The bill to promote private investments and Germany as a financial centre (German Location Promotion Act - Standortfördergesetz) picks up on the legislative process for the German Future Financing Act II (ZuFinG II), which was not finally adopted under the coalition government, with largely identical provisions. Building on the German Future Financing Act (ZuFinG), which came into force in January 2024, it provides further measures to promote the fund market and thus the venture capital ecosystem and improve the framework conditions for investments in areas in need of investment, such as infrastructure and renewable energy. The aim is to strengthen the competitiveness and attractiveness of Germany as a financial centre. Financing options for young companies will be further improved and capital resources should be made available to a greater extent for investment in infrastructure and renewable energy.
The legislative process should be completed by the end of January 2026 at the latest and the law will essentially come into force on the day it is promulgated.
We briefly present key fund-related draft regulations below:
Investments by real estate funds and special funds in renewable energy plants
The bill provides for a "holistic solution" to facilitate investments by real estate funds and special funds in renewable energy and infrastructure, which was missing from the legislative process for the ZuFinG, but included in ZuFinG II. The amendments to the German Capital Investment Code (KAGB) and the Investment Tax Act (InvStG) are intended to remove existing barriers to investing and create a legally secure European competitive investment framework for investments by such funds in renewable energy and infrastructure, enabling these funds to make a greater contribution to the energy transition. Both, open-ended real estate funds (in the form of special real estate funds pursuant to sections 230 ff. KAGB) and special AIFs with fixed investment conditions pursuant to section 284 KAGB with a focus on real estate investments that qualify as special investment funds according to chapter 3 InvStG (Spezial-Investmentfonds) for tax purposes, will benefit from the changes.
With the expansion of the list of eligible assets in section 231 KAGB, real estate funds can now purchase renewable energy plants (RE plants) for the first time. This will be realised indirectly through investments in infrastructure project companies whose corporate purpose is limited to constructing, acquiring, operating, managing or holding RE plants. It does not have to be directly related to real estate. RE plants can also be located on land that the infrastructure project company has only leased, which is in line with common market practice. Section 231 (6) KAGB-E will in future also allow the investment management company to operate rooftop installations itself. The electricity generated by this can be fed into the public grid and sold to third parties.
The risk of special investment funds losing their tax status as a result of such harmful investments is remedied by section 26 no. 7a InvStG-E. The previous percentage limit for income from renewable energy sources is being repealed. Special investment funds may invest in plants for the generation of electricity from renewable energy sources, provided that there is always a connection with the letting and leasing of real estate. In addition, the new version of section 26 no. 6 sentence 2 InvStG-E allows the acquisition of up to 100 % of the shares in infrastructure project companies in the form of corporations.
By extending the exemptions from trade tax liability to companies whose business purpose is focused on the management of renewable energy (section 1 (19) no. 6 a KAGB-E) as well as PPP and infrastructure project companies, investment in renewable energy and other infrastructure is also made easier for investment funds under chapter 2 InvStG.
Investments in venture capital
To strengthen Germany as a fund location, investments in venture capital funds – mostly structured as closed-ended investment funds in the form of partnerships – are also significantly simplified.
In future, investment funds and special investment funds will in principle be allowed to invest in commercial venture capital funds without restriction. The previous restriction of section 284 KAGB to open-ended investment fund units is being repealed. The list of eligible assets in section 26 InvStG will be amended so that all types of domestic and foreign investment funds, including funds structured as partnerships, can be acquired by a special investment fund.
Further measures to improve the tax environment
Active commercial management of assets held by an investment fund should not affect its general qualification as an investment fund. This creates legal certainty in that an investment fund may, in principle, participate as a partner in a commercial partnership within the scope permitted by supervisory law or directly engage in commercial activities itself, for example by operating a photovoltaic system on a rented building.
Holding interests directly in deemed commercial (gewerblich geprägt) partnerships or commercially infected (gewerblich infiziert) partnerships is not considered active business management provided that the investment fund can prove that the income is derived from asset management activities of such a partnership. This provision aims to prevent domestic investment funds from being placed at a disadvantage compared to foreign investment funds.
