Property tax in Germany – Everything you need to know

Last Updated on October 4, 2024 by Kristina Valcheva

Property tax in Germany and rental income tax 

We’ve answered your questions!

Property tax rates and rental income tax in Germany are generally the same for residents and non-residents.

However, German property tax can be tricky – especially if you are not a resident of Germany or you don’t speak the language.

For global real estate investors, the thrill of the chase includes outmaneuvering international property tax pitfalls to secure high-value deals.

But don’t worry, Property Tax International‘s tax advisors (PTI Returns) are here to help!

Every day our team encounters countless questions regarding real estate tax in Germany.

We have used some of those questions to create this handy guide on everything you need to know about German property tax and German rental income tax.

• In this article:
   
  • What are the taxes and fees associated with buying property in Germany?
  • Notary and Land registration fees
  • Real estate agent fees in Germany
  • Property transfer tax, also known as Grunderwerbsteuer
  • Real property tax (Grundsteuer), also known as Land tax
  • Financing property fees
  • Property assessment
  • What are the additional costs for property investors in Germany?
  • What do I need to know about Capital gains tax when selling a property in Germany?
  • What is rental property income tax in Germany?
  • How is rental income taxed in Germany?
  • What are the rental income tax rates in Germany (for residents and non-residents)?
  • What expenses can be deducted from income tax in Germany?
  • I have rental earnings from my German property, what are my tax obligations?
  • What do I need to file a German income tax return?
  • When is the deadline for filing a return?
  • Can foreign property owners in Germany claim any tax allowances?
  • What happens if I don’t file my rental income tax return?
  • Have you received a letter from the German Tax Office – GTO? Contact us to help you with the submission of your tax returns!
  • Who can help me with my German rental income tax return online?

Property tax in Germany

What are the taxes and fees associated with buying property in Germany?

Below is a quick overview of the taxes, costs, and fees incurred when you buy a property in Germany (often referred to as “closing fees” or “purchase fees”). Altogether, they amount to around 8% to 15% of the purchase price.

Notary and land registration fees

When buying a property in Germany, it is necessary to sign the purchase contracts in front of a notary. The notary also records the sale in the land registry (known as Grundbuch). Typically, the cost for these services is from around 1,5% to 2% of the property’s sale price. 

The cost of the land register fee depends on how much you paid for the property, and it differs from one state to another.

Real estate agent fees in Germany

If you enlisted the assistance of a real estate agent to help you find a house in Germany, you may incur charges typically ranging from 3.5% to 7% of the sale price.

It is worth noting that as of December 2020, it is a legal requirement for the seller and the buyer to divide the estate agent’s fee equally between them.

Property transfer tax in Germany (also known as Grunderwerbsteuer)

Once the purchase process is completed, you will receive an invoice from the specific federal state (Bundesland) where the property is situated, asking for payment of a property transfer tax.

The tax amount will differ based on the German region where the property is bought, ranging from 3.5% to 6.5% of the purchase price.

Here are the property transfer tax rates for different federal states in Germany:

• Bavaria: 3.5%
• Baden-Württemberg, Bremen, Lower Saxony, Rhineland-Palatinate, and Saxony-Anhalt: 5%
• Hamburg and Saxony: 5.5%
• Berlin, Hesse, and Mecklenburg-Vorpommern: 6%
• Brandenburg, North Rhine-Westphalia, Saarland, Schleswig-Holstein, and Thuringia: 6.5%

Real property tax in Germany (Grundsteuer or Land tax)

Real property tax in Germany (also called Grundsteuer, land tax or local property tax) is applied to real estate. It is a communal tax levied by the local authority in each region. Rates vary from location to location and are also based on the type of property.

Property taxes in Germany are determined by the assessed value of the property, which takes into account factors like location and size. All types of real estate, including undeveloped land, are subject to these taxes. The good news is that property tax rates in Germany are generally low, typically ranging from 0.26% to 1%.

However, the specific rate for a particular property will vary depending on the location, the type of property, and the value of the property.

The assessed value, also known as the “Einheitswert” in German, is usually lower than the market value of the property. To calculate the tax amount, the assessed value is multiplied by a location coefficient.

In former West Germany, this coefficient ranges from 2.6% to 6%, while former GDR regions have a coefficient of 5% to 10%. Finally, the resulting number is adjusted based on another coefficient specific to each state.

Fortunately, all the complex calculations lead to a favorable outcome – relatively low property tax amounts. For instance, if you own a typical apartment in Berlin, you can anticipate an annual tax payment ranging from 80 to 150 euros (approximately).

It’s important to note that this tax is calculated on an annual basis but is typically paid every three months to the local tax office, known as the Finanzamt. Keep in mind that property owners in Germany are required by law to fulfill their property tax obligations.

As of 2023, Germany is undergoing a transformation in its approach to determining local property tax rates, and these revised rates will be effective starting in 2025.

Financing property fees 

If you’re planning to take out a mortgage in Germany, it’s important to be aware that the closing costs associated with the property purchase are typically not financed by banks. Instead, you’ll need to cover these costs using your funds.

For example, let’s say you’re buying a property valued at 400,000 euros. On top of the purchase price, you can expect additional fees of around 60,000 euros. It’s important to note that these fees cannot be included in your mortgage amount.

Therefore, you’ll need to have at least 60,000 euros of your capital to cover these expenses. This doesn’t take into account the equity required as a down payment by your mortgage lender, which can range from 20% to 40% of the property’s value.

However, there is an option to apply for a KfW homeownership loan of up to 50,000 euros. This loan specifically helps cover closing costs like notary fees and property transfer tax.

KfW is the development bank of Germany – Kreditanstalt für Wiederaufbau.

Property assessment

For properties valued at over 500,000 euros, there might be an additional expense involved in the form of a property assessment.

The cost of such assessments can vary significantly, ranging from as low as 100 euros to several thousand euros, depending on the chosen method of assessment.

What are the additional costs for property investors in Germany?

In addition to the previously mentioned taxes and legal fees, there are additional expenses that homebuyers need to take into account. These costs include:

1. Removal costs, especially if you decide to hire a moving company.
2. Home repairs or renovations may be necessary after purchasing the property.
3. Purchasing furniture and other household items to furnish your new home.

What do I need to know about capital gains tax when selling a property in Germany?

If you sell a property in Germany that you’ve owned for less than 10 years, any profit you make will be subject to a 25% capital gains tax in Germany (known as Abgeltungssteuer).Additional charges may be added such as solidarity surcharge and, if relevant, church tax.

However, there is an exception if the property has been your main residence for at least two complete years. If you’re single, it could be up to €250,000, and if you’re married or in a civil partnership, it could be up to €500,000. But remember, you can only get this exemption if you haven’t sold another property in the past few years.

It’s important to note that buying property in Germany is often seen as a long-term commitment rather than a short-term investment in the housing market. This is particularly relevant if you plan to stay in Germany for a limited period.

The German capital gains tax rate is the same as the German personal income rate. Profits from the sale of private real estate that has been held for more than 10 years are exempt from German capital gains tax (CGT).

What is rental property income tax in Germany?

This is a levy you must pay on any revenue that you earn from rent (for example from renting a house, or an apartment, leasing immovable property, subletting a room in your apartment, etc.)

Residents are usually subject to taxation on their worldwide income, including rental income earned both in Germany and abroad.

Non-residents, on the other hand, are typically taxed on their income derived from German sources, including rental income from properties located in Germany.

How is rental income taxed in Germany?

If you rent an apartment or a house, you will have to pay in Germany tax on rental income.

Rental income in Germany is taxed by using a progressive scale method (from 14% to 45%) depending on the taxable base. The base is determined as the rental earnings are reduced by deducting allowable expenses and depreciation (such as building, fittings, and furniture).

However, keep in mind that non-residents are taxed differently than German residents. 

In 2024, residents can earn up to €11,604 without paying taxes, which is a significant increase from the 2023 limit of €10,908.

*Note: Non-residents are always paying Income tax even if their income is below €11,604. This threshold is added to their profit.

A solidarity surcharge at a rate of 5.5% of income tax has to be paid on top of this. It is advised that non-resident married couples file their returns separately.

If you are a foreigner who owns property in Germany, our tax advisors can handle the tax filing process. If you have questions, you can request a no-obligation consultation with a tax expert.

What are the income tax rates in Germany for foreigners in 2024?

Income tax in Germany is figured out from what you earn, whether you work for someone else or are self-employed.

The income tax rates for non-residents in Germany are the same as the income tax rates for residents, and change based on how much you make.

Income Tax Rates in Germany (as of 2024):

• Less than €11,604: 0%
• €11,604 – €66,760: 14% to 42%
• €66,760 – €277,825: 42%
• More than €277,826+: 45%

*Note: Non-residents are always paying Income tax even if their income is below €11,604. This threshold is added to their profit.

What expenses can be deducted from income tax in Germany?

Tax deductions in Germany can be advantageous when renting out your property. The German tax system permits landlords to subtract expenses related to rental income, such as mortgage interest, repairs, and maintenance, and others from the revenue earned through renting the property.

I have rental earnings from my German property, what are my tax obligations?

If you are a non-resident German property owner, you are obliged to file an income tax return both in your home country (where you are a resident) and in Germany. 

Non-residents are subject to a personal levy on income derived from their German property. Due to double taxation agreements, you can avoid being taxed twice. PTI Returns can help you with this and with the rest of the paperwork.

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What do I need to file a German income tax return?

 

When is the deadline for filing a German property tax return?

The German tax year runs from January to December.

The German tax deadline for 2023, is 2 September 2024 (without a tax advisor) and 31 May 2025 (with a tax advisor).

Read Also: 
Complete guide to buying property in Germany as a non-resident
2024 Guide to Rental income tax in Germany
Foreign rental income tax – A guide for American investors with overseas property

Can property owners in Germany claim any tax allowances?

In Germany, everyone’s earnings are subject to a basic tax allowance. Up to this amount, your income is not subject to taxation.

The basic tax allowance in 2024 is €11,604 (€10,908 in 2023) if you are not married or in a civil partnership.

For couples who are married or in a civil partnership it is €23,208 in 2024. If your taxable income is higher than these amounts, you will pay income tax on it. Taxation rates vary from 14% to 45% as mentioned above.

In short, the higher your taxable income, the higher the rate of taxation will be.

The top rate of tax is 45%. This is only payable on earnings of more than €277,826 a year if you are unmarried. 

 

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5 reasons why our clients prefer PTI Returns instead of local accountants:

• Better value – we offer a more affordable service than your local accountant
  
  
• Peace of mind – PTI Returns is part of Clunetech. We have more than 25 years of experience in international tax, and we will keep you compliant with the German tax authorities. Our tax specialists will properly determine your residency status and apply every tax relief you’re entitled to
  
  
• One-stop shop – need to file tax documents in more than one jurisdiction? You can do it all online with PTI Returns! This is one of the most unique things that sets us apart from most accounting services
  
  
• No language barrier – we speak our client’s language and communicate with the local tax authorities on their behalf, ensuring their forms are filed correctly
  
  
• Local knowledge – we have offices all over the world. This enables us to have substantial local knowledge in every country and help you to maximize your investment profit potential