Employment Law / Tax Law / Corporate Law20.11.2023 Newsletter

The country needs new investments - what are the benefits of the Financing for the Future Act?

In a world filled with new challenges, Germany faces the task of remaining competitive in an international comparison. An attractive capital market is a key factor for facilitating investment in innovative developments and technological progress. Access to the capital market is therefore being simplified, particularly for start-ups and small and medium-sized enterprises (SMEs). In addition, companies will benefit from new tax regulations governing employee participation schemes in the competition for international skilled labour. Last Friday, the Bundestag passed the draft bill on the "Financing of Investments to Secure the Future"(so-called Financing for the Future Act [Zukunftsfinanzierungsgesetz, ZuFinG]). Alexandra Groth, Hanjo Prondzinski and Robert Fischer-Sonnberg explain the innovations and opportunities arising from the Financing for the Future Act:

Changes in stock corporation and capital markets law

The Financing for the Future Act includes a number of changes to stock corporation and capital markets law that aim to make the legal form of a stock corporation [Aktiengesellschaft, AG] more attractive for start-ups and SMEs and facilitate IPOs.

These include, in particular

  • Reintroduction of shares with multiple voting rights: Shares with multiple voting rights enable the influence of the shareholders to be permanently secured even if an investor joins the company or in case of an IPO. Equity financing can thus be decoupled from a loss of influence of the shareholders. Independently of the financing, multiple-voting shares should also be considered as an option in cases of company succession, as they enable a graduated influence between generations.
  • Simplification of capital increases: The framework conditions for raising equity are being improved by making capital increases from authorised capital more flexible by raising the thresholds for a simplified exclusion of subscription rights. Furthermore, restrictions on conditional capital inrelation to mergers and for subscription rights of employees and members of the management are being relaxed. Legal protection for certain capital measures is also being modernised.
  • Facilitation of IPOs: The lowering of the minimum market capitalisation for IPOs and the use of shell companies (SPACS) will also make it easier for young and smaller companies to go public.

Employee participation in the company's equity

Particularly in a market environment in which qualified specialists are desperately sought after, genuine employee participation schemes arean important instrument for SMEs and start-ups to attract qualified specialists to the company or to incentivise existing employees. Genuine employee participation schemes promote identification with the company and offer an incentive to actively help shape the company's success.

However, the tax conditions for genuine employee participations in Germany have so far fallen short of expectations. It is criticised that employees in Germany are subject to significantly higher tax burdens in an international comparison and that this has a negative impact on the choice of location by companies and skilled workers.

One point that repeatedly comes up in this context is the so-called dry-income problem: the taxation of the benefit from the discounted or free acquisition of the genuine employee participation without the receipt of liquidity in return.

The Future Financing Act now aims to support companies by improving employee recruitment and retention and easing the tax burden on employees.

The plan is:

  • Increase in the tax-free amount: The tax-free amount for employee participations is being increased from the current EUR 1,440.00 to EUR 2,000.00. Acquisition through deferred compensation models is to be possible.
  • Tax deferral in accordance with Section 19a of the German Income Tax Act [Einkommensteuergesetz, EStG]: The German Fund Location Act [Fondsstandortgesetz, FoStoG] introduced a tax deferral for the benefits from the discounted or free acquisition of employee participations as of 2021. These regulations are now to be extended.

    Among other things, an increase in the previous thresholds for SMEs and start-ups isplanned. In future, companies that were founded no more than twenty years ago, employ no more than 1,000 employees and have an annual turnover of less than 100 million euros or an annual balance sheet total of no more than 86 million euros will be able to benefit. Tax relief under Section 19a EStG is possible if these thresholds are not exceeded at the time of issue or in one of the six preceding calendar years. It has also been clarified that the basis for the thresholds shall solely be the company of the employer.

    The scope of application of Section 19a EStG will now also apply to shares with restricted transferability. This concerns an agreement that is widely used in practice to restrict changes in the shareholder structure.

    In addition to the issue of shares by the employer, shares issued by the shareholders of the employers’ company will also be favoured. Unlike in the drafts of the previous procedure, the group clause, according to which the issue of shares in affiliated companies will also be favoured, is no longer included in the adopted version of the law. The scope of application is therefore initially limited to shares in the employer's company.

    Under these conditions, the possibility of a tax deferral of the non-cash benefit of previously twelve years is being increased to 15 years. However, this only applies if the participation has not previously been sold or the employment relationship has not been terminated. If the employer declares that it is liable for the wage tax amounts to be withheld, taxation may even be deferred until the time of the actual sale of the participation.

    There is no provision for any preferential treatment of virtual employee participations, which can commonly be found in practice, where employees are granted an entitlement to a contractual remuneration similar to a variable bonus. On the other hand, the dry-income problem is also circumvented here: the remuneration is only taxed upon its receipt. At this point in time the employee has the necessary liquidity, which means that there is no need to defer taxation.

No improvements in the social security framework conditions

Despite the revised tax framework conditions, there are currently no plans to extend the tax deferral under Section 19a EStG to social security contributions. Accordingly, the benefits from the granting of employee participations are subject to social security contributions at the time they are exercised, which means that the dry-income problem still exists. However, social security contributions are generally only payable if the employees receiving the benefit do not in any event already exceed the relevant contribution assessment limits with their regular salary.


The Bundestag passed the law last Friday so that it can come into force in time for the end of the year with its promulgation in the Federal Law Gazette [Bundesgesetzblatt]. The changes are to come into force on 1 January 2024.

The new regulations are an important step towards strengthening start-ups and SMEs and improving Germany as a financial location as a whole. The law will also make it much easier to attract qualified employees and retain them in the company in the long term at improved framework conditions. Nevertheless, there is still a need for further action as far as the valuation of the shares issued or the consequences under social security law are concerned.

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Alexandra Groth

Alexandra Groth

PartnerAttorneySpecialized Attorney for Employment Law

Konrad-Adenauer-Ufer 23
50668 Cologne
T +49 221 2091 341
M +49 152 2417 4406



Hanjo Prondzinski

Hanjo Prondzinski

Junior PartnerAttorneyCertified Tax Adviser

Konrad-Adenauer-Ufer 23
50668 Cologne
T +49 221 2091 655
M +49 172 3291 468