Investment in German Real Estate – Tax Opportunities
By Ingo Prang, KPP Steuerberatungsgesellschaft mbH
The real estate market in Germany still offers opportunities compared to other European member states. Hence, investment into the German market can be quite beneficial.
However, to achieve a full return on investment, the tax treatment of German real estate needs to be considered. The most two important questions from a tax point of view are:
- Who should the acquirer be?
- Will the investment be a long-term or a short-term one?
In principle, with each direct or indirect transaction of German real estate, German real estate transfer tax (RETT) will be triggered. Depending on the location of the real estate in Germany, RETT rates range between 3.5% - 6.5%. RETT arises irrespective of whether the real estate itself is sold or a company which owns the real estate is transferred (share deal). Hence, in case the real estate needs to be moved within a group, return on investment may be reduced by unnecessary German RETT. By choosing the optimal position of the real estate from the beginning, this can be avoided. It is even more important when considering that RETT exemption rules apply only to a limited range of scenarios.
The decision where to place the real estate determines the effcient yearly taxation as well as the effect of a potential exit taxation of the German real estate. With a good and forward planning, for example, the yearly taxation can be reduced by half (e.g. 15.825% instead of approx. 30%) or the exit taxation can be entirely avoided. Another benefit may be reducing the administration cost in Ger- many when choosing a carefully planned structure.
The information given above shows that before investing in German real estate, the structure should be considered carefully in the context of RETT and potential exit taxation. Furthermore, crossborder scenarios might even provide an opportunity to save taxes.
Ingo PrangKPP Steuerberatungsgesellschaft mbH, Kleve, Germany
T: +49 2821 72 04 0
Ingo Prang is a German certified tax advisor and Partner of KPP. In addition, he lectures on comparative business taxation at the Rhine-Waal University of Applied Sciences.
During the past 20 years, KPP has become one of the leading tax consultancy offices in Lower Rhine region of Germany. The company offers taxation, legal and consulting services. As KPP is close to the Netherlands, the company has acquired considerable expertise in advising on cross-border matters, especially for foreign companies investing in Germany.
Published: Winter 2017 l Photo: ah_fotobox - Fotolia.com