Owners of rental property in Germany, who are non-resident there, are liable to pay taxes in Germany. An Individual is considered non-resident in Germany if s/he does not spend 183 days or more in any tax year (calendar year) in Germany or does not have their primary residence there.
The following German taxes are payable when purchasing a property:
German Transfer Fees. The transfer of German real estate is subject to a real estate transfer tax (RETT) of 3.5 % on the purchase price of the property.
The German VAT standard rate is currently 19% (as from 2007), the reduced rate of VAT stands at 7%. The transfer of real estate is not subject to German VAT, however, the purchaser's VAT status could lead to an ‘opt to tax’ option allowing for VAT to be charged if conditions were suitable.
The following ongoing property taxes are payable in Germany:
German Income Tax rates vary from 14% - 42%, however, if you are non-resident in Germany you are subject to a minimum rate of 15% (for citizens of EU) and 25% for (for non EU citizens). A persons tax liability for the current year is based on the previous years tax liability. Each liability is estimated by the Tax Office (Finanzamt.) Quarterly tax payments are required in March, June, September and December.
The annual German income tax return which determines the following years liability must be filed by the 31st of May.
Non residents are liable to German withholding tax from rents received from certain leased or rented property.
If 2 or more non-married persons own a German property a Partnership must be established.
German Corporate Income Tax is calculated at 25% on the company profits after costs and is payable if property is acquired through a company. A non-resident company holding a German property as an asset is not obliged to a withholding tax deduction from rents received. A 1.25% solidarity tax is also charged.
Local German Property tax is a communal tax imposed by the local authority. Each location will apply their own rates. 2 types of local tax apply: 1) applicable on agricultural property and 2) applicable on commercial land & buildings. The Finance Authority calculate the tax using the unit value (einheitswert) which they calculate based on the assessed value of the property which is generally lower than the purchase price. Rate will depend on the location of the property.
Rates range from 2.6% - 6% with the average for residential property standing at 3.5%. A multiplier is then applied to the % calculation.
Other applicable taxes are as follows:
German Capital Gains Tax (CGT) rate is the same as the personal income tax rate. The profits from the sale of private real estate that has been held for more than 10 years is exempt from capital gains tax. Capital gains from the sale of real estate that is re-invested in the purchase of alternative real estate is exempt from tax, subject to certain conditions.
German Inheritance Tax (IHT) and gift tax are assessed on the basis of the taxable property with rates varying between 7% -50%. This is the amount by which the beneficiary is enriched and which is not subject to tax exemption. The value of each asset is determined in accordance with the Valuation Law. The rates of German IHT or gift tax vary and depend on the relationship between the donor and beneficiary and the value of the inheritance/gift.
If resident in the UK or Ireland you will have to declare any income received in Germany in your annual resident tax return. There is a double taxation agreement between Germany, Ireland and the UK so double taxation relief applies in some cases. Please contact us for further details regarding double taxation relief and/or filing your Resident Tax Return.
Property Tax International can organise the completion and filing of all necessary German tax returns in addition to advising on your tax obligations in your home country.
The information provided here is intended as a guide only. While Property Tax International Limited makes every effort to ensure that the information contained herein is accurate, we take no responsibility or liability for any inaccurate, delayed or incomplete information, nor for any actions taken in reliance thereon.
Property Tax International is a trading name of Taxback Returns which is part of the Taxback Group incorporating taxback.com providing financial services since 1996