German Real Estate Transfer Tax Reform
By Bernhard Schwechel, FACT GmbH Wirtschaftsprüfungsgesellschaft
The Federal Ministry of Finance has released its draft tax bill on the contemplated real estate transfer tax (RETT) reform. The new rules will only apply to transactions as of 1 January 2020.
1. Reducing the ownership interest threshold from 95% to 90%
For all corporate supplementary provisions, the respective ownership interest will be reduced from at least 95% to at least 90% of the shares.
2. Increasing RETT time limits from five to ten years (or even 15 years)
All RETT time limits will be collectively increased from five years to ten years. Moreover, the required prior holding period of a RETT exemption for existing partners – in case of direct and indirect unification of all interests in a real estate holding partnership in the hands of one partner – will increase to 15 years. This increase is aimed at further impeding transactions in which an investor is set to acquire shares in a real estate holding partnership in a staggered approach. Overall, a substantially longer participation of a seller is required to allow for RETT neutral share transactions.
3. Extending the supplementary provisions regarding partnerships to corporations
The supplementary provisions for changes to the shareholding that are currently only applicable to partnerships will be extended to corporations.
As a result, changes in shareholders of property-owning corporations in a minimum amount of 90% of the company’s capital within a period of ten years will trigger RETT, irrespective of whether a shareholder directly or indirectly acquires 90% of the shares. Accordingly, and as expected, in the future, a full divesture of a property-owning corporation to an investor and a co-investor (e.g., an asset manager) would no longer be possible without triggering RETT. The seller would have to remain in the company as a shareholder with more than 10% of the shares, provided that the seller qualifies as a so-called “old” shareholder in the first place. The corporation itself – just like the partnership under current law – will be the debtor of the RETT under such new rules.
Notably, however, the new provision will not be supplemented by the current exemptions applicable to partnerships and their partners, which would lead to substantial imbalances and systematic incoherence. In addition, the new rules will affect all companies holding real estate, not just the real estate industry, and will trigger substantial concerns regarding a law enforcement deficit in the case of listed companies.
Bernhard SchwechelGGI member firm
FACT GmbH Wirtschaftsprüfungsgesellschaft
Tax, Auditing & Accounting, Advisory, Corporate Finance, Fiduciary & Estate Planning
T: +49 561 316 6860
FACT GmbH Wirtschaftsprüfungsgesellschaft is a tax consultancy, public auditing company, and law firm located in Kassel, known as the heart of Germany. FACT provides German and international accountancy and tax services to companies and individuals. The expe rienced team works on cross-border issues for German clients as well as for foreign clients. FACT works closely with its clients and responds rapidly to their needs.
Bernhard Schwechel is a Managing Partner of FACT GmbH and is experienced in the field of international taxation. His areas of expertise include tax and business advice for large multinational corporations and mid-size companies, as well as for internationally oriented individual clients. He supports his clients in inbound and outbound M&A projects.
Publshed: International Taxation Newsletter, No. 11, Autumn 2019 l Photo: Benjamin ['O°] Zweig - stock.adobe.com