Key Takeaways
- • Germany's Location Promotion Act (Standortfördergesetz, StoFöG) entered force on 10 February 2026, introducing coordinated amendments to the Investment Tax Act (InvStG) and Capital Investment Code (KAGB) designed to mobilise private capital for infrastructure and renewable energy investments.
- • The StoFöG removes tax barriers that previously restricted fund-based investments in operational assets by permitting investment vehicles to qualify as tax-privileged funds even when individual assets are actively managed (e.g., operation of renewable energy facilities).
- • Amendments to the Investment Tax Act expand the definition of domestic equity and real estate income at fund level, allowing such income to be generated indirectly through partnerships, with tax treatment dependent on whether the intermediary partnership is classified as asset-managing or commercial.
- • The Act introduces a new statutory constraint: "other domestic income" is no longer eligible for exemptions under sections 8-10 of the InvStG, making correct allocation under section 6 a critical tax mechanism for fund structures and investor returns.
- • The legislation represents a strategic initiative by the German Federal Government to strengthen Germany's competitiveness as a financial centre and facilitate financing for growth-oriented companies amid broader European investment stimulus efforts.
Summary
Germany's Location Promotion Act (Standortfördergesetz, StoFöG), published in the Federal Law Gazette on 9 February 2026 with key provisions effective 10 February 2026, establishes a comprehensive framework to mobilise private capital and enhance the country's financial centre status. The Act constitutes a coordinated set of amendments to three core pieces of German tax and regulatory legislation: the German Investment Tax Act (Investmentsteuergesetz, InvStG), the German Capital Investment Code (Kapitalanlagegesetzbuch, KAGB), and supplementary amendments to the German Income Tax Act (Einkommensteuergesetz, EStG). The legislation follows Cabinet approval of the draft law in September 2025 and reflects a federal government initiative to stimulate private investment and support growth financing for young, growth-oriented companies.
The StoFöG's primary mechanism addresses longstanding tax obstacles that have constrained fund-based infrastructure and renewable energy investments. A significant innovation permits investment vehicles to qualify as investment funds for tax purposes even when individual assets are actively managed—such as through the direct operation of renewable energy facilities. This materially expands the operational strategies available to funds and removes a key regulatory barrier to asset-level operational involvement. Previously, active asset management at the underlying level created tax classification complications that discouraged such structures; the amendments now provide legal certainty for this investment approach.
On the income classification front, the Act broadens the definition of domestic equity investment income and domestic real estate income at the fund level, enabling such income to be generated indirectly through partnerships. The tax treatment hinges on the classification of the intermediary partnership: if classified as asset-managing, the income retains privileged tax status; if classified as commercial, the income is reclassified as "other domestic income," triggering different tax consequences. This distinction carries material implications for fund structuring and investor returns, as "other domestic income" is subject to a new statutory constraint: it is no longer eligible for exemptions under sections 8-10 of the InvStG. Consequently, correct allocation under section 6 becomes a critical tax compliance and planning mechanism for fund vehicles, requiring precision in partnership classification and income characterization.
The legislation represents a significant structural reform designed to position Germany competitively within European capital markets and address historical constraints on institutional and alternative investment capital deployment in domestic infrastructure and energy transition assets.
The StoFöG's primary mechanism addresses longstanding tax obstacles that have constrained fund-based infrastructure and renewable energy investments. A significant innovation permits investment vehicles to qualify as investment funds for tax purposes even when individual assets are actively managed—such as through the direct operation of renewable energy facilities. This materially expands the operational strategies available to funds and removes a key regulatory barrier to asset-level operational involvement. Previously, active asset management at the underlying level created tax classification complications that discouraged such structures; the amendments now provide legal certainty for this investment approach.
On the income classification front, the Act broadens the definition of domestic equity investment income and domestic real estate income at the fund level, enabling such income to be generated indirectly through partnerships. The tax treatment hinges on the classification of the intermediary partnership: if classified as asset-managing, the income retains privileged tax status; if classified as commercial, the income is reclassified as "other domestic income," triggering different tax consequences. This distinction carries material implications for fund structuring and investor returns, as "other domestic income" is subject to a new statutory constraint: it is no longer eligible for exemptions under sections 8-10 of the InvStG. Consequently, correct allocation under section 6 becomes a critical tax compliance and planning mechanism for fund vehicles, requiring precision in partnership classification and income characterization.
The legislation represents a significant structural reform designed to position Germany competitively within European capital markets and address historical constraints on institutional and alternative investment capital deployment in domestic infrastructure and energy transition assets.
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