Future Financing Act (ZuFinG)

Basics and objectives

Since 1 January 2024, the Future Financing Act has marked a fundamental modernization of German capital market law. With this law, the German government is pursuing the central goal of strengthening Germany as a financial center in international competition. The reform will significantly expand and simplify financing options for innovative companies and start-ups. The minimum capitalization for an IPO has been lowered from 1.25 million to 1 million euros to enable smaller companies to access the capital market. The law introduces the English language as a permissible medium of communication in capital market law for the first time, which facilitates international investments. The reform enables faster and more cost-effective capital procurement through simplified administrative processes. The digitalization of official communication will be comprehensively promoted through new electronic procedures. The law creates improved framework conditions for employee share ownership as an important instrument for employee retention. The integration of modern financial technologies is supported and promoted by specific regulations. The competitiveness of German companies will be strengthened through international standardization. The reform is based on successful international models and best practices.

Employee share ownership and tax benefits

The Future Financing Act significantly increases the maximum tax-free amount for employee shareholdings from EUR 1,440 to EUR 2,000 per year. The subsequent taxation period for the transfer of shareholdings has been extended from twelve to fifteen years in order to promote long-term shareholdings. Employers can defer taxation until the actual sale of the shareholding by means of a special assumption of liability. The maximum company age for beneficiary companies has been increased from twelve to twenty years, allowing more companies to benefit from the scheme. The limit on the number of employees has been substantially increased from fifty to one thousand, which considerably expands the scope of application. The turnover and balance sheet total thresholds have been doubled to enable larger start-ups to benefit. The time component of the threshold has been extended from two to seven years, which allows for more flexibility in business planning. The new regulations apply retroactively for the last six calendar years, which means that existing participation programs can also benefit. The documentation requirements have been considerably simplified and adapted to international standards. The tax treatment of virtual participation programs has been regulated by law for the first time. The reform creates new opportunities for international employee participation across national borders.

Facilitations under capital market law

The law introduces the electronic share as a fully digital security in Germany for the first time. The minimum size for IPOs has been significantly reduced to allow smaller companies access to the capital market. Capital increases are made significantly more flexible by increasing the subscription right exclusion limit to twenty percent. The prospectus requirements for issues under EUR 10 million have been considerably simplified and made more cost-effective. Communication with supervisory authorities can now be completely digital and in English. The law also enables the issue of bearer shares for unlisted companies under simplified conditions. The harmonization with EU law makes it much easier to raise capital across borders. The tradability of company shares is improved by new electronic trading platforms. The transparency requirements have been adapted to international standards and modernized in a practical manner. The administrative burden for capital market transactions has been significantly reduced through digital processes. The reform creates new opportunities for innovative financing instruments such as token-based securities. The international competitiveness of Germany as a financial center is strengthened by modern framework conditions.

Promotion of capital formation

The income limits for the employee savings allowance have been doubled by law to forty thousand euros for single people. Married couples who are jointly assessed can now benefit from the subsidy up to an income of eighty thousand euros. The savings allowance for investments in productive capital has been increased to twenty percent of the amount invested. The law expands the investment options to include modern financial instruments such as digital securities. The maximum subsidy amounts have been adjusted to current economic developments and increased significantly. The lock-up periods for subsidized investments have been made more flexible and brought into line with international standards. The tax treatment of capital formation measures has been simplified and made more transparent. The law enables new possibilities for combining different funding instruments. The administrative procedures for applying for and granting subsidies have been fully digitalized. The reform creates additional incentives for private pension provision through capital market investments. The promotion of sustainable investments has been made more attractive through special allowances. The integration of digital forms of investment into capital formation has been enshrined in law for the first time.

Digitization and modernization

The electronic share has been implemented as a fully-fledged digital security in German law. Communication between companies and supervisory authorities now takes place entirely via secure digital channels. The law enables virtual general meetings to be held as a permanent option for stock corporations. The technical infrastructure for trading in digital securities has been legally secured. The documentation of securities transactions can now be fully digital and is legally recognized. The law creates the basis for blockchain-based trading platforms in the regulated market. International connectivity is ensured through the use of standardized digital formats. Data security is ensured through specific technical requirements for digital systems. The efficiency of capital market transactions is significantly increased through automated processes. Accessibility to financial market information will be improved through digital platforms. The reform enables the integration of artificial intelligence into financial market processes. The modernization of the market infrastructure will be future-proofed through technology-neutral regulations.

Effects on the financial center

The German financial center will be positioned more competitively internationally thanks to a modern regulatory framework. The attractiveness for foreign investors will increase thanks to simplified access to the German market. Access to growth capital will be significantly facilitated and accelerated for innovative companies. The creation of new jobs will be actively promoted through improved financing options. Economic development is given new impetus through modern financing instruments. Legal certainty for innovative financial products has been increased through clear legal regulations. The predictability of capital market transactions is improved through standardized processes. The future viability of the financial center is ensured by regulations that are open to technology. The international networking of the German financial market is strengthened by harmonized standards. The innovative strength of the location is promoted through flexible framework conditions. The competitive position vis-à-vis other financial centers will be sustainably improved. The reform creates new prospects for the development of innovative financial products.

Practical implementation and outlook

The Future Financing Act will be implemented gradually by the end of 2024 through various implementing ordinances. The tax authorities are developing detailed application guidelines for the practical implementation of the new regulations. Companies must adapt their internal processes to the new digital possibilities and requirements. The effects of the reform will be continuously evaluated and documented through scientific monitoring. If necessary, the regulations can be flexibly adapted by means of authorizations to issue ordinances. International developments are taken into account through regular coordination with other financial centers. The competitiveness of the location is ensured through periodic reviews of the regulations. The digitalization of processes is further promoted through technical standards and interfaces. The effectiveness of the support measures is regularly reviewed and optimized. The future viability of the regulations is ensured through technology-neutral formulations. Innovation in the financial sector is promoted through flexible experimentation clauses. Practical implementation is supported by comprehensive advisory services.