Location Promotion Act (Standortfördergesetz): Comprehensive New Regulations for VC and Infrastructure Investments

On September 10, 2025, the German Federal Cabinet approved a draft law to promote private investment and Germany as a financial center (Location Promotion Act, Standortfördergesetz). It contains numerous changes and additional rules, particularly regarding regulatory and tax law with the aim to enhance fund investments with regard to venture capital, infrastructure, and renewable energy.

Numerous amendments are based on the draft law of the Future Financing Act II (Zweites Zukunftsfinanzierungsgesetz), which was not finally adopted due to the premature end of the previous coalition in the last legislative period. Outlined below are the key changes planned under the Location Promotion Act.

TAX

The act provides for numerous changes to tax provisions with the aim of easing fund investments particularly in infrastructure and renewable energy as well as venture capital investments. The most relevant changes can be summarized as follows:

Infrastructure, Renewable Energy, and Venture Capital as Eligible Investments for Investment Funds (Chapter 2 Funds)

German infrastructure, renewable energy, and venture capital assets and funds typically qualify as so-called commercial partnerships (gewerbliche Personengesellschaft) whereby the underlying assets are actively managed. Under current law, investment funds that are subject to the special tax regime under the German Investment Tax Act (Kapitel 2 Investmentfonds unter dem Investmentsteuergesetz – InvStG) may only invest in such actively managed commercial partnerships to a very limited extent; otherwise, they may lose their status as an investment fund.

To ease and promote investments in commercial partnerships, such investments now qualify as eligible investments for so-called Chapter 2 Funds (Kapitel 2 Fonds) irrespective of whether such partnerships are commercial and/or the underlying assets are actively managed and could thus be invested in by Chapter 2 Funds without jeopardizing their tax status.

Infrastructure and Renewable Energy Investments as Eligible Investments Also for Special Investment Funds (Chapter 3 Funds)

Furthermore, going forward so-called special investment funds or Chapter 3 Funds (Spezial-Investmentfonds bzw. Kapitel 3 Fonds nach dem InvStG) may invest in several classes of infrastructure assets without jeopardizing their status as a Chapter 3 Fund:

• In contrast to before, such funds may now generally invest in infrastructure funds and may acquire up to 100% of shares in corporations that are engaged in real estate and certain infrastructure projects (currently, a limitation to 10% of shares applies).
• Chapter 3 Funds shall be enabled and incentivized to invest especially in solar energy and electric charging solutions on the ground of their real estate investments. For this purpose, the current 20% threshold for income generated from the commercial production and supply of electricity (in relation to other lease income from the real estate) shall be suspended, and funds may freely generate such commercial income in addition to the lease income.

Adaptation of Fund Tax Regime in Case of Commercial Investments 

The above extended possibilities for investment funds (Chapter 2 Funds) and special investment funds (Chapter 3 Funds) to invest in infrastructure and underlying investments with commercial activities are however accompanied with the amendment of tax rules and the revocations of certain tax exemptions.

To the extent that Chapter 2 and 3 Funds engage in German commercial activities—by way of active management of investments and/or by investing in commercial partnerships—such income shall in the future principally be fully subject to corporate income tax and trade tax at the level of the investment fund (or the commercial partnership as the case may be).

Respective options for special investment funds for tax-transparent treatment shall not be eligible with regard to commercial income. Such nonapplication of the so-called transparency option for funds for commercial income aims at preserving the level playing field for fund investors and domestic commercial businesses—as otherwise certain investment funds may have been able to generate tax-free commercial income.

As a consequence, Chapter 2 and 3 Funds will be obliged to make respective German income tax filings and tax payments for any commercial investments they hold and with regard to their commercial activities.

It is to be expected that investment funds will make use of the opportunity to further invest particularly in infrastructure, renewable energy, and venture capital assets. These asset classes are not only explicitly targeted by the Location Promotion Act, but also reflect prevailing market trends, such as the growing demand for sustainable energy solutions, the modernization of infrastructure, and the expansion of the German startup landscape. Certain details, especially regarding the new tax filing requirements for (principally) tax-transparent special investment funds, are yet to be clarified.

Expansion of Roll-Over Regime for Reinvested Capital Gains From Share Sales

In addition to the above reliefs applicable for investment funds, the Location Promotion Act also provides for amended roll-over rules for individuals who hold shares as business assets. Aimed at the ease of investments in venture capital, the option for such individuals to make tax-neutral reinvestments of capital gains is extended: instead of the current limit of €0.5 million, under the new rules individuals may reinvest an amount of €2 million on a tax-neutral basis.

FINANCE/REGULATORY

On the financial regulatory side, the draft Location Promotion Act will implement a number of EU directives into German law and aims to reduce bureaucracy by abolishing certain reporting and disclosure obligations to the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin). In parallel, the German Federal Finance Ministry has published the draft Fund Risk Limitation Act (Fondsrisikobegrenzungsgesetz), which will transpose AIFMD II into national law.

Implementation of EU Acts

A key component of the draft law is the timely implementation of several EU capital markets regulations, including the EU Listing Act (Directive (EU) 2024/2809), the MIFIR Review, and the ESAP Regulation (establishing a central European access portal for centralized access to publicly available information relevant to financial services, capital markets, and sustainability).

The ESAP aims to strengthen the central European access portal, which includes certain reporting obligations to BaFin or the company register as a collection point for information to the European Securities and Markets Authority. It specifies the requirements as to how and in which format such data shall be provided and amends reporting dates in accordance with European law.

The ESAP aims to promote transparency for customers/investors and supervisory authorities. The draft law only covers those parts of the ESAP package that require national implementation. Otherwise, publication and transmission requirements are already regulated by directly applicable EU regulations.

The November 2024 Listing Act Directive has, among other things, amended the possibility to make joint payments for execution services and research irrespective of the market capitalisation of the issuer covered by the research. The draft German law plans to implement these changes in the German Securities Trading Act (Wertpapierhandelsgesetz) and refers to the EU Code of Conduct for Issuer-Financed Research.

It will also implement best practices for agreeing to payments for research. Three payment options for the research are available for investment firms: (1) out of its own resources, (2) payments from a separate research payment account, or (3) joint payments for research and execution services.

The new provisions on research provide the following conditions that investment firms in receipt of research from third parties (irrespective of the payment option they may choose) must meet so that the provision of research is not regarded as an inducement:

• An agreement has been entered into between the investment firm and the third-party provider of execution services and research establishing a methodology for remuneration, including how the total cost of research is generally taken into account when establishing the total charges for investment services;
• The investment firm informs its clients of its choice to pay either jointly or separately for execution services and research and makes available to them its policy on payments for execution services and research, including the type of information that can be provided depending on the firm’s choice of a payment method and, where relevant, how the investment firm prevents or manages conflicts of interest pursuant to article 23 of MiFID II when applying a joint payment method for execution services and research;
• The investment firm assesses on an annual basis the quality, usability, and value of the research used as well as the ability of the research to contribute to better investment decisions; and
• Where the investment firm chooses to pay separately for execution services and third-party research, the provision of research by third parties to the investment firm is received in return for either of the following: direct payments by the investment firm out of its own resources or payments from a separate research payment account controlled by the investment firm.

Reduction of Bureaucracy

The draft law includes measures to simplify administrative tasks by streamlining supervisory processes at the BaFin. This includes the elimination of reporting and notification requirements, especially of duplicate reports from financial institutions that in the view of BaFin do not offer added value in terms of supervision.

Other amendments focus on requirements that involve a bureaucratic burden on companies which is not proportionate compared to the information obtained by BaFin. This includes abolishing the employee and complaints register at BaFin. The draft law further includes a restriction of the requirement to submit a certificate of compliance with supervisory requirements for unlisted derivatives (OTC derivatives) to companies that are relevant from a risk perspective and the discontinuation of the million-euro loan reporting system as of 30 December 2026.

The explanatory memorandum to the draft law states that the requirements for credit institutions under European reporting regulations have increased, and that with AnaCredit serving as the statistical data collection system of the European System of Central Banks granular reporting requirements for individual loans to legal entities have been created, which provide sufficient information ensuring effective supervision, making the million-euro loan reporting redundant. The owner control regulation will also be amended to simplify the process of submitting information from the Central Trade Register (Gewerbezentralregister) to BaFin and as such reducing the administrative burden for companies.

Amendments to Capital Investment Code (Kapitalanlagegesetzbuch) and Securities Trading Act (Wertpapierhandelsgesetz)

The amendments by the Location Promotion Act provided for in the Investment Tax Act are correspondingly implemented for regulatory purposes in the Capital Investment Code (Kapitalanlagegesetzbuch – KAGB).

For example, the definition of permissible assets for investments for real estate investment funds shall be expanded to include investments in infrastructure projects with the corporate purpose of constructing, acquiring, cultivating, or holding of facilities which are suitable for the management of renewable energies, provided that at the time of acquisition of the investment its value, together with the value of other such investments already held by the German special fund, does not exceed 15% of the value of the special fund. The amendment is intended to ensure that real estate investment funds can make a greater contribution to the energy transition than before. The draft law also aligns the definition of renewable energies.

The Fund Risk Limitation Act will transpose AIFMD II into German law. It includes provisions regarding loan origination, which will be implemented in the KAGB. The draft law adopts the AIFMD II–required leverage limits (for closed-ended loan-originating AIF 300% and for open-ended loan-originating AIF 175%), which shall now be implemented throughout the EU. The draft law also provides for certain prohibitions of loan origination, such as that AIFs are prohibited to grant loans to consumers, to the AIFM or its personnel, affiliated companies, managers or depositories.

The draft law further includes additional requirements regarding risk management, reporting, and disclosure obligations. The investment strategy of an AIF may not consist, either wholly or in part, of granting loans for the sole purpose of transferring these loans or risks arising from the originating of loans to third parties. Further, it aims to implement an obligation of managers of open-ended funds to select at least two suitable liquidity management tools for their funds to strengthen the resilience of the fund market. The draft law also includes modifications to reporting requirements of outsourcing.

CAPITAL MARKETS

The Location Promotion Act also contains various amendments to capital markets regulations. As noted above, some of these implement the EU Listing Act, which aims to promote the financing of small- and medium-sized enterprises via the capital markets and counteract the fragmentation of European capital markets caused by national regulations. Other provisions are directed specifically at Germany to strengthen and modernize it as a financial center. The following changes are particularly noteworthy:

Changes to Securities Prospectus Law

The EU Listing Act aims to facilitate capital raising by issuers by, among other things, expanding the prospectus exemptions and introducing new prospectus formats (EU follow-on prospectuses (maximum 50 pages) and EU growth issuance prospectuses (maximum 75 pages)) as well as further standardizing the presentation of prospectuses.

Under certain conditions, issuers will be able to admit securities to trading without a prospectus in case of a secondary market issuance amounting to 30% (measured over a 12-month period) of the securities already admitted to trading, or to offer them publicly after preparing an 11-page document that need only be filed and does not require formal approval. Otherwise, since the EU Listing Act package is directly applicable, only minor changes or additions are required for its implementation into German law.

Therefore, the following section highlights only a few selected changes in prospectus law that have been incorporated into the Location Promotion Act:

• Securities Issues: Germany has opted for the maximum limit in terms of the discretion it has to decide on the volume of certain issues that can be exempted from the prospectus requirement. Companies in Germany will be able to offer securities worth up to €12 million to the public without having to prepare a prospectus; previously, this was only possible up to €8 million. Germany has also decided to subject liability for the 11-page document to the prospectus liability regime. However, it will have to be argued that liability is limited to the information contained or that may be contained in the respective document.
• English-Language Prospectuses: It will now be possible to draft prospectuses in English only, meaning even a German translation of the summary will no longer be required.

Changes to Delisting Law

• Going forward, disputes over the amount of consideration in the event of a delisting will be subject to arbitration proceedings.
• Downlistings from the regulated market to an SME growth market (which is subject to special regulatory requirements) will be exempt from the delisting rules as SME growth markets have a level of regulation that is already very similar to that of regulated markets. However, delistings from the SME growth market will be included in the scope of protection of the delisting regulation.
• A delisting application without a purchase offer will be permissible if insolvency proceedings have been opened against the issuer’s assets. A settlement offer is not required in this situation as otherwise shareholders would be given preferential treatment over debt creditors. In addition, a delisting facilitates the restructuring of the company as the costs associated with a listing can be reduced.
• The decision of the stock exchange’s management on the issuer’s delisting application will be changed to a binding decision.
• The exceptions wherein the six-month average price can no longer be considered “appropriate consideration” in a delisting offer, meaning that a company valuation is required instead, have been reworded as examples of the rule (“in particular”).

Other Amendments

• Cent Stocks: As a further measure to facilitate access to the capital markets, particularly for growth companies, companies will be given the option of issuing shares with a minimum par value of 1 cent per share or, in the case of no-par value shares, the amount of share capital attributable to each share may be “one euro cent” (cent stocks).
• Adjustments Due to Multiple Voting Shares: Due to the newly introduced possibility for issuers to issue multiple voting shares, various changes are necessary, including with respect to stock exchange admission law and supervisory law and market surveillance law.
• Changes to the Free Float Requirement for Shares: In the future, at least 10% of the total nominal value, or in the case of no-par value shares the number of shares to be admitted to trading, must have been acquired by the public. If shares of the same class are already admitted to trading, the minimum free float requirement applies to all issued shares. Exceptions are also regulated.

Following the cabinet decision, the Federal Council (Bundesrat) will shortly give its opinion on the draft bill; it remains to be seen what further changes the Federal Parliament (Bundestag) will make.