatory regime for loan origination activities of alternative investment funds (AIFs);
• additional substance requirements for fully authorised managers (ie, two senior AIF managers resident in the EU committed full-time);
• the introduction of Liquidity Management Tools for open-end AIFs;
• the implementation of the ability of an alternative investment fund manager (AIFM) to appoint a depositary outside the home member state of the respective AIF;
• the inclusion of delegation and sub-delegation reporting requirements;
• the extension of ancillary services, enabling AIFMs to administer benchmarks and credit servicing; and
• additional reporting requirements of AIFs on all fees, charges and expenses.

ELTIF 2.0

Regulation (EU) 2023/606 (the “ELTIF 2 Regulation”), amending Regulation (EU) 2015/760 of April 2015 on European Long-Term Investment Funds (ELTIFs), was published in the Official Journal of the European Union on 20 March 2023 and came into force on 10 January 2024. The Regulation aims to open the private capital market to retail investors by, among other things, broadening the scope of eligible assets and investments and allowing more flexible fund rules, including FOF strategies.

Due to the elimination of portfolio composition, diversification and concentration provisions, eg by raising the leverage limitation from 30% to 100% of fund capital for ELTIFs marketed solely to professional investors, the revised regime is also more attractive to professional investors.

For retail ELTIFs, the scope of eligible assets and investments has been expanded and the diversification and borrowing rules have been relaxed. The borrowing limit has increased to 50% of the ELTIF’s net asset value (NAV), while the requirement for eligible assets to represent at least 55% of the ELTIF’s net assets is reduced from 70%.

Further, in relation to indirect strategies, an ELTIF can now act as a feeder to another master ELTIF and FOF structures are now possible with any type of European underlying fund (up to 100% of the assets and a maximum of 20% exposure to the same fund). This enables managers to offer retail investors indirect access to funds that were not previously accessible to them or not available at all.

The German regulator published FAQ guidance on the ELTIF 2 Regulation on 1 February 2024 (last updated 21 May 2025), addressing open questions under the regulation and its relation to the German AIFMD implementation law.

Private equity funds (buyout, venture capital and growth capital) and real estate funds and FOF are the most common funds in Germany. Renewable energy funds and private debt funds are also noteworthy.

As for the structure, a German limited partnership (“KG”) with a company with limited liability (“GmbH”) as general partner (“GmbH & Co KG”) is typically used for closed-end alternative investment funds. The German limited partnership is comparable to the US, UK or Luxembourg limited partnership. It offers limited liability to its limited partners and has a general partner with unlimited liability (although the general partner’s liability is limited to its assets, typically EUR25,000 and is effectively limited).

The German limited partnership offers tax transparency and legal flexibility in its governance. It is the market standard for registered fund managers, such as AIFMD sub-threshold fund managers.

Contractual funds with no legal personality (Sondervermögen) are typically used for open-end funds. Contractual funds can only be established by AIFMs authorised under the German implementation of the AIFMD (Directive 2011/61/EU). Contractual funds are often established for real estate funds and non-UCITS funds. It is also often used for separate managed accounts as an investment platform for institutional investors.

Evergreen or Hybrid Structures

The number of evergreen funds and hybrid structures is growing steadily in Germany, particularly in asset classes such as private credit or sectors with a specific investor focus, such as ELTIFs and certain wealth-management products. Evergreen funds typically combine open-end and closed-end elements without a uniform structure. Their AIFMD classification as open-end or closed-end depends mainly on the liquidity risk arising from redemption rights and must be assessed on a case-by-case basis. In practice, evergreen funds are often still structured as closed-end for AIFMD purposes, as German regulated investors usually prefer this.

The German regulatory regime for AIFs is based on the AIFMD, implemented into the German Capital Investment Code (Kapitalanlagesetzbuch or KAGB). The KAGB contains the AIFMD manager- and fund marketing-related rules and German-specific “product rules” for AIFs. However, these product rules generally apply only to fund managers fully authorised under the AIFMD.

Smaller-Fund Managers

Smaller-fund managers (ie, sub-threshold managers under the AIFMD) are subject only to a registration requirement. Sub-threshold managers’ funds are not regulated and have no investment restrictions. Most German-based alternative asset fund managers remain sub-threshold managers, although the number of fully regulated managers in Germany is constantly growing.

Large-Fund Managers

Large-fund managers (ie, fund managers that need to be fully authorised under the AIFMD) are subject to a regulatory regime that is primarily based on the AIFMD. Their funds are also subject to product rules, that is, investment and borrowing limitations.

Investment Limitations

The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht or BaFin) oversees the regulatory regime for fund managers and funds. Applicable product rules (ie, investment limitations) depend on the fund category and whether the fund is a retail- or non-retail fund. Non-retail funds (Spezialfonds or specialised investment funds) are open only to professional and semi-professional investors.

Open-end and closed-end funds

Investment limitations for open-end alternative retail funds are based on the UCITS Directive, but include variations and deviations, such as broader eligibility for investments in other AIFs, loans and non-listed equity. For open-end real estate funds, the deviations are most significant: they may invest only in real estate and vehicles investing in real estate, in addition to holding liquidity.

Investment limitations for closed-end alternative retail funds are not based on the UCITS Directive and therefore align more closely with alternative asset classes. As closed-end funds have traditionally been used for alternative investments, they can invest in real assets such as real estate, ships, aeroplanes and infrastructure or in non-listed equities.

For open-end and closed-end special funds, the only investment limitation is that assets must have a market value and the fund must be risk-diversified. The KAGB also provides for a “special fund with fixed investment guidelines”, popular with institutional investors as an investment platform because it can be tax transparent and exempt from group consolidation under German accounting rules. Closed-end special funds can grant loans to non-consumer borrowers within strict limits (see 2.5 Private Credit).

The EuVECA, EuSEF and EU-ELTIF regimes

In addition to the above regimes, the European Venture Capital Funds (“EuVECA”) regime and the European Social Entrepreneurship Funds (“EuSEF”) regime are directly applicable in Germany, as well as the ELTIF regime. The EU legislature amended the ELTIF regime in 2024 (ELTIF 2.0) to open the private capital market to retail investors (see 1.2 Key Trends).

Timing with regard to regulatory approval in Germany

Germany requires regulatory approval for the fund manager, not the fund itself. Depending on the licence, BaFin must decide within statutory deadlines from receipt of the complete required documents:

• two weeks for a sub-threshold manager;
• two months for a EuVECA/EuSEF manager; and
• six months for a fully licensed manager.
• As BaFin determines when documents are “complete”, timelines are longer in practice:
• two to four weeks for a sub-threshold manager;
• three to six months for a EuVECA/EuSEF manager; and
• 12 to 18 months for a fully licensed manager.

To reduce processing times for applications of fully licensed managers, AIFMD II implementation law introduced a cut-off date for completing an application (it will be deemed withdrawn if additional documents requested by BaFin are not submitted within three months).

Prospectus

In respect of special funds (ie, non-retail funds), Article 23 AIFMD disclosures must be provided if the fund is marketed in Germany or the EU. In any case, a private placement memorandum (PPM) is commonly produced for all special funds, to protect fund sponsors from civil litigation liability.

Key Information Document

If the fund is marketed to semi-professional investors or retail investors, a key information document in accordance with Regulation (EU) No 1286/2014 (PRIIPs Regulation) must be produced.

Annual Reporting

Annual reporting requirements apply to both managers of retail funds and managers of non-retail funds. In addition, contractual funds and investment stock corporations (Aktiengesellschaft or AG) with variable capital have semi-annual reporting requirements. The reports must be published.

AIFMD Reporting

Fund managers must regularly report to their competent supervisory authority on the principal markets and instruments in which they trade on behalf of the funds they manage. The reporting frequency can be quarterly, half-yearly or yearly depending on the type of fund manager and the funds it manages.

Federal Bank Reporting

Investment funds (ie, in particular AIFs) must submit (monthly) reports to the German Federal Bank for statistical purposes. The reports must contain, among other things, information on the amount and composition of the fund assets.

Partnership Structures

For a German partnership, limited partners must be registered with the local commercial register, whose records are publicly available online. This includes investors’ identities as limited partners and their liability amounts (typically a small percentage of the capital commitment). Disclosure can be avoided by interposing a nominee as a direct limited partner, holding and managing the interest for and on behalf of the investors as beneficiaries.

Filing the partnership agreement is not required, so fund terms remain confidential. However, if the fund is structured as a corporate fund (GmbH or AG), the statute (governing rules) must be filed with the respective commercial register, making the fund terms publicly available (unless contained in a separate document, eg, a shareholder agreement).

AML Transparency Register

In 2018, Germany introduced the transparency register under EU anti-money laundering (AML) law. It must include all beneficial owners. With the Transparency Register and Financial Information Act, effective 1 August 2021, almost all German legal entities must notify the register of all beneficial owners, regardless of information in other registers.

The Financial Crime Prevention Act (Finanzkriminalitätsbekämpfungsgesetz) and the upcoming application of the new EU Anti-Money Laundering Regulation (EU AMLR) introduce further obligations and structural changes.

Certain requirements took effect on 1 January 2025, including mandatory tracing of complex ownership structures and enhanced due diligence and reporting. Most new obligations will apply from 10 July 2027, when the EU AMLR becomes fully applicable across member states.

Sustainable Finance Disclosure Regulation/ESG Reporting

Regulation (EU) 2019/2088 (Sustainable Finance Disclosure Regulation -SFDR) and Regulation (EU) 2020/852 (Taxonomy Regulation) require disclosure of funds’ environmental, social and governance (ESG) status. These regulations aim to enable investors to assess how sustainability risks are integrated into investment decisions, prevent greenwashing and monitor ESG activities. The level of disclosure under the SFDR depends on the relevant impact level the fund intends to pursue. Funds generally must disclose pre-contractual information in the offering memorandum annex and on the fund manager’s website and ongoing information in an annex to the annual report. Fund managers must also disclose information about themselves on their websites. Many disclosure details remain subject to additional rule-making and ongoing changes.

Overview

The applicable tax regime depends on the fund’s legal form. Fund partnerships (eg, the German KG), typically used for closed-end AIFs, are subject to the German general tax rules. Fund corporations and contractual-type funds are also subject to the German Investment Tax Act (Investmentsteuergesetz – InvStG), which mainly covers open-end UCITS, certain open-end AIFs and closed-end AIFs structured as corporations or contractual-type funds.

Funds as Partnerships

Under the general tax rules, partnerships are not subject to German income tax and are therefore tax-transparent. Fund partnerships may be subject to German trade tax if the fund conducts a trade or business and does not merely manage private assets. In the latter case, the fund is not subject to trade tax and is fully tax-transparent.

Any income derived by a partnership is immediately allocated to its partners and taxed at the level of the partners, in accordance with the applicable tax rules to the respective partners. If the fund vehicle qualifies as being engaged in a trade or business, the fund itself is not subject to German income tax, but it is subject to German trade tax.

There are no withholding tax implications at the partnership level. However, withholding tax implications can arise from the fund’s underlying investments.

Funds as Corporations or Contractual-Type Funds (Investment Funds)

The German Investment Tax Act applies to all funds other than partnerships. Thus, it covers so-called “investment funds” – funds that are structured as corporations or contractual-type funds (Sondervermögen). The Act generally applies to UCITS and AIFs (both retail AIFs and special AIFs). It also covers certain other entities that do not qualify as “investment funds” under the KAGB (in particular, single-investor funds).

Prior to the 2018 revision of the Act, the German Investment Tax Act provided for a tax regime known as the “restricted transparency” regime. Thishas been replaced by two concepts: the “opaque regime” as the general regime and an optional “restricted transparency” regime for specialised investment funds.

Under the opaque tax regime, taxation applies at two levels: the fund and the investors. This tax regime is applicable to all retail funds. It also applies to all other investment funds (including non-retail funds) that do not meet the specific criteria for specialised investment funds or to specialised investment funds that do not use the transparency option.

Opaque regime

Under the opaque regime, the fund itself is subject to taxation with regards to certain domestic German income, in particular dividends and real estate income, but not on capital gains from securities unrelated to real estate or a German permanent establishment. A 15% tax rate applies at fund level. The Section 8b exemption of the German Corporation Tax Act does not apply at fund level, even if the relevant threshold (ie, 10%) is exceeded.

German trade tax may also apply at fund level if the fund conducts a trade or business in Germany, subject to a potential exemption if the fund does not engage in “active entrepreneurial management” of its assets. Investment funds must withhold tax on taxable income of domestic investors, but not on income from the sale of fund units.

Generally, there are no fund-level tax exemptions. Instead, investors benefit from partial exemptions depending on the fund type (equity, mixed or real estate fund).

At the investor level, there is a lump-sum taxation (designed for the needs of retail funds with a large number of investors, but applicable to all covered funds). In particular, distributions from the fund, the predetermined tax base and capital gains realised upon sale or redemption of fund interests are covered. The objective of the predetermined tax base is to subject the retained income of the investment fund to tax.

Different investor types

For individual investors, the actual rate of investor-level taxation depends on whether fund interests are held as non-business or business assets by the investor. Non-business assets are subject to flat income tax; business assets are generally subject to the investor’s personal income tax rate.

Corporate investors are subject to corporation tax on the full amount and potentially trade tax. The partial income taxation and the Section 8b exemption of the German Corporate Income Tax Act do not apply. Instead, fund proceeds (ie, distributions, predetermined tax bases and capital gains from dispositions or redemptions) benefit from partial exemptions depending on the fund type.

Partial exemptions in respect of certain types of funds

With respect to “equity funds”, the partial exemption is:

• 30% of such proceeds for individuals who hold their investment fund interests as part of their non-business assets;
• 60% for individuals holding fund interests as business assets; and
• 80% for corporate investors.

For mixed funds, half of the applicable equity fund exemption applies. For real estate funds, the partial exemption is 60% or 80%, depending on whether at least 51% of the fund’s value is invested in German or non-German real estate and real estate companies. Income-related and operating expenses may not be deducted to the extent of the available partial exemption percentage. For trade tax, half of the relevant partial exemption applies.

Non-resident investors

Domestic and foreign investors in investment funds are formally treated equally, but the partial exemptions benefit only German investors, as foreign investors are generally not taxed in Germany at investor level.

Distributions to non-resident investors from German investment funds are generally not taxable in Germany and are not subject to withholding tax. Accordingly, non-resident investors investing in German assets through investment funds generally bear German tax only at fund level. This treatment is independent of the fund’s assets, the investor’s residence and the applicability of a double taxation agreement.

Specialised investment funds: “restricted transparency” regime (optional)

If the investment fund qualifies as a specialised investment fund, the fund may opt to be treated transparently for tax purposes. As a result, the fund itself will not be subject to taxation; it will effectively be transparent (although not as fully transparent as a partnership). This regime resembles the pre-2018 investment fund tax regime, with certain amendments.

Specialised investment funds may only have a maximum of 100 investors. Unlike the prior law (in force before 2018), there is a “look-through approach” for partnerships as investors (ie, each partner in such a partnership is counted as one investor in the fund). However, individuals may now invest directly in a specialised investment fund, provided they hold such fund interests as part of their business assets (previously, only indirect participation of investors was possible).

To qualify as a specialised investment fund, a fund must meet certain criteria regarding regulation, redemption rights, eligible assets and investment restrictions. These are substantially similar to the criteria under the law in place before 2018 (although certain changes with respect to the definition of “securities” apply).

If the specialised investment fund opts for the restricted transparency regime, domestic participation and real estate income are not taxed at fund level. At the investor level, “special investment income” is subject to tax (ie, distributed income, deemed distributed income and capital gains realised upon the disposition or redemption of fund interests). The flat income tax rate does not apply, even to individuals holding fund interests as non-business assets. Foreign withholding tax is still creditable.

The current German regulatory framework allows closed-end special funds to originate loans in Germany without triggering further licensing requirements under German banking rules, provided their activities are limited to collective asset management and loan origination. This applies to both German funds as well as EU funds or non-EU funds with an EU-AIFM. German funds may grant loans only to corporate, non-consumer, non-retail borrowers; the fund’s leverage is restricted and certain diversification rules apply. Detailed risk-management rules also apply (“KAMaRisk rules”). EU funds or non-EU funds with an EU-AIFM may grant loans to German corporate, non-consumer, non-retail borrowers based on the rules of such AIFM’s home jurisdiction.

Non-EU funds with a non-EU AIFM may grant loans to corporate, non-consumer, non-retail borrowers only if the loan is granted on a reverse solicitation basis or if the loans are subordinated to an almost-equity level in the event of insolvency or financial difficulties on the part of the borrower.

Additionally, a fund (with respect to German borrowers) is able to purchase a fully drawn term loan, revolving or unfunded portions of a term loan facility (becoming the lender of record) or enter into a sub-participation of a loan, without a banking licence (loan participation). However, a later restructuring of the loan terms may be regarded as a (new) loan origination and may require a banking licence (unless other exemptions apply).

AIFMD II

With the implementation of AIFMD II into national law, which came into force on 16 April 2026, the rules for the origination of loans by AIFs have changed to a new regulatory regime for loan origination activities. Some of those changes apply to all AIFs that grant loans, regardless of whether a specific threshold is reached. These include, among others organisational requirements for the AIFM’s risk management, a ban on granting loans to the fund manager’s governing bodies, a credit limit for certain borrowers and the AIF’s risk retention. Other, stricter rules only apply to “loan-originating funds” (LOFs), which are being comprehensively regulated and harmonised for the first time. The new rules include transitional provisions for AIFs established before 15 April 2024.

Consumer Credit and Loan Portfolios

In general, German investment funds cannot originate consumer credit loans. However, special funds can originate loans to corporate, non-consumer, non-retail borrowers in Germany.

German special funds can only lend 20% of the fund’s capital to a single borrower, that is a financial undertaking, an AIF or UCITS fund, in order to minimise the credit default risk. Certain borrowers are prohibited, such as the AIFM and its personnel, the depositary, delegates of the AIFM and their personnel, as well as entities within the same group of the AIFM (except financial undertakings that exclusively finance permitted borrowers).

A LOF can be structured as a closed-end or open-end special fund. However, an open-end fund structure is only possible if the AIFM can demonstrate that the AIF’s liquidity risk management system is consistent with the AIFM’s investment strategy and redemption policy. The leverage limit (expressed as the ratio between the exposure of that AIF, calculated using the commitment method and its NAV) is 300% for closed-end LOFs and 175% for open-end LOFs. This leverage limit is intended to safeguard the financial system’s stability and integrity. An exemption from these leverage limits applies to LOFs that exclusively grant shareholder loans, provided those shareholder loans do not exceed 150% of the fund’s capital. AIFMs that manage LOFs must have adequate liquidity and risk management systems in place.

Lastly, AIFMs may also restructure existing loans.

The German legislator maintained the ban on consumer credit loans by AIFs when implementing AIFMD II.

Cryptocurrencies

Funds managed by sub-threshold managers may invest in cryptocurrencies and non-traditional assets. Special funds (ie, non-retail funds) managed by fully authorised managers can in theory also invest in cryptocurrencies and non-traditional assets. In practice, however, mandatory depositaries for such funds oppose holding such assets. New rules for depositaries of cryptocurrencies and other digital assets were implemented in 2020, but remain largely untested. Specialist depositaries are therefore expected to develop, with traditional depositaries potentially delegating digital asset activities to such “fintech” providers. At the time of writing, BaFin has licensed only a limited number of crypto depositaries.

Therefore, special funds can invest in cryptocurrencies without limitation, but funds managed by fully authorised managers must appoint a depositary for their crypto investments.

Certain open-end and closed-end retail funds can also invest in cryptocurrencies if their market value can be determined, although the same depositary issues remain.

Litigation Funding

Funds permitted to grant loans are mostly also allowed to fund litigation. However, litigation funding is limited. AIFs managed by fully authorised AIFMs may invest only in assets that can be valued at any time. This is challenging for litigation financing because loan risk depends on the legal risk of the financed lawsuit, which is difficult to assess independently. As a result, significant practical challenges remain for litigation funding AIFs under the German fund regime.

Cannabis and Cannabis-Related Investments

Funds can invest in cannabis or cannabis-related portfolio companies if the activity is legal or the portfolio company has the necessary licence. German funds cannot invest in illegal activities. Otherwise, there are no restrictions on cannabis or cannabis-related investments.

The use of subsidiaries is common, particularly for private equity and real estate funds. The advantages are often structural, such as creating different tiers of structural subordination (not just contractual subordination) of lenders or making use of leverage (in this case, private equity funds). From a tax and regulatory perspective, the use of subsidiaries is also relevant, as leverage should ideally be used at the subsidiary level, since leverage at the fund level (however, only regarding private equity and venture capital) may trigger both qualification of the fund as being engaged in a trade or business for German tax purposes, as well as trigger the lower EUR100 million assets-under-management threshold requiring full authorisation for the fund manager under the AIFMD. In addition, real estate funds tend to use subsidiaries to handle real estate transfer tax issues better and make shareholder loans tax-deductible at the subsidiary level (to a certain extent).

Co-investment vehicles, parallel vehicles and other alternative investment vehicles are common, especially for larger German alternative investment funds. Parallel funds and other vehicles facilitate structural, regulatory or tax requirements for different domestic or foreign investor groups, while co-investment structures give certain investors access to special investment opportunities.

Germany requires either a German-based fund manager or a manager with an AIFMD passport.

Portfolio management may be outsourced to an investment manager abroad, as is common for special funds established as separate managed accounts for specific German institutional investors.

The AIFM must have sufficient substance in Germany from both a regulatory and tax perspective, essentially requiring sufficient physical presence of senior management and staff. The ESMA Brexit guidelines on substance requirements (ESMA34-45-344) serve as orientation.

Directors of a corporate fund may not need to be German residents, but foreign directors must ensure that corporate decisions are made in Germany, potentially on a well-documented fly-in basis.

A local general partner is required for German partnership funds. Germany follows the “seat theory” regarding the applicable law for partnerships.

Funds are not expected to maintain business premises or hire local employees in Germany.

Fund Depositary

A fund depositary is required if the fund is managed by a fully authorised manager, in accordance with AIFMD. For German-based funds, the depositary must be German-based as well.

Money-Laundering Officer

A money-laundering officer must be German-speaking and German-resident. BaFin does not accept a money-laundering officer on a fly-in basis. However, it is usually sufficient for the money-laundering officer to be employed by the fund manager, not the fund.

Compliance Officer

A compliance officer and other internal control functions usually require a local presence as well. It is also usually sufficient for the compliance officer to be employed by the fund manager and not by the fund.

Fund Administrators

Fund administrators can provide their services from outside Germany. This is useful for offshore fund administrators that want to access the German market but for whom it does not make business sense to have a local presence.

ESAs’ Assessment of the SFDR

On 18 June 2024, the European Supervisory Authorities (the European Banking Authority, the European Insurance and Occupational Pensions Authority and ESMA, together the ESAs) published a joint opinion on the assessment of the SFDR as part of the ongoing assessment of the sustainability disclosures framework.

One of the ESAs’ key concerns is the complexity of the current SFDR disclosure requirements, which have resulted in disclosures that are difficult for investors to understand. The ESAs therefore suggest simplifying the requirements through a product classification system considering both the green transition and improved consumer protection, while reflecting lessons learned from the SFDR to date.

The ESAs propose simple and clear categories for financial products, consisting of two voluntary categories, “sustainable” and “transitional”. Financial market participants should use such categories to help consumers understand the purpose of products and reduce greenwashing risks. Additionally, the ESAs recommend a sustainability indicator grading financial products to help consumers navigate the broad selection of sustainable products and support the transition to sustainable finance. The indicator could refer to environmental sustainability, social sustainability or both and could be used as an alternative to or in addition to, the categories.

The ESAs recommend that the proposed product categories and/or sustainability indicators be consumer-tested and consulted on before final implementation in the SFDR framework.

Despite regulatory progress, uncertainties remain regarding certain aspects of the SFDR and Taxonomy Regulation. BaFin released a Q&A in September 2022, periodically updated, notably addressing the debated translation of “promote” under Article 8 SFDR into German law, but has not published guidance on all aspects of sustainable investment funds, leaving many practical issues unresolved.

In November 2025, the European Commission published a legislative proposal amending the SFDR, based on its assessment of the current regime and the ESAs’ joint opinion. The proposal introduces product categorisation and product standards to unify and simplify existing disclosure requirements. It is intended to enter into force in 2027 and apply from 2028.

EU Market Integration and Supervision Package

On 4 December 2025, the European Commission published the Market Integration and Supervision Package (MISP), a set of legislative proposals to streamline cross-border marketing of UCITS and AIFs. It includes a proposed Regulation amending, among others, the Cross-Border Distribution of Funds Regulation and a proposed Directive amending the UCITS Directive, AIFMD and MiFID II. Key elements are harmonised marketing communication rules, a prohibition on additional host-Member-State marketing content requirements and centralised marketing notification and de-notification via an ESMA data platform. The MISP aims to reduce fragmentation and facilitate more efficient cross-border fund distribution.

EU Retail Investment Strategy

In December 2025, the Council and European Parliament agreed on an updated retail investment framework to improve retail investments by empowering and protecting consumers. The legislative texts must still be finalised, followed by implementation in the Member States. The directive will amend the AIFMD, UCITS Directive, MiFID II, Solvency II and PRIIPs Regulation to improve retail investor protection.

EU Anti–Money Laundering Package

In mid-2024, the EU adopted a comprehensive Anti-Money Laundering Package. Overall, the package is intended to strengthen the EU’s AML framework and ensure more consistent supervision across Member States. In particular, the Anti-Money Laundering Regulation (Regulation (EU) 2024/1624, AMLR) introduces harmonised AML/CFT rules for obliged entities, most of which will apply from 10 July 2027. Among others, a specific rule for the determination of beneficial owners of investment funds will be implemented, so that any natural person who holds directly or indirectly 25% of the fund, has the ability to define or influence the fund’s investment policy or controls the activities of the fund in another way, will be considered a beneficial owner.

Promoters/sponsors of German alternative funds are typically established in Germany.

Managers almost always use a corporate entity (typically a GmbH) as the managing entity. However, German regulatory law technically allows a GmbH, AG or KG (limited partnership), in which the general partner is exclusively a GmbH (a GmbH & Co. KG), as the legal form for an external AIFM. In the case of internal management of the fund, the management is carried out by the fund’s own management bodies (managing directors or board members). 

A major driver for choosing a corporate entity as the managing company is to protect management from unlimited liability.

Incentives and equity participations in the fund are typically granted through two separate vehicles that participate in the fund. Such entities are described as the team vehicle and the carry vehicle. While smaller first-time fund managers tend to use a single vehicle to combine the team commitment and carry distributions, larger management teams often split both streams to increase flexibility in participation. When choosing the right legal form for those vehicles, tax efficiency, limited liability for individual team members and freedom of structuring under companies’ law are key drivers. Carry and team vehicles are usually structured as GmbH & Co KGs (limited partnerships with a GmbH as the general partner) in Germany.

The German regulatory regime for AIFs is based on the AIFMD, which has been implemented in Germany in the KAGB. See 2.2 Regulatory Regime for Funds and 2.3 Disclosure/Reporting Requirements for more details.

Overview

With respect to the tax regime applicable to income received from the fund by fund managers, several income streams need to be distinguished. Fund managers typically invest their own money (usually through a separate team commitment vehicle organised as a German limited partnership considered to be engaged in private asset management). With respect to income related to such capital commitments, fund managers are treated like normal investors, in that no special rules apply. In addition, fund managers may receive, according to the so-called distribution waterfall in fund agreements, additional income which does not correspond to their capital commitment – that is, which is capital disproportionate – so-called “carried interest”. In Germany, special tax rules apply – with certain requirements and qualifications – to carried interest received by fund managers (see 3.6 Taxation of Carried Interest). The third income stream fund managers may receive from the fund itself is the management fee, which the management company typically accrues. As (external) management entities are generally structured as corporations, the management fee is typically subject to corporate income tax and trade tax at the management company level. That said, from an income tax perspective, all management fee income is taxable as income received for services provided (ie, no special tax exemption is applicable).

In practice, the main issue with management fees is value-added tax (VAT) treatment.

Management Fee and VAT

The Act on Financing of the Future (Zukunftsfinanzierungsgesetz) came into force on 1 January 2024 and introduced the long-awaited VAT exemption for management fees of all German AIFs. This was a key change for the German fund industry, as the exemption previously applied only to UCITS, comparable AIFs and certain venture capital funds.

The VAT exemption now applies regardless of the AIFM’s regulatory status or the AIF’s asset class. In addition to private equity and venture capital funds, it covers credit, real estate and infrastructure funds, FOF, etc.

Investors’ qualifications are also irrelevant. However, unregulated structures, such as single-investor funds without flexibility to accept further investors or “investment clubs” for which no capital has been raised, are not covered by the VAT exemption, as the exemption is linked to the regulatory qualification as an AIF.

This general VAT exemption for management fees aligns German law with VAT rules in most other EU member states, eliminating a significant competitive disadvantage for Germany as a fund jurisdiction.

Germany does not have an exemption ensuring that alternative funds with a German manager do not have a “permanent establishment” or other taxable presence in Germany. This is due to the fact that for funds structured as limited partnerships, the German general tax rules apply. The German Investment Tax Act – the special tax regime applicable to funds structured other than as partnerships (ie, funds in the form of a corporation or a contractual-type fund) – does provide certain special rules that deviate from the general German tax rules, but, in effect, it does not provide special rules to substantially limit the permanent establishment risk of foreign investors.

Overview

The tax treatment of carried interest for fund managers depends on the fund’s legal form and tax status. The tax treatment of funds structured as partnerships that are not engaged in a trade or business, that is, that are considered to be engaged in private asset management activities, is well established. These rules apply to the majority of German funds. The rules applicable to other types of funds, in particular funds structured as partnerships engaged in a trade or business or as a corporation or contractual-type fund, are less settled, although certain recent developments are encouraging.

Carried Interest Taxation

Funds structured as partnerships engaged in private asset management

Most German funds, in particular direct investing funds, are set up as partnerships and carefully structured to qualify as private asset management activities. Fund managers often obtain an advance tax ruling from the German tax authorities confirming this before the fund’s first closing. Such partnerships are fully tax transparent, meaning the fund itself is not subject to German trade tax. A special German tax regime applies to carried interest income received by fund managers, subject to certain technical qualifications (German Income Tax Act Section 18, paragraph 1, number 4). As a result, a tax exemption (ie, a 40% income tax exemption) applies, resulting in an effective income tax rate of around 28.5% at the individual manager level rather than the 45% highest personal income tax rate. One technical requirement is that carried interest must be paid only after investors have received all their invested capital. If the requirements are not met, carried interest may be fully taxable at the respective German personal income tax rate (up to 45%).

The highest German fiscal court (Bundesfinanzhof or BFH) confirmed this assessment in April 2024, holding that carried interest is a capital-disproportionate share of profit, not a hidden service fee (Tätigkeitsvergütung). Carried interest remains subject to the privileged taxation under Section 18(4) of the German Income Tax Act.

Private investors in private asset management funds also benefit from the court’s decision, as carried interest should reduce their taxable income because the expense deduction limitation under Section 20(9) of the German Income Tax Act does not apply.

The decision was confirmed by the Munich fiscal court in August 2025.

It remains to be seen whether and how the German tax authorities will ultimately apply the ruling’s general principles in practice.

Funds structured as partnerships engaged in a trade or business

Some funds are structured as partnerships that are engaged in a trade or business. This may be because some institutional investors prefer that the fund is engaged in a trade or business or because the respective fund strategy is seen as more active than a typical private equity fund (eg, turnaround funds or venture capital funds acting as incubators). In such cases, the German tax authorities have taken the position that the carried interest received by fund managers is subject to the respective German personal income tax rate (up to 45%), meaning the special tax exemption for funds qualifying as private asset management does not apply. This is due to the fact that tax authorities treat carried interest as a “hidden payment” for services provided by fund managers to the fund, rather than as a capital-disproportionate participation in the distribution waterfall among the fund’s partners.

However, the German highest tax court issued a ruling in a case from late 2018 which disagrees with this tax treatment. According to the court, waterfall distribution rules in fund agreements that set out the distribution of profits received by the fund among all partners must be respected. In other words, the court considers that carried interest received should not be characterised as a “hidden payment” for services provided by fund managers to the fund. Rather, the court ruling qualifies such payment received by fund managers as a (capital-disproportionate) share of the profits. Therefore, the so-called partial income rule, which exempts 40% of the income and subjects only 60% of the income received to the normal individual tax rate, will also be applied by the court in cases where the fund qualifies as being engaged in a trade or business. This results in a tax rate of around 28.5% at the level of the individual tax managers. This ruling greatly reduces the risk that a change in the tax authorities’ assessment of the fund’s activities (trade or business versus private asset management) could negatively affect fund managers’ tax position with respect to carried interest. The recent ruling of the German highest tax court of 2024 (as described above) can be seen as a confirmation for the core legal reasoning. In late July 2026, the 2018 court decision was published in the German Tax Gazette, extending the ruling’s effect beyond the original parties, thus signalling that the tax authorities will apply it to all comparable cases involving carried interest in partnership funds engaged in a trade or business, thereby enhancing legal certainty.

Carried Interest and VAT

In Amy 2026, the Fiscal Court of Lower Saxony held that carried interest is not subject to value-added tax (VAT). The court ruled that a capital-disproportionate carried interest agreed in the partnership agreement, which only arises after a minimum return (hurdle rate) has been achieved, constitutes a participation in the company’s success and not special remuneration. As there is no VAT–taxable exchange of services, no VAT is due on such carry.

Outsourcing by fund managers is common. If portfolio or risk management is outsourced, the delegate must be licensed as required by the AIFMD. Outsourcing agreements often follow a sample agreement published by the German investment lobby group BVI (Bundesverband Investment und Asset Management eV) and must ensure specific control and supervisory rights for BaFin and the fund manager’s internal control functions.

Following the implementation of AIFMD II, managers using outsourcing face increased reporting and transparency obligations. They must provide detailed information on their outsourcing activities, including the volume of outsourcing and the actual outsourced activities.

See 2.8 Local/Presence Requirements for Funds.

Fully Authorised Managers

Fully authorised managers must notify BaFin, to the extent they become aware of the impending change, if:

• a significant shareholding (10% or more of voting rights or capital or other significant influence) of the manager is acquired or relinquished;
• the 20%, 30% or 50% thresholds of voting rights or capital are exceeded or dropped below or the manager becomes or ceases to be a subsidiary of another company; or
• the manager intends to merge with another AIFM.

This enables BaFin to assess whether the transaction should be prohibited due to the holder’s lack of reliability or whether the manager’s licence should subsequently be revoked. It also clarifies the origin of the manager’s capital, not least to prevent money laundering. Violations are subject to fines.

EuVECA Managers

As with the national provisions for fully authorised managers and pursuant to the EuVECA Regulation, BaFin must be informed of material changes to the registration before implementation, including intended or decided changes of control not yet implemented. BaFin must respond within one month, extendable by one month at its discretion.

Sub-Threshold Managers

Sub-threshold managers are subject to a reduced regime and must notify BaFin of changes to their registered office, address, corporate purpose and contact details. Following implementation of AIFMD II, they must also notify changes in management and significant shareholders.

Investor Approval

German fund agreements often contain change-of-control clauses, similar to key-person provisions. As investors have a strong interest in controlling the fund’s cash streams and ensuring alignment of interests, these clauses typically cover changes of control at the manager and carry/team vehicle levels. Following a change of control, fund investments are typically suspended, with continuation subject to approval by a super-majority of total capital commitments. If investors do not approve the change, the fund is often liquidated.

On 12 July 2024 the EU Artificial Intelligence Act (EU AI Act) was published in the Official Journal and came into force 20 days later on 1 August 2024. This new legislation implements new obligations for companies that provide, distribute, import or use AI systems and general-purpose AI (GPAI) models in the EU by following a risk-based approach – that is, the higher the risk that the relevant AI system can cause harm to society, the stricter the rules. Violations of the AI Act will be subject to hefty fines of up to EUR35 million or 7% of the total worldwide annual turnover, whichever is higher. The application of the EU AI Act requirements is structured into different phases, starting with the prohibition of certain applications of AI (eg, AI systems that exploit individuals’ vulnerabilities, untargeted removal of facial images from the internet or CCTV footage to create facial recognition databases). These phases first took effect six months after the EU AI Act came into force. The new regulation also provides a grace period for AI systems and GPAI already offered in the EU.

Germany was required to adopt national provisions to implement the EU AI Act by 2 August 2025, including designating competent supervisory authorities and introducing penalty provisions. While this deadline has passed without formal adoption, the national implementation law – the AI Market Surveillance and Innovation Support Act (KI-Marktüberwachungs- und Innovationsförderungsgesetz or KI-MIG) – has now entered into force on 29 July 2026.

Whistle-Blower Protection

The German Whistleblower Protection Act (Hinweisgeberschutzgesetz) has obliged managers, since 2 July 2023, to establish and operate an internal reporting office for so-called “whistle-blower activities” within a company. This applies to all management companies regardless of their size. Whistle-blowing by employees is intended to lead to the detection, prosecution and suppression of malpractice by the fund manager. Individuals, groups of people within the management company or third parties (eg, service providers) can act as internal whistle-blowers.

Location Promotion Act

In February 2026, the German law to Strengthen the Economic Site of Germany (Location Promotion Act – Standortfördergesetz) entered into force. The law introduces welcomed changes and clarifications for German investment funds subject to the German Investment Tax Act. For directly investing private equity and private debt funds structured as corporations or contractual funds, the new law states that active investment activities will not qualify as entrepreneurial management (aktive unternehmerische Bewirtschaftung) for purposes of the German Investment Tax Act, ie not triggering negative German trade tax consequences. This clarification enhances the possibility of using a contractual type of fund as a parallel fund to an existing fund partnership, in particular for investors outside of Germany and for special funds and tax-exempt investors in Germany. To date, no corresponding clarification is planned for most closed-end funds structured as partnerships.

The spectrum of investors in AIFs ranges from retail investors to highly sophisticated institutional investors.

Statutory law imposes no strict limits on side-letter provisions, other than the principle of fair treatment of all investors in a fund. Typically, German fund agreements provide that the manager may grant special rights to individual investors by means of a contractual side letter. Usually, it is stated that the granted side-letter provisions must be disclosed to all other investors shortly after the final closing. However, the electability of side-letter clauses is often restricted, either requiring a certain capital commitment by the electing investor and/or restricting the electability of certain clauses per se (eg, the selection may be limited to clauses that do not contain preferential economic terms such as in management fee reductions, seats on the advisory committee, special regulatory or tax requirements for the investor, granting of co-investment rights and the transfer and sharing of confidential information).

Retail funds can be marketed to all types of investors. Special funds may be marketed only to professional investors and semi-professional investors. The definition of a professional investor aligns with the AIFMD/MiFID II definition. In addition, Germany has introduced a special category of investor: a semi-professional investor is, broadly speaking, an investor who commits at least EUR200,000 (in the framework of EuVECA, those investing at least EUR100,000) and has shown certain investment experience and understanding of risk.

Local investors may invest in alternative funds established in Germany. This is particularly true for German institutional investors (typically qualifying as “professional investors” under MiFID II), as well as other investors (eg, family office investors and HNWIs) qualifying as so-called “semi-professional” investors under German law. Special requirements and restrictions apply to funds targeting retail investors.

Marketing by an Intermediary

Absent reverse solicitation, a firm marketing an AIF in Germany requires either a MiFID licence or passport (or act as a tied agent of a MiFID-regulated firm). Alternatively, it may obtain a local financial intermediary licence under the German Commerce Act (Gewerbeordnung – GewO), a non-MiFID licence based on the optional Article 3 MiFID II exemption.

For both licence types, Germany considers the prospective investor the firm’s regulatory client. Firms must therefore comply with MiFID II conduct rules, including suitability or appropriateness checks. Marketing materials provided by the fund manager must likewise comply with MiFID II requirements, including those on past or simulated performance. The same applies for firms licensed under the Investment Firm Directive (Directive 2019/2034).

Marketing by the Fund Manager

A fund manager may always market its “own” funds and, if fully authorised under AIFMD, those of other managers. Under the Cross-Border Distribution of Funds Regulation (Regulation 2019/1156), marketing materials must be “fair, clear and not misleading” and labelled as marketing communications.

Pre-Marketing

Germany implemented the revised EU pre-marketing and marketing regime under Directive (EU) 2019/1160 on 2 August 2021. The regime is slightly stricter than the previous pre-marketing rules and extends to non-EU managers, who must notify BaFin of pre-marketing activities in Germany.

Marketing Approval for Fund Interests

A licence is generally required before marketing fund interests in Germany, either a BaFin marketing licence or an AIFMD marketing passport (or, where applicable, a EuVECA, ELTIF or EuSEF passport).

German sub-threshold managers are an exception and may market their funds by private placement, but only to professional and semi-professional investors. The AIFMD passport is not available.

Marketing of non-EU AIFs or EU AIFs by EU AIFMs

EU AIFMs may market non-German EU AIFs to professional and semi-professional investors in Germany using the AIFMD passport. BaFin charges EUR466 per registration.

Non-EU AIFs may be marketed by EU AIFMs on a private placement basis to professional and semi-professional investors; BaFin charges EUR1,641 per AIF.

Sub-threshold EU AIFMs may market non-EU or EU AIFs to professional and semi-professional investors if registered in their home country and marketing reciprocity exists between Germany and that country. BaFin charges EUR1,641 per AIF.

Marketing to retail investors in Germany is also possible on a private placement basis, but under strict regulations.

Marketing of non-EU AIFs or EU AIFs by non-EU AIFMs

Germany permits non-EU AIFMs to market EU and non-EU AIFs to professional and semi-professional investors under its implementation of Article 42 AIFMD. Germany has gold-plated this regime by requiring a “depositary light” and also applies it to non-EU sub-threshold managers. Article 42 registration requires submission of an annual report and an AIFMD Annex IV report to BaFin, a EUR1,641 registration fee per AIF and a EUR113 annual fee per AIF.

Marketing to retail investors in Germany is also possible on a private placement basis, but under strict regulations.

Reverse Solicitation

Germany recognises reverse solicitation, requiring the offer or placement to be genuinely initiated by the investor and the prospective investor to be professional or semi-professional. As the specific requirements for reverse solicitation are not sufficiently outlined by the legislator, BaFin takes a rather strict position on a very limited basis. Since the new pre-marketing regime, the scope has become very limited. Any subscription within 18 months of the commencement of pre-marketing is considered a result of pre-marketing or marketing activities in Germany, preventing reliance on reverse solicitation during that period.

For retail investors, the requirements are even less clear. Cases of reverse solicitation should therefore be well documented.

In Germany, high net worth individuals (HNWIs) and retail investors increasingly have access to alternative investment strategies, albeit within a strict regulatory framework. Unlike purely institutional special AIFs, which are reserved for professional or semi-professional investors (subject to specific knowledge requirements and a typical minimum investment of EUR200,000), retail AIFs offer regulated vehicles that open alternative strategies to a broader investor base. In Germany, HNWIs may qualify as semi-professional or even professional investors if they meet certain regulatory criteria, such as sufficient investment experience and financial capacity and formally opt to be treated as such under MiFID II rules.

Democratisation of the Fund Industry

Asset managers increasingly offer closed-end retail AIFs that invest in real estate, private equity or infrastructure with comparatively low minimum investments. Since 2021, open-end retail AIFs focused on infrastructure may also be launched under German law and the EU ELTIF framework enables cross-border retail access to long-term alternative investments.

Special distribution structures have also developed. Master-feeder structures can allow a retail AIF to serve as a feeder into an institutional special AIF, provided it maintains retail investor protection. Tokenised fund units (digital shares issued on a blockchain) offer another form of indirect retail participation.

However, BaFin remains cautious on investor protection. Structures that give retail investors de facto direct exposure to high-risk institutional AIFs via intermediary vehicles (eg, subordinated loans to SPVs investing in special AIFs) are closely scrutinised and may be prohibited if they undermine investor protection.

Overall, fund products and distribution models increasingly broaden retail access to alternative strategies while operating within the regulatory safeguards for less experienced and less diversified investors.

Retirement savings – both in occupational pension schemes and individual retirement saving products – are used in Germany.

Occupational pension schemes are either provided as an additional retirement plan to the statutory pension scheme (gesetzliche Rentenversicherung) for employees in German companies or remain the only available retirement plan for certain independent professions (such as doctors, architects, lawyers or engineers). They are often directly or indirectly subject to the regulatory regime of the German Investment Ordinance (Anlageverordnung) and its investment quota system. This means they may invest certain percentages of their overall portfolio in asset classes such as government bonds, securities and real estate, as well as alternative assets such as private equity, infrastructure or hedge funds. Such schemes and products are increasingly managed through funds and other commingled investment structures, often qualifying as German special funds.

Individuals are also allowed to invest into individual retirement saving products on a private basis. Depending on individuals’ personal circumstances and risk appetite, these retirement savings products can be structured in different ways, offering lower or higher exposure to alternative assets.

In May 2026, a reform of tax-advantaged private retirement savings entered into force, with the newly introduced products expected to become available in January 2027. The reform is intended to increase the potential for attractive returns on retirement savings and has expanded the product requirements to support this. Therefore, the possibility for a retirement savings account without a capital guarantee has been implemented, in which investments can be made specifically in UCITS, ELTIF and certain open-end retail AIFs.

Since the implementation of the AIFMD in 2013, private placements of alternative investment funds are no longer generally exempt from regulation in Germany. Any offering of fund interests – whether to professional, semi-professional or retail investors – is a regulated activity and generally requires prior notification to the BaFin under the KAGB.

However, Germany maintains a national private placement regime (NPPR) under which certain AIFs – particularly those managed by non-EU (third-country) AIFMs – may be marketed to professional and semi-professional investors in Germany, provided specific conditions are met. These include a notification to BaFin, transparency and reporting obligations and the existence of co-operation agreements between BaFin and the regulator in the AIFM’s home jurisdiction (so-called memorandum of understanding) as well as agreements between Germany and the third country which fully comply with the standards laid down in Article 26 of the OECD Model Tax Convention on Income and on Capital and ensure an effective exchange of information in tax matters. Distribution to retail investors remains excluded under this regime and would require a more extensive notification and examination of BaFin under NPPR.

Active marketing without such notification (and approval, where applicable) is considered a public offering and triggers licensing and prospectus obligations, including communications with targeted distribution to German investors.

A limited exemption applies to German-registered sub-threshold AIFMs, who may market funds to professional and semi-professional investors on a private placement basis without full AIFM authorisation, subject to registration and ongoing compliance obligations.

If fund interests are offered by entities that do not qualify as fund managers under the AIFMD, this generally constitutes investment advice or brokerage requiring approval pursuant to the German banking and investment firm laws (Kreditwesengesetz/Wertpapierinstitutsgesetz) or a local financial intermediary licence under the GewO.

Reverse solicitation is recognised by BaFin but narrowly interpreted. It applies only where the investor initiates the investment, without prior contact, influence or marketing by the sponsor. The sponsor bears the burden of proof and even informal outreach may disqualify reverse solicitation. It remains an exception and cannot serve as a marketing strategy.

BaFin takes a conservative view of fund distribution. Since 2021, EU pre-marketing rules have further restricted reliance on investor initiative: where a sponsor provides pre-marketing materials to potential professional or semi-professional investors, any subsequent subscription within 18 months is considered marketing, effectively precluding reverse solicitation during this period.

Sponsors should therefore ensure their distribution strategy – whether under the AIFMD passport or the NPPR – is fully aligned with German regulatory requirements to avoid enforcement risks and maintain lawful access to the market.

Placement Agents

Some fund managers (in particular, mid-size and larger fund managers) solicit investors for the fund through a placement agent. Placement agents often provide investment brokerage services, which require a regulatory set-up (ie, either acting with a licence as a MiFID II firm for investment brokerage (reception and transmission of orders – RTO) and/or investment advice or, alternatively, acting as a tied agent on behalf of and under the liability shield of a licensed MiFID II firm or, alternatively, acting as financial intermediary with a license under the GewO). See 4.4 Rules Concerning Marketing of Alternative Funds for the regulatory requirements. The remuneration of placement agents is usually based on a certain percentage of the capital raised. Such payments are typically excluded from the fund’s organisational expenses and therefore generally cannot be charged to the fund. This is in line with international market practice. In addition, some German regulated investors have internal policy or regulatory requirements that do not allow for placement agent fees to be charged as fund expenses.

In addition to fundraisings and larger secondary transactions (especially portfolio sales and GP-led transactions), sellers and fund managers also regularly engage placement agents as intermediaries for sales under an advisory agreement.

Manager Personnel

Manager personnel are usually not compensated by the fund for distributing fund units to potential investors (but will indirectly profit, as the management fee is typically tied to the total capital commitments of investors).

Overview

Different investor groups trigger different tax regimes when investing in German funds. Taxation also depends on whether general tax rules apply to partnership funds or the special regime under the German Investment Tax Act applies to corporate or contractual-type funds.

The following summarises investor-level tax effects under the German general tax rules for partnerships (see 2.4 Tax Regime for Funds for the investor-level tax effects if the German Investment Tax Act applies).

There is no special tax treatment of income from a fund partnership. German-resident investors are taxed under the general rules applicable to the investor and type of income.

German Investors

For German-resident investors, taxation depends on the investor type and whether the fund (ie, the partnership) is treated as engaged in a trade or business or in private asset management.

Individual investors

For individuals, taxation depends on whether fund interests are held as non-business or business assets. If held as non-business assets and the fund is engaged in private asset management, income is generally subject to flat income tax of 25% plus solidarity surcharge (approximately 26.5%), provided that, for capital gains, the investor holds less than a 1% indirect interest in the target company and, for interest income, less than 10%.

For individuals holding fund interests as business assets, income is generally taxed at their personal tax rate (up to 45%).

The same applies where the fund conducts a trade or business, irrespective of whether the investor holds the interests as business or non-business assets. The partial-income regime (40% exemption) applies to capital gains and dividends, while interest income is fully taxable. In certain cases, trade tax paid at the fund level is (partially) refundable at the investor level.

Corporate investors

For corporate investors, both corporate income tax (ie, the German corporate tax rate, generally 15% if no exemptions apply) as well as (potentially) trade tax (the trade tax rate will depend on the tax residency of the corporate investor, as the trade tax rate differs based on municipality, but typically the general tax rate is around 15–18%, if no exemption applies) are applicable at their level, if such a corporate investor is not tax-exempt. For corporate taxable investors, the general rule is that the full amount of such items is subject to corporation tax. In addition, German trade tax may be triggered (in particular, if the fund is treated as private asset management). For certain corporate investors (in particular, property insurance companies and general corporate entities), partial income taxation and the exemption under Section 8b of the German Corporation Tax Act may apply to both corporate tax and trade tax. In particular, this applies in the case of capital gains as well as dividends (in the latter case, only if certain holding percentages are satisfied – 10% in the case of corporate tax applicable to dividends and 15% in the case of trade tax applicable to dividends). The German corporate tax rate will be reduced from 15% to 10% in five annual one-percentage-point steps starting in 2028, reaching 10% in 2032.

Non-German Investors

In general, non-resident investors in a fund structured as a partnership will be subject to taxes in Germany under the German general tax rules for non-residents.

If the fund is structured as a partnership having asset management status (ie, it is not deemed to be in business and is not engaged in business activities for German tax purposes), non-resident investors are generally (if they hold less than a 1% indirect share in such portfolio company) not taxed on capital gains realised by the fund from the sale of a portfolio company and they are not required to file tax returns in Germany. However, the income of non-resident investors may be subject to German withholding tax (eg, on dividend distributions from a portfolio corporation held by the fund). A refund, exemption or reduction of withholding tax may depend on certain filing procedures. This may also apply with regard to certain double taxation treaties.

If the fund is structured as a partnership having a trade or business status, non-resident investors are generally subject to limited tax liability on the proportionate income from such trade or business allocated to such investors, to the extent that it is attributed to a permanent establishment of the fund in Germany. In such a case, a foreign investor would also be obliged to file a personal tax return statement in Germany.

Germany has a vast network of double-tax treaties, including with most OECD states and many others. Their applicability depends on the fund’s legal form. Most German AIFs are structured as tax-transparent partnerships, so treaties generally apply to investors rather than the fund level. A key issue is whether the fund’s activities constitute a trade or business connected to a German permanent establishment. Unlike Luxembourg, German tax laws do not provide special fund exemption in this regard.

If structured as a corporation or contractual-type fund, the relevant treaty may apply directly to the fund, subject to a case-by-case analysis of the treaty and legal form. In certain cases, domestic law may override double-tax treaties.

Germany has concluded a Model 1 intergovernmental agreement (IGA) with the US on the Foreign Account Tax Compliance Act (FATCA). Germany has also implemented the Common Reporting Standard (CRS) rules into German tax law. German funds are therefore “deemed compliant” but must provide certain information to the German tax authorities. Germany has implemented FATCA and the CRS into national tax law and issued administrative guidance in late 2017 and June 2022.

FATCA and CRS require German funds and fund managers to comprehensively screen investors, collect information on non-resident investors and their ultimate beneficial owners and report it, including their participation, to the Federal Central Tax Office (Bundeszentralamt für Steuern or BZSt). The information is forwarded to the US under FATCA or to other European countries under CRS.

During the subscription process, managers must conduct AML checks under the German Money-Laundering Act (Geldwäschegesetz – GwG). This includes verifying the identity of investors, persons acting on their behalf and beneficial owners, generally with transmission to the transparency register. Managers must also appoint an AML officer and deputy responsible for:

• conducting a risk analysis covering all money laundering and terrorist financing risks;
• establishing, monitoring and developing a company-specific AML risk management system; and
• communicating on AML matters with management and employees.

AML checks largely run in parallel with the determination of controlling persons under FATCA/CRS. As managers must check FATCA/CRS self-disclosures for obvious inconsistencies, they should also carry out a conformity check between AML and FATCA/CRS disclosures.

With the upcoming application of the new EU Anti-Money Laundering Regulation (EU AMLR), due diligence obligations are expected to expand, particularly around identifying and verifying a broader range of beneficial owners.

Since August 2021, sub-threshold AIFMs (not the AIFs themselves), must appoint a qualified independent third party (eg, an auditor) to audit the use of funds under the KAGB and notify BaFin of the appointment. The audit report must separately state whether the AIFM complied with its KAGB and GwG obligations and is submitted to BaFin by the auditor. Incorrect, incomplete or late submission may result in a fine of up to EUR5 million and, for legal entities, an additional fine of up to 10% of annual turnover.

The General Data Protection Regulation (GDPR) primarily determines data security and privacy compliance requirements. Managers regularly request the investor’s consent to process personal data during the subscription process, even if such consent is often not required under applicable statutory carve-outs. However, managers must comply with their transparency obligations and comprehensively inform investors about the processing of their personal data and their rights in this context (eg, to rectification, blocking or deletion) in accordance with the provisions of the GDPR.

German Investment Ordinance (Anlageverordnung)

The German Investment Ordinance (Anlageverordnung or AnlV) governs investment activities of institutional investors not fully subject to Solvency II, particularly pension funds and small insurance companies. It defines eligible asset classes, diversification requirements and quantitative limits to ensure investments are secure, profitable and sufficiently liquid.

A key element is its system of investment quotas, which limits exposure to certain asset types and promotes risk diversification.

Recent reforms introduced a dedicated 5% infrastructure quota, allowing institutional investors to invest directly or indirectly (equity or debt) in infrastructure projects, such as construction, operation and maintenance. These investments no longer count against other quotas and offer flexibility in classification depending on the investment vehicle used.

The risk capital quota – which covers, among other things, equity investments, private equity and corporate participations – was raised from 35% to 40% of guaranteed assets. Its utilisation remains subject to the investor’s internal risk assessment and supervisory expectations.

Eligible Assets Directive and Location Promotion Act

On 26 June 2025, ESMA submitted its final report on revising the Eligible Assets Directive (Directive 2007/16/EC, “EAR”) to the European Commission. It proposes significant changes to the interpretation and scope of “transferable securities”, a key UCITS concept determining eligible investments.

Although aimed at UCITS, the changes may affect certain open-end German special AIFs used by institutional investors, as KAGB eligible-asset rules refer to the UCITS definition of transferable securities. The revised interpretation could therefore restrict assets these AIFs may hold.

ESMA proposes a strict look-through requirement: holdings in closed-end funds would qualify as transferable securities only if the fund invests exclusively in assets directly eligible for UCITS. Such funds would also need authorisation and supervision equivalent to EU standards, effectively requiring fully authorised EU AIFMs. Investments in other funds would be capped at 10% of assets, excluding fund-of-funds and feeder structures.

While the EAR proposals remain under discussion, the German Location Promotion Act (Standortfördergesetz) entered into force in February 2026. It expands eligible assets for German specialised investment funds under the German Investment Tax Act to include interests in closed-end AIFs. The KAGB was also amended to permit open-end German “Spezial-AIF” with fixed terms to acquire units of all fund types, including closed-end funds and ELTIFs. Thus, closed-end AIFs do not need to qualify as “transferable securities” to be eligible assets for open-end German “Spezial-AIF” under German regulatory and tax law, neutralising the potential adverse effects of the EAR changes.