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Compliance in fund management is a closely held secret among service providers and often a tough challenge for newcomers. Fully understanding it can raise many questions: Which compliance returns apply to my specific situation? How often must I submit them? What is the required format for these returns? How should they be correctly completed? Where can I source the necessary information? Which governing authority mandates the respective returns?
We have done all the heavy lifting, so you don’t need to. This article aims to give you a quick and clear understanding of the key compliance responsibilities for funds in Germany, saving you research time and equipping you with all the fundamentals. Let's get started.
Fund Compliance Guide
Whether you are a seasoned fund manager or new to the game, this guide is intended to serve as your roadmap through the world of fund compliance in Germany. We will focus on explaining recurring compliance tasks in fund management (not the one-time registration process and filings at the outset of fund set-up). To facilitate your understanding, we have categorized the compliance returns based on the regulatory bodies and specific areas they pertain to:
BaFin: Highlighting the requirements set by the Federal Financial Supervisory Authority. We delve into annual regulatory reporting, particularly concerning Alternative Investment Funds.
German Central Bank: Covering returns related to the Bundesbank. These focus mainly on balance sheets, cross-border transactions, and ownerships.
Company Registers: Periodic and ad hoc updates needed for the commercial and transparency registers.
Bundeszentralamt für Steuern: Overseeing the tax-related compliance, this section sheds light on reporting obligations like FATCA and CRS.
Structured for clarity and ease of reference, we have broken down the essential compliance returns further into specific sections, each containing a detailed overview of a particular return, its frequency, associated deadlines, submission methods, and more.
German Federal Financial Supervisory Authority (BaFin)
AIFM/D Report
Annual* regulatory reporting requirement under the Alternative Investment Fund Managers Directive (AIFMD), as implemented in the German Investment Code (Kapitalanlagegesetzbuch), with information on assets under management for the management company (AIFM) as well as the related Alternative Investment Fund(s) (AIF).
German Central Bank (Bundesbank)
Statistical Investment Return (INVV)
Monthly notifications with information about the latest balance sheet and individual balance sheet items of the fund.
Z4 Return
Monthly notifications of cross-border incoming and outgoing payments to or from a non-German person or entity of more than €12,500 (or the equivalent in another currency). Depending on your setup, you may also need to submit other Z returns, such as Z5 and Z10.
K3 & K4 Return
Annual notifications with information about the ownership of German-resident entities in foreign enterprises (K3) and non-German residents in German entities (K4) at a specific point in time.
Company Registers
Periodic update of company information regarding shareholders and beneficial owners and other relevant details (e.g., change of registered office, addition of limited partners, change of name, change of corporate purpose, merger, or dissolution).
Commercial Register
Transparency Register
Bundeszentralamt für Steuern
FATCA
If the fund qualifies as a FFI (foreign financial institution) under FATCA and has US taxpayers as direct or indirect investors, it must a) register with the Internal Revenue Service (IRS) and obtain a Global Intermediary Identification Number (GIIN) and b) comply with ongoing reporting obligations.
CRS
CRS reporting obligations arise if the fund’s investor base includes individuals, entities, or financial institutions from CRS-participating jurisdictions and new financial accounts are opened in Germany. In particular, the following data points must then be reported for the respective investors: name, address, country of residence, tax ID, date of birth, place of birth, account number, name and ID number of the financial institution, account balance, and interest / dividends / other income.
Additional Regulatory Filings & Considerations
Additional regulatory filings may be required. The extent of these requirements varies based on factors such as the origin, industry, and type of your LPs:
If your LPs include insurers, there may be solvency reporting requirements, and certain cross-border tax arrangements may activate DAC6 reporting, among other considerations.
If you have US LPs, you may be dealing with:
K1 Returns, which report the income, deductions, credits, and other tax-related information allocated to the partners or shareholders of a partnership or trust.
W8 Forms - are a series of forms, e.g. W8-BEN, W8-BEN-E, W8-IMY, used by foreign individuals and entities to establish the non-U.S. status of their beneficial owners for tax withholding purposes.
PFIC Forms pertaining to any income derived by a U.S. taxpayer from the fund, especially if the fund or any holding vehicles are deemed a Passive Foreign Investment Company.
And many more …
We've outlined key compliance aspects here, but there is much more to explore. Keep an eye out for our in-depth articles on KYC, KYB, and AML Compliance coming soon. If you have questions or particular concerns, don't hesitate to reach out. bunch is here to make things simpler. Our digital platform is designed to streamline the complexities of managing SPVs and funds. We provide an end-to-end solution, from digital onboarding to compliance and reporting, with a modular setup that allows you to pay for what you need.
Disclaimer: The content presented herein is solely for informational and discussion purposes. It is not intended to serve as legal, tax or financial advice or as an endorsement of any investment strategy. bunch does not provide legal, tax or financial advice. Readers should not base their investment decisions on the content presented herein or any other bunch-generated content alone and should seek appropriate professional advice. Nothing contained herein shall constitute or imply an offer to sell, purchase or enter into any transaction in respect of securities. The content contained herein is subject to change without notice. While we aim to present accurate and up-to-date information as part of bunch’s content, we undertake no obligation to update our content from time to time.
