ARTICLE · 13 APRIL 2004

New Opportunities For Hedge Funds in Germany

McDermott Will & Emery

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A German Investment Act and Investment Tax Act came in into effect in early 2004.

GermanyTax

Ralf Eckert

Christian Gebhardt

Hans Schreiber

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A German Investment Act and Investment Tax Act came in into effect in early 2004. These acts establish guidelines for investment funds in Germany, the marketing of funds andoffshore investment funds in Germany and regulate tax consequences for funds and investors. For the first time in Germany, the law will allow hedge funds to be established and distributed in Germany. Before 2004 it was virtually impossible to setup and distribute hedge funds in Germany, because typical hedge fund features such as short-sales or leverage were prohibited for registered investment funds by law.In addition, unregulated hedge funds were subject to a punitive tax regime and, thus, nearly impossible to market.

According to the Investment Act, single hedge funds may now be set up either in the form of an investment stock corporation (also with variable capital) or as a separate fund of a financial investment management company. Both alternatives require permission from the Bundesanstalt für

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