Collective Investment Schemes and Investment Foundations

With the draft of the new practice from July 2024, the FTA wanted to simplify the applicable rules. This simplification would have meant that some currently exempt services would have become taxable and would have led to an increased final VAT costs (tax occulte) in the fund industry.

The FTA took into account the numerous comments received in the course of the review process of the practice and decided finally against the intended far-reaching change in practice.

The new VAT practice is therefore essentially identical to the current VAT practice. The new investment vehicle "L-QIF" qualifies as a collective investment scheme for VAT purposes. Notarial services in connection with the purchase/sale of real estate by real estate funds are now taxable.

The impact

In principle, everything remains the same and there is no relevant additional "tax occult" to be expected.

On the other hand, the high level of complexity that the FTA wanted to simplify with the change in practice remains.

Providers of services to collective investment schemes (especially real estate funds) run the risk of incorrectly declaring services as exempt from VAT instead of taxable at 8.1%, with the corresponding financial consequences.

Collective investment schemes, on the other hand, are faced with the dilemma of unjustifiably accepting VAT on the services of their service providers and thus excessively burdening the net asset value of the corresponding fund.

Recommendations for action

• We therefore recommend (despite the fact that the practice remains essentially unchanged) that the VAT qualification of service relationships be reviewed, in particular for real estate funds, but also for securities funds.

Supplies to investment foundations are taxable under the current VAT Act. The legal basis applicable from 1 January 2025 will exempt from VAT management services provided to investment foundations by qualified service providers.

This will level the playing field with collective investment schemes. This was the rationale of the legislator in that revision of the VAT act. 

The impacts

Service providers to investment foundations must therefore check whether their services are now exempt from VAT from 1 January 2025 and can be invoiced to the investment foundation without the 8.1%. However, the risk remains with the service provider as they are responsible for the correct VAT qualification and any VAT invoicing of the services they provide. As the limitation period is five years, service providers increase their risk over the next five years if the VAT qualification is incorrect.  Investment foundations must ensure that, from 1 January 2025, they do not pay VAT on services from providers when it is no longer due under the new legal basis and practice. Such VAT would inadmissibly reduce the net asset value of the corresponding investment group of the investment foundation and thus have a detrimental effect on investors.

Recommendations for action

• Service providers need to review the VAT treatment of their services.
• Investment foundations must ensure that they do not pay undue VAT.
• In this context, the existing contractual basis must be reviewed and, if necessary, adjusted.
• As the VAT exemption for investment foundations is new, there will be uncertainties and questions of correct VAT treatment until the practice is developed. It will be necessary to seek rulings from the FTA to resolve these uncertainties.

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