The Future Financing Act – Germany’s plan to modernise and digitalise investing
19th June 2023
Introduction and Overview
On 12 April 2023, the draft of the German Future Financing Act (Zukunftsfinanzierungsgesetz – the “Draft Law”) was published. The Future Financing Act shall increase the attractiveness of Germany as a financial centre with the focus to modernise the capital market regulatory environment and make way for a more efficient equity capital raising, in particular for start-ups, growth companies and small and medium-sized enterprises (“SMEs”) investments. In addition, the Draft Law includes initiatives that make Germany more attractive for international investment companies and investors through digitalisation of the capital market and by reducing regulatory bureaucracy.
Financial market laws, corporate laws and tax laws are to be amended with these goals in mind. Amendments are proposed, inter alia, to the German Investment Code (Kapitalanlagegesetzbuch – “KAGB”), the German Investment Firm Act (Wertpapierinstitutsgesetz – “WpIG”), the German Securities Trading Act (Wertpapierhandelsgesetz – “WpHG”) and the German Banking Act (Kreditwesengesetz – “KWG”).
This blog post focuses on certain selected amendments of the Draft Law.
Ease of access to the capital market for start-ups, growth companies and SMEs
Amendments concern the financing of investments in the future economy of Germany and the facilitation of capital market access for start-ups, growth companies and other Small and medium-sized enterprises (“SMEs”) by way of easing the listing requirements as well as the post-admission obligations.
As part of these measures, the existing rules and regulations for access to the capital market shall be revised. It is planned to reduce the minimum capital for an initial public offering from currently EUR 1.25 million to EUR 1 million.
Digitalisation of the German Supervisory Authorities and Capital Market
The Draft Law proposes to digitalise and modernise the German capital market, and also to modernise the financial market regulatory supervision. For this reason, the Draft Law facilitates digitalisation with regard to the financial supervision.
In order to make Germany more attractive to foreign investment, the Draft Law aims to improve the conditions for communication with the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin“) in English.
The legislator recognised that digitisation is an important contribution to reducing bureaucracy and emphasise modernisation which helps German regulatory supervision to be faster, more efficient and more responsive. This includes, for example, to remove written form requirements. Communication with the German supervisory authorities shall become digital by way of introducing digital communication channels to a much greater extent.
Introduction of the possibility of issuing electronic stocks
In order to digitise the capital market, the Draft Law introduces the possibility to issue stocks based on blockchain technology. For this purpose the Electronic Securities Act (Gesetz über elektronische Wertpapiere – “eWpG”) shall be extended to stocks by way of updating Section 10 of the German Stock Corporation Act (Aktiengesetz – “AktG”).
Besides, the draft proposes improved transfer options of crypto assets, which is currently limited, by amending the Electronic Securities Act. In addition, the electronic transfer shall be better secured.
Amendments to German Tax Law for Alternative Investment Fund Managers
The Draft Law includes several amendments to German Tax Laws, concerning tax benefits to increase attractiveness for investments. Amendments will be made, inter alia, to the German Income Tax Act (Einkommenssteuergesetz – “EStG”) and the German Value Added Tax Act (Umsatzsteuergesetz – “UStG”).
For fund managers, the extension of the VAT exemptions for all alternative investment funds will be of interest. Currently, the scope of the VAT exemption applies to investment funds within the meaning of the UCITS Directive and to the management of certain alternative investment funds (“AIFs”) that are subject to the same conditions, as well as the management of venture capital funds.
The Draft Law is expected to come into effect by October 2023. It is to be seen how the proposed changes will be implemented, and how effective the intention of the Future Financing Act will be in practice.
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