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The German Finance Ministry has proposed a second Future Financing Act (ZuFinG II) to allow investment funds and Spezialfonds – opened only to qualified investors, including pension funds – to invest in venture capital funds to a “fundamentally unlimited extent”, according to the proposed law.
An unlimited amount of investments would be allowed in commercial partnerships or in all types of other funds such as European Long-Term Investment Funds (ELTIFs), it added.
This would benefit both the companies receiving funds and investors willing to allocate capital to important projects for the economic transition, as well as infrastructure projects, the ministry added in the drafted law.
The government wants to rewrite the tax regime for investments in commercial partnerships through funds that fall under the Investment Tax Act. It also intends to change the tax regime on profits generated by divestments, when these are reinvested, it added.
The maximum amount for the transfer of hidden reserves from the sale of company shares for reinvestment is increased tenfold, the ministry clarified.
Spezialfonds can only generate less than 5% of total income from active business management to avoid losing their status. If approved, the law would exempt the funds from considering part of the income to determine the 5% limit.
These changes are intended to enable Spezialfonds to invest to a much greater extent in venture capital funds, according to law firm Taylor Wessing. The planned changes can significantly facilitate inflow of funds by institutional investors in start-ups, the law firm added.
With the new rules, the government also aims to further strengthen the IPO market as an exit channel for venture capital funds. The second Future Financing Act would make monitoring investment regulations for managers significantly easier, according to the ministry.
Under the current rules, a manager of Spezialfonds has to constantly monitor whether an investment fund holds assets allowed by law, an “effort” that would be dropped with the new regulation, the ministry added.
Experts and investors that joined forces to find ways to channel capital towards tech start-up companies under the WIN-Initiative, including Germany’s largest pension fund Bayerische Versorgungskammer (BVK), Allianz and Blackrock, took part in the preparatory work of the draft bill.
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