The taxation of carried interest in the context of investments fund structures

The taxation of carried interest in Germany generally aligns with other leading fund jurisdictions, with an effective tax rate of around 28.5 percent following a 2004 legislative compromise (§ 18 para 1 No. 4 German Income Tax Act) that treats 60 percent as taxable income from self-employment and 40 percent as tax exempt. Recent Federal Fiscal Court decisions in 2018 and 2024 have provided important clarification by confirming that carried interest constitutes a capital-disproportionate profit allocation rather than a hidden service fee. International carry structures can raise complex issues for both German funds with foreign carry holders and foreign funds with German-resident carry recipients, often stemming from differences in income qualification and partnership taxation.