Fund Taxation Alert 2026-02

Germany will introduce MiKaDiv (Mitteilungsverfahren Kapitalertragsteuer auf Dividenden aus Aktien und Hinterlegungsscheinen), the notification procedure for withholding tax on dividends from shares and depositary receipts, effective 1 January 2027, covering dividend income received after 31 December 2026.

The procedure, established under the Abzugsteuerentlastungsmodernisierungsgesetz (AbzStEntModG, Withholding Tax Relief Modernisation Act), aims to enhance transparency, standardise reporting, and prevent abusive dividend tax practices such as cum-ex and cum-cum. Implementation was initially postponed to allow industry readiness and alignment with upcoming EU-wide initiatives such as the FASTER Directive.

The final MiKaDiv Communication Handbook, published by the Bundeszentralamt für Steuern (BZSt) in December 2025, sets binding standards for technical formats, data content, validation rules, and correction mechanisms. While primarily targeted at German paying agents and custodians, it also affects institutions providing shareholder, position, and transaction data – including non-German banks and global custodians managing or distributing German equity holdings.

The level of detail required under MiKaDiv has direct implications for custody account structures:

• Omnibus accounts at German custodians do not provide sufficient transparency for accurate planning, reconciliation, and reporting, especially where multiple funds or beneficial owners are pooled.
• Segregated accounts will be necessary to:
  • Clearly attribute dividend entitlements to individual Investment Funds or beneficial owners
  • Maintain reliable and auditable transaction and position histories
  • Reduce reconciliation complexity and reporting risk
  • Safeguard eligibility for withholding tax relief and refund claims

Early structural decisions are critical, as changes closer to the 2027 go-live may be operationally complex and disruptive, potentially affecting clients’ ability to obtain timely tax relief.

• Delays or rejection of relief at source
• Incomplete or blocked issuance of electronic Steuerbescheinigungen (tax certificates)
• Increased queries and audits from the BZSt
• Potential delays or denials of refunds due to insufficient reporting

Accurate, complete, and timely reporting is therefore critical for operational efficiency and regulatory compliance.

• MiKaDiv has material consequences for investment funds, particularly regarding withholding tax relief at source and refund claims:
• Relief at source may be delayed or denied if MiKaDiv reporting is incomplete or inconsistent, because eligibility cannot be verified without validated reporting
• Electronic tax vouchers (Steuerbescheinigungen) are only generated once reporting is complete, and are required to support refund claims
• Funds face increased financial and operational risk if MiKaDiv requirements are not met across the custody chain

 Segregated custody accounts may be particularly important for funds to ensure that dividends are correctly attributed and WHT relief or refund eligibility is safeguarded.

MiKaDiv should not be viewed as a standalone German compliance exercise. It represents a fundamental shift towards enhanced transparency of beneficial ownership for dividend taxation purposes, with direct implications for custody models, WHT relief processes/WHT reclaim processes, and cross-border operations.

Early preparation allows institutions to:

KPMG support covers end-to-end project management, including an impact assessment and full implementation support, as well as reporting services provided under a Business Process Outsourcing (BPO) model. This includes KPMG support for non-German banks in meeting their reporting obligations to upstream custodian(s), enabling ongoing compliance without the need to install dedicated reporting software. In addition, the offering includes automatic filing via a submission application that incorporates the German STTI (Steuerliche Transparenz- und Informationsübermittlung) interface for electronic tax reporting to the German tax authorities (GTA).

We will continue to monitor regulatory developments and provide updates as further guidance becomes available. For more information, please contact us.