With the draft of the SME Venture Capital Companies Act 2017 (“Mittelstandsfinanzierungsgesellschaftengesetz 2017”), the framework conditions for SME venture capital companies (“Mittelstandsfinanzierungs-gesellschaften”) should be improved for potential financial investors. The assessment period ends on March 10th, 2017.
Tax benefit for investors.
Distributions of SME venture capital companies of up to EUR 15.000 per year are to be tax-exempted for (private) investors. This results in a maximum tax relief of EUR 4.125, applying the special tax rate of 27.5%.
Tax benefit for SME venture capital companies.
Concerning the investment activities of SME venture capital companies, extensive tax exemptions should be maintained. Gains and losses from the disposal as well as other changes in value of investments in target companies are comprehensively exempted from corporation income tax. The exemption is also intended to include gains and losses from the sale of shares in partnerships.
New regulations for SME venture capital companies.
New material and formal conditions were taken into account while elaborating the draft bill:
- No minimum capital should be required.
- Granting of participation rights should be permitted, whereby the participation rights capital may reach a maximum of the amount of the paid capital stock or share capital.
- At least 75% of the equity should be used sustainably for investments in the SME with a tolerated short-term fall of the minimum threshold in the investment phase.
- The remaining asset management should not exceed 25 % of the equity.
- Investments in the SME in this tax regime should only be allowed in investments during the start-up period (not listed on the stock and not more than seven years commercially active) and the growth period (not listed on the stock and being innovative in respect of EU regulations on subsidies for risk capital or being active in a highly risky sector such as biotechnology). Regarding the definition of target companies the draft bill is based on the regulations of the European Commission.
- The amounts of the individual investments may not exceed the maximum of 20% of the SME venture capital company’s equity with a maximum financing amount of up to EUR 15 million.
- The SME venture capital company may not be in a dominant position concerning their investments and therefore is only allowed to acquire a maximum of 49% of the shares of a target company.
Entry into force.
The entry into force is linked to the non-prohibition of this risk capital measure by the European Commission. The bill is expected to enter into force in autumn 2017. In accordance with the provision of the legislation on subsidies, the regulation will expire on September 30th, 2022 with a write-off period until September 30th, 2028.
Regulatory adjustment for private investors.
Regarding the rules for the distribution of alternative investment funds (AIF) to qualified private clients (free available assets of at least EUR 250.000) the minimum investment sum is to be reduced to EUR 10.000. The purchase of private equity fund of funds or AIF should be permitted for private clients (free available assets of at least EUR 100.000) under certain circumstances.
We will keep you informed on the further procedures of enactment.
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