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17 November 2023

Financing for the future

In order to successfully tackle the challenges of the future, we have to mobilise more private capital and make Germany more attractive as a location for the financial industry. The Financing for the Future Act (Zukunftsfinanzierungsgesetz), which has now been passed by the Bundestag, aims to improve conditions for start-ups and small and medium-sized businesses, modernise the German financial sector, and foster a stronger shareholder culture in Germany.

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Source:  Shutterstock/EyeFound & bbernard, GettyImages/Weiquan Lin

On 17 November 2023, the German Bundestag adopted the Financing for the Future Act. The new law is an important component of the German government’s Start-up Strategy. The federal cabinet had approved the draft legislation on 16 August 2023.

“Germany is a country with many smart entrepreneurs. We are all aware that we need to support their innovative potential. We must ensure that global technology leaders do not just emerge in Silicon Valley, but that they also find a home in Germany. We need to improve the environment for start-ups. The aim of the Financing for the Future Act is to achieve a positive trend in this area. We are making it easier for start-ups and growth-stage companies to go public, so they can access fresh private capital on the stock market. We are making the tax rules relating to employee share ownership more attractive. It will be possible for employees to directly benefit from their contribution to a company’s success. In this way, we’re giving start-ups an important tool that will help them to attract highly skilled staff.” Christian Lindner, Federal Minister of Finance

The Financing for the Future Act aims to mobilise more private capital and to make Germany more attractive to the financial sector as a place to do business. The legislation implements agreements set out in the German government’s Start-up Strategy and in the coalition agreement between the governing parties. Its provisions focus especially on new, innovative start-ups, but also target other small and medium-sized businesses that account for a significant proportion of the German economy.

Developing capital markets is not an end in itself. Rather, the new legislation is designed to boost the real economy. Strong capital markets facilitate growth in all sectors of the economy, because they are a key source of financing for long-term investments in areas like research and development. In addition, they play a crucial role in creating opportunities for growth-stage companies.

The new legislation includes the following specific improvements:

Better conditions for start-ups and small and medium-sized businesses

By enacting attractive tax rules, we want to improve the conditions for employee share ownership, making Germany more attractive to start-ups. The tax allowance for employee shares will be raised from €1,440 to €2,000 per year. We are also amending German tax law in order to tackle the problem of “dry” or “phantom” income in connection with employee share schemes. Up to now, only a small number of companies have been able to make use of rules that allow taxes on transferred shares to be deferred until the shares are sold. The Financing for the Future Act will ensure that more companies – including established small and medium-sized businesses – and their employees can benefit from these deferred taxation rules. The rules will also cover shares that may only be transferred if the company gives its approval (registered shares with restricted transferability).

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Easier access to capital markets

We are making it easier for companies to access capital markets by reducing the minimum capital required for an initial public offering (IPO) from €1.25m to €1m, which will help smaller business in particular.

We also plan to simplify regulatory requirements. In the future, stock exchanges will be able to waive co-applicant requirements for IPOs in certain segments of regulated markets. This will help to reduce the cost of an IPO.

In addition, companies will be permitted to issue multiple-vote shares (also known as dual class shares) with voting rights of up to 10 votes per share. This means that, even when they raise capital on capital markets, entrepreneurs will be better able to retain influence over the businesses they founded and, as a result, to continue using their expertise to facilitate company growth. At the same time, rules have been added to protect investors who do not have multiple voting rights.

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Updating Germany’s financial sector

We are pressing forward with the digitalisation of capital markets by adding electronic shares to the scope of the Electronic Securities Act (Gesetz über elektronische Wertpapiere). Under the new rules, registered shares will in future be issued and transferred electronically via a centralised securities register or via a cryptosecurities register that may be based on distributed ledger technology.

In addition, measures will be adopted to improve the security of investments in cryptoassets held with an intermediary.

Financial market supervision is also being further modernised. Key steps here include reducing obstacles to the use of digital technology and making services more user-friendly, e.g. by making it easier to communicate with the Federal Financial Supervisory Authority (BaFin) in English.

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Better government support for equities saving schemes and home-ownership-related saving schemes

We will double the income thresholds for the savings allowance for investments under employee savings schemes. In the future, government support for savings schemes will be available for single individuals who earn up to €40,000, and for jointly assessed couples who together earn up to €80,000. These new thresholds apply both to equities saving schemes and saving schemes for the purposes of building or purchasing a home.

The draft Financing for the Future Act contains a wide range of improvements and legislative changes in addition to the new rules described above. The government draft of the Act is available here (in German only).