Property taxes in Germany
When buying, owning, renting and disposing of real estate in Germany, foreigners pay taxes at the same rates as residents of the country.
After the conclusion of the transaction, the buyer pays a one-time tax on transfer of ownership (Grunderwerbsteuer). Depending on the federal state, the rate is 3.5–6.5% of the value of the object specified in the contract of sale. If the property is acquired by the parent, spouse or child of the owner, then he does not pay this tax.
The buyer does not pay transfer tax if he acquires shares or shares of a company that owns real estate under the Share Deal scheme.
The fees of the broker and notary involved in the purchase and sale transaction are subject to value added tax of 19% of the cost of their services.
Owners pay annual property taxes (Grundsteuer). The tax depends on the type of object, its location, the area of the land and time of construction. On average, apartment owners pay 100–300 euros per year – a relatively small amount compared with other European countries.
The owner is obliged to pay property tax by the end of the calendar year, even if he sold the object during this year. In this case, the buyer usually reimburses the seller the tax paid by him, in proportion to the time of actual ownership of the property.
When renting the property, the owners pay the income tax: individuals – income tax (Einkommensteuer), legal – corporation tax (Körperschaftssteuer). Income tax is calculated based on the income of the owner at a progressive rate from 14.77 to 47.475%, including a premium in support of solidarity (Solidaritätszuschlag).
For companies that rent real estate and do not carry out any other commercial activity, the income tax rate is fixed: 15.825%, including a premium in support of solidarity.
– What is a premium in support of solidarity?
– These are deductions for the economic rehabilitation of the lands of the former GDR. The surcharge applies to income tax, corporate tax and capital gains tax. Its size is 5.5% of the amount of the mandatory payment of the main tax.
Income tax is charged on the difference between all income received and costs incurred. The latter include purchase expenses, utility payments, management company fees, property tax, loan interest, land tax, depreciation of the building (2-3% of the building value per year).
With the help of competent tax advisors, many investors structure the “entry” of capital into German companies through founders’ loans, which helps to significantly reduce the taxable base and take profits from the dividend tax. In practice, this leads to a reduction in the tax burden on rental business income to almost zero during the first 10–15 years of investment.
Russians who rent real estate in Germany do not have to pay income tax in Russia, because the two countries have an agreement on the avoidance of double taxation.
– Is it true that in Germany the registration of real estate is not on the physical, but on a legal entity helps to optimize taxes?
– Indeed, according to Tranio statistics, buyers of income property worth more than 1 million euros annually save on average 25% of the income tax compared to how they registered the same object for an individual. Also, if a Russian tax resident registers an object and a mortgage on a legal entity, then he does not need to pay a tax on material benefits in Russia.
The seller of real estate pays capital gains tax (Kapitalertragsteuer), which is a form of income tax. For individuals, it is levied at the income tax rate (14.77 – 47.475%), for legal entities – corporate tax (15.825%). The taxable base is calculated as follows: from the proceeds from the sale of real estate are deducted the costs associated with its acquisition, and depreciation.
Individuals do not pay capital gains tax if more than 10 years have passed between buying and selling real estate, or if the object has been used exclusively for personal residence for at least three years before the sale.