Real Estate Transfer Tax rules tightened
Major changes to Germany’s Real Estate Transfer Tax (RETT) Act that apply as from 1 July 2021 are intended to make it more difficult for taxpayers to avoid paying RETT on real estate transfers involving shares in German real estate-owning companies and partnerships.
Previously, RETT was triggered on the direct acquisition of German real estate and on share deals involving German property
- Where 95% or more of interests in a German real estate-owning partnership were transferred directly or indirectly to new partners within a period of five years;
- Where there was a direct or an indirect transfer of at least 95% of the shares in a real estate holding corporation to one shareholder or a group of related shareholders; or
- Where shares in a real estate holding corporation were directly or indirectly combined for the first time in the hands of a shareholder.
Before the changes to the RETT Act, taxpayers were able to avoid RETT by setting up a structure where a purchaser acquired less than 95% of the shares (e.g., 94.9%) of the real estate-owning corporation, with the remaining shares purchased by an independent third party. This is no longer possible under the revised rules.
The new rules, which affect both partnerships and corporations, reduce the relevant participation threshold from 95% to 90% and extend the holding period during which a transfer of shares/interests in a German real estate-owning company/partnership will fall within the scope of the RETT from five years to 10 years (a 15-year holding period applies before all interests in a real estate-owning partnership can be consolidated in the hands of an existing partner with a lower RETT burden). As a result, RETT applies if at least 90% of the shares in a real estate-owning corporation directly or indirectly change hands within a 10-year period (with exceptions for listed companies).
Overall, the new rules constitute a considerable restriction on options to carry out tax-privileged acquisitions of shares or partnership interests in German real estate-owning entities.