Property tax in Germany
Purchase
Upon closing a transaction, the buyer pays a non-recurring real estate purchase tax (Grunderwerbsteuer). Its rate ranges from 3.5% to 6.5% of the property value under the sales agreement, depending on the region.
of the property purchase price
per annum for a small apartment
of the sales capital gain
Property is tax-exempt when:
- it does not exceed €2,500 in value, in a manner that a property whose value is lower than €2,500 is tax-exempt, but a property of €2,501 in value is taxed fully;
- it is bought by direct ascendants or descendants, the seller's spouse or former spouse if the property is acquired during property disputes after a divorce.
Tax rate by region, %:
Brandenburg, Saarland | 6.5 |
Berlin, Hesse, Mecklenburg-Western Pomerania | 6 |
Baden-Württemberg, Bremen, | 5 |
Hamburg | 4.5 |
Bavaria, Saxony | 3.5 |
The buyer does not pay the real estate purchase tax when buying shares or stocks of a company that owns property under the Share Deal scheme or if the transaction takes place between close relatives and the property is bought by the property owner's parent, child or spouse.
The Share Deal scheme is more suitable for several co-investors when alienating property from a single individual (or individuals interrelated economically or by blood relationship) results in owning no more than 95% of the entity's shares.
Such a purchase is currently exempt from the real estate purchase taxation.
Lease
Individuals pay the personal income tax (Einkommensteuer), legal entities pay the corporate tax (Körperschaftssteuer) when leasing their property. Income tax is calculated depending on the owner’s income value at a progressive rate from 14.77% to 47.475%, including the solidarity surcharge (Solidaritätszuschlag): a tax advisor can determine the exact rate.
For the companies not engaged in any other commercial activity than property lease the income tax rate is fixed at 15.825%, including the solidarity surcharge.
What is the solidarity surcharge?
These are contributions to the economic recovery of the former German Democratic Republic. The surcharge applies to the income, corporate and capital gains taxes. It usually amounts to 5.5% of the mandatory underlying tax payment.
The income tax is levied on the margin between all the profits generated and all the expenses incurred. The latter include building amortisation, loan interest, property management costs, broker's expenses on the new leasing agreement or advertising costs, property insurance, renovation, property tax, homeowners’ association and legal fees, litigation costs and business travel expenditures.
Many investors structure capital "entry" into German companies through founder loans with the assistance of qualified tax advisors, which helps to decrease the tax base significantly.
In practice, this reduces the tax burden on rental income almost to zero in the first 10–15 years of investment.
Depending on their country of residence, individuals who lease property in Germany do not need to pay taxes on rental income in their home country, if it has a double taxation agreement with Germany and the tax amount paid there exceed that paid in their home country.
Is it true that registering property to a legal entity instead of an individual helps to optimise taxation?
Indeed, according to Tranio statistics, the buyers of commercial property over €1M in value annually save 25% of income taxes on average as against registering the same property to an individual.
Sale
Property sellers pay the capital gains tax (Kapitalertragsteuer), which is a type of income tax. It is levied at the personal income tax rate (14.77 – 47.475%) on individuals and the corporate tax rate (15,825) combined with the trade tax rate, which depends on the company registration region, on legal entities.
The tax base is calculated by reducing the profits from the property sale by purchase and depreciation expenses. Individuals do not pay the capital gains tax given: that over ten years have passed since the initial purchase of the property; or in cases where it has been used for personal residence only for at least three years before the sale.
Donation and inheritance
The inheritance and gift tax (Erbschaftsteuer und Schenkungsteuer) is payable by the property recipient. The tax base usually equals the property's market value. The tax rate ranges from 7% to 50% depending on the degree of kinship and the property's value. Taxpayers fall into three classes with tax allowances reducing the tax base provided for each of them.
Tax class | Recipients | Tax allowance, € |
|---|---|---|
1 | Spouses and common-law partners | 500,000 200,000 |
2 | Brothers and sisters | 20,000 |
3 | Other, including legal entities | 20,000 |
Facts about property taxes in Germany
When the procedure of closing the transaction is complete, the buyer must pay a non-recurring real estate purchase tax (Grunderwerbsteuer). Its rate ranges between 3.5% and 6.5% of the property price indicated in the sale agreement and depends on the property's exact location.
The property tax (Grundsteuer) is to be paid annually by the owner. For the purposes of tax calculation, the standard tax index of 0.35% is used. Many factors, such as the property type, location, size of the land plot and the time of the property construction are considered when determining tax amount.
Rental property owners pay the income tax: individuals pay the personal income tax (Einkommensteuer), legal entities pay the corporate tax (Körperschaftssteuer). The tax is calculated depending on the owner's income value at a progressive rate from 14.77% to 47.475%, including the solidarity surcharge (Solidaritätszuschlag).
Property sellers pay the capital gains tax (Kapitalertragsteuer), which is a type of income tax. It is levied at the personal income tax rate (14.77 – 47.475%) on individuals and the corporate tax rate (15.825%) combined with the trade tax rate, which depends on the company registration region, on legal entities.
The inheritance and gift tax (Erbschaftsteuer und Schenkungsteuer) is payable by the heir or the donee. The tax base usually equals the property's market value. The tax rate ranges from 7% to 50%, depending on the degree of relation to the estate-leaver or donor and the property's value.
Taxes in other countries:
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