In general, there are no limits on the acquisition of property by foreign investors over and above those imposed on resident German investors. Where investors are from countries outside the European Union, the German government would be entitled to promote statutory law requiring foreign corporate investors to obtain a public permit to acquire real estate in cases where German companies are subject to similar restrictions in the investor’s country of origin. Currently, however, such law does not exist and we are not aware of any intent to enact it. However, if a legal entity with its statutory seat outside of Germany intends to acquire real estate in Germany, such legal entity needs to register in the German transparency register (Transparenzregister), disclosing its ultimate beneficial owner (UBO) within the meaning of German law. No German real estate transaction can even be signed prior to such registration. The UBO-requirements are very detailed and subject to individual review. Generally, a natural person holding more than 25% of the shares or voting rights or exercising control in a comparable manner in a legal entity or, if another legal entity holds more than 25% of the capital or voting rights of a legal entity (or exercises control in a comparable manner), the natural person who can exercise decisive influence on the ‘parent entity’ is considered a UBO. In case there is no UBO within the meaning of German law, management of the legal entity is considered as fictitious UBO and needs to be registered in the transparency register.
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In Germany, real estate assets can be held in two ways: either with or without a permanent establishment (Betriebsstätte). In the first case the investor either sets up a registered permanent establishment in Germany (ie a branch office) or acts through a non-registered permanent establishment.
A permanent establishment is a fixed place of business (eg an office) in which the investor's trade or business is carried on. Investors can therefore only directly invest through a permanent establishment if they operate a trade or business. This is deemed to be the case in any of the following scenarios:
The cost of setting up a registered permanent establishment starts at EUR3,000, including fees for registration in the commercial register and notary’s fees.
At best, setting up a permanent establishment is likely to take four weeks (including preparatory work, obtaining the necessary documents and filing for registration). However, since registering a permanent establishment requires certain documents from the investors’ home country (such as certified official register excerpts, a certificate from the secretary and experts’ opinions) the process more usually takes about six weeks. Registration itself may take additional time after the application for registration has been filed, depending on the workload at the local court in charge of the commercial register.
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There are various investment vehicles that can be used for real estate investments in Germany. The two main corporate vehicles are:
Additionally, there are collective investment vehicles permitting a number of investors to invest indirectly in real estate:
The only partnership under German law that offers partners limited liability is the Kommanditgesellschaft (KG), a limited partnership with at least one general partner who has unlimited liability.
German corporate vehicles need to be registered in the German transparency register (Transparenzregister), disclosing its ultimate beneficial owner (UBO) within the meaning of German law. The UBO-requirements are very detailed and subject to individual review. Generally, a natural person holding more than 25% of the shares or voting rights in a legal entity or exercising control in a comparable manner or, if another legal entity holds more than 25% of the capital or voting rights of a legal entity (or exercises control in a comparable manner), the natural person who can exercise decisive influence on the ‘parent entity’ is considered a UBO. In case there is no UBO within the meaning of German law, management of the legal entity is considered as fictitious UBO and needs to be registered in the transparency register.
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In a Gesellschaft mit beschränkter Haftung (GmbH) each shareholders’ liability vis-à-vis the GmbH is principally limited to his/her full capital contribution to the GmbH. The shareholders are not liable vis-à-vis third parties for the obligations of the GmbH. A GmbH is characterized by a one-tier corporate governance system and, therefore, compared to a stock corporation (Aktiengesellschaft) less complex in its day-to-day management.
In an Aktiengesellschaft (AG), a German stock corporation, the shareholders are liable vis-à-vis the company only for the capital contribution to be made. The shareholders are not liable vis-à-vis third parties for the obligations of the AG. An AG is characterized by a two-tier corporate governance system (a board of directors and a supervisory board) whereby the members of the board of directors are appointed by the supervisory board members independently, ie not bound by the instructions of the shareholder(s).
A REIT is a special type of German‑listed stock corporation. The objectives of the corporation are limited to the acquisition, administration and sale of real estate. The German Act on REITs is fairly new to Germany (having been introduced on 1 January 2007).
A real estate fund can be established in various legal forms (contractual form or as legal entity). It is regulated under the German Capital Investment Code (Kapitalanlagegesetzbuch) and, therefore, subject to specific regulatory and statutory corporate governance requirement. Furthermore, it can only be set up and managed by an alternative investment fund manager (AIFM, AIF-Verwaltungsgesellschaft).
A Kommanditgesellschaft (KG), is a limited partnership with at least one general partner who has unlimited liability. It is the only partnership under German law which offers partners limited liability vis-à-vis third parties.
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Note that any of the relevant entities could qualify as an alternative investment fund (AIF), in which case special regulatory and tax rules might apply.
In general EUR25,000.
However, German legislation offers an alternative entity (an Unternehmergesellschaft) with a registered share capital as low as €1. This specific corporate form is not very suitable for real estate investments since third parties may be reluctant to do business with an entity with such a limited registered share capital. In addition, profits may not be distributed in full but must instead be partially retained. Therefore, potential investors are advised to use a GmbH with a registered share capital of at least EUR25,000.
Experience so far has shown, however, that the Unternehmergesellschaft has gained popularity as the form of entity for a general partner within a limited partnership.
EUR50,000.
EUR15,000,000.
N/A – the Net Asset Value (NAV) depend on the investment purpose and strategy of the relevant fund.
Can be as low as EUR1. However, if a limited liability company (GmbH) is chosen as general partner, the requirement applicable to that entity applies.
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EUR2,500. The costs include notary’s fees which are calculated on the basis of the transaction value which, when setting up a GmbH, are determined by the registered share capital. The figure quoted relates to the minimum required share capital of EUR25,000. Hence, the set-up costs are higher if the registered share capital is greater. Additional costs of about EUR5,000 may be payable where the company is established by the acquisition of an off-the-shelf company. These amounts comprise notary's fees (the incorporation as well as the acquisition of an off-the-shelf company requires a notarial deed) and court fees. Where the incorporation is led by professional advisors, the additional professional fees are likely to amount to approx. EUR7,000, depending on the scope of the advice. Professional fees for the incorporation of an Unternehmergesellschaft range from about two thirds of the above quoted amounts. In each case and provided the relevant entity is set up by means of cash contribution, the payment of the relevant registered share capital is required additionally.
EUR6,500 if the incorporation is carried out through the acquisition of an off-the-shelf company. The costs include notary’s fees which are calculated on the basis of the transaction value which, in when setting up an AG are determined by the registered share capital. The figure quoted relates to the minimum required share capital of EUR50,000. Hence, the set-up costs are higher if the registered share capital is greater. These amounts comprise notary's fees (the incorporation as well as the acquisition of an off-the-shelf company require a notarial deed) and court fees. Where the incorporation is led by professional advisors the additional professional fees are likely to range between EUR7,500 and EUR10,500, depending on the scope of the advice.
In each case and provided the relevant entity is set up by means of cash contribution, the payment of the relevant registered share capital is required in addition.
EUR5,000 plus the (generally extensive) cost of listing and the required minimum capital
The costs for setting up a real estate fund depend on the individual structure of the fund (ie open-ended/closed ended; public/special fund) plus costs for appointment/establishment of the AIFM and ongoing costs for required service providers (depositary bank).
EUR2,000. However, if a limited liability company (GmbH) is chosen as general partner, additional costs for the establishment of the GmbH arise.
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Establishing a GmbH involves inter alia signing the incorporation deed, contributing share capital, followed by registration with the relevant commercial register. For liability reasons, trading should not commence until registration is complete, since if a GmbH enters into contracts prior to registration this gives rise to personal liability on the part of the shareholder(s) and the person(s) acting. Registration can take up to two weeks from the signing of the incorporation deed and the submission of the application. The overall timeline for the incorporation of a fresh GmbH can be estimated from 3 to 5 weeks.
If time is of the essence, investors may use an off-the-shelf company that is already registered, and which may therefore be used in dealings as soon as its shares have been acquired. This can often be achieved within a couple of days.
In the past, substantial delays in the process of opening bank accounts were witnessed due to KYC checks by banks. It is, therefore, strongly recommended to liaise with the bank well in advance to prepare the process of incorporation.
Establishing an AG involves signing the incorporation deed, auditing the incorporation deed, contributing at least one quarter of the capital contribution (contributions in kind must be contributed in full) and finally registering with the competent commercial register.
For liability reasons, trading should not commence until registration is complete, since individuals acting on behalf of the AG will be personally liable between the signing of the incorporation deed and the registration of the AG. Generally, the incorporation process takes from three weeks to two months. However, as there are circumstances outside the control of the shareholders, particularly registration, the quoted time frames are only an indication. Registration can take anything from one week to several weeks after the application has been filed, depending on the circumstances and the workload of the commercial registry. Prior to submitting the application other matters must be dealt with, eg setting up a bank account and obtaining confirmation from the bank that the share capital has been deposited in the company’s account. If time is of the essence, it is advisable to use an off-the-shelf company that is already registered and which can be used as soon as the shares in the company have been acquired.
Since a REIT is a listed stock corporation, incorporation and admission to trading on an organised market of a stock exchange (public listing) takes time, is expensive and wide-ranging.
For liability reasons, trading should not commence until registration of the REIT in the commercial register is complete, since individuals acting on behalf of the AG will be personally liable between the signing of the incorporation deed and the registration of the REIT in the commercial register. Registration can take between one week and several weeks from the date the application is filed, depending on the circumstances and the workload of the commercial registry.
Additional time is required for the public listing of the REIT. Altogether, the entire process may take up to two months.
Since for many stock corporations it will not be possible to comply with all prerequisites of a REIT straight away (in particular with regard to public listing), legislation has introduced the option of establishing a pre-REIT, a stock corporation registered with the Central German Federal Tax Office (Bundeszentralamt für Steuern). One year after this registration, and every year subsequently, the pre-REIT must demonstrate to the Central German Federal Tax Office that its objectives and the structure of its assets and earnings comply with the law.
The pre-REIT must apply for a listing on a stock exchange in a regulated market within three years of its registration as a pre-REIT. If no application is made, if the application is turned down or if the pre-REIT cannot provide the necessary proof of compliance, the corporation’s pre-REIT status is lost.
A German real estate fund is a regulated vehicle managed by an Alternative Investment Fund Manager (AIFM) supervised by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin). Setting up a real estate fund requires the preparation of the relevant documentation and the completion of the distribution notification with BaFin. The time required depends on the individual set-up and investment purpose/policy. While establishing an AIFM takes a considerable amount of time, German AIFMs in the form of so-called German Kapitalverwaltungsgesellschaften (KVG) may establish a real estate fund at a good pace.
A partnership effectively comes into existence when the partners enter into the partnership agreement but, in relation to third parties, the partnership comes into existence only after it has commenced business activities with the consent of all partners or been registered in the commercial register. The partnership may commence operations before it has been registered but in this case the limited partners will not benefit from limited liability and will be personally liable, unless the limited liability is known to the contractual partner. Depending on the workload at the commercial registry, registration may take up to two weeks from the date the application for registration has been filed.
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The articles of association of a GmbH can allow for considerable flexibility. Voting and profit rights can generally be allocated freely. Shareholders can appoint and remove directors and provide instructions at any time which must be followed by the directors. Furthermore, shareholders may have approval rights concerning management decisions, but the management will oversee day-to-day business. The company can be managed by a sole director or more than one director.
A GmbH is characterized by a one-tier corporate governance system and, therefore, compared to an Aktiengesellschaft less complex in its day-to-day management.
An external auditor is required only if certain thresholds, relating to the balance sheet total, turnover and the number of employees, are exceeded. Currently, the thresholds are:
If at least two thresholds are exceeded on the reporting dates of two consecutive financial years, an audit is required.
AGs must comply with a number of acts, most importantly the Stock Corporation Act (Aktiengesetz - AktG). The acts that need to be observed depend on whether the company is listed or not. It is possible to create different classes of shares with different rights. Voting rights and profit participation rights may be allocated differently for each class of share.
An AG is characterized by a two-tier corporate governance system (a board of directors and a supervisory board). Features of this system are:
An external auditor is required only if certain thresholds, relating to the balance sheet total, turnover and the number of employees, are exceeded. Currently, the thresholds are:
A REIT is a listed stock corporation and therefore subject to the German Stock Corporation Act unless the German law governing REITs (REITG) provides otherwise. Other statutes specifically apply to listed stock corporations.
REITs as AGs are managed as follows:
Since a REIT is a listed stock corporation, an audit is mandatory.
It is not possible for a REIT to create different classes of shares with different rights ie all shares must be issued as the same class of shares including voting rights.
A real estate fund is regulated under the German Capital Investment Code and therefore subject to specific regulatory and statutory corporate governance requirement.
In particular, all decisions relating to the investment policy of the fund must be taken by the Alternative Investment Fund Manager (AIFM). Some day-to-day business decisions can be delegated to a third party portfolio manager. Investment decisions cannot be subject to approval by unit holders. Unit holders can revoke the appointment of the AIFM and replace it only in certain very restricted circumstances. Please note that, additionally, for a real estate fund the appointment of a so-called depositary bank exercising control functions is mandatory.
German funds (Sondervermögen) are mainly open ended.
Special rules apply to funds that are reserved to institutional investors (Spezial-Sondervermögen or Spezialfonds). In these cases, there are less requirements as to sales documentation and the mandatory investment rules can be tailored to individual needs to a greater extent.
Considerable flexibility on corporate governance can be agreed in the partnership agreement. Voting and profit participation rights can be allocated freely. The general partner (Komplementär) is, by law, the managing partner and represents the KG vis-à-vis third parties. Limited partners (Kommanditist) may have certain limited approval rights over management decisions but can be appointed as managing limited partners. A statutory audit is required in certain circumstances, such as if the general partner is not an individual and if certain thresholds, relating to the balance sheet total, turnover and the number of employees, are exceeded.
Currently, the thresholds are:
If at least two thresholds are exceeded on the reporting dates of two consecutive financial years, an audit is required.
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EUR12,000 plus the cost of external auditors, which is likely to amount to between approximately EUR10,000 and EUR20,000. Auditors are only required when certain thresholds relating to the balance sheet total, turnover and number of employees are exceeded.
EUR20,000 plus the cost of external auditors which usually ranges between EUR10,000 and EUR15,000.
Due to the additional regulatory compliance obligations, the compliance costs depend on the individual structure and cannot be estimated on an abstract basis.
Due to the additional regulatory compliance obligations, the compliance costs depend on the individual structure as well as the NAV of the fund vehicle. Furthermore, costs/fees for the appointment of an AIFM, depositary bank and external auditor might apply. Therefore, these compliance costs cannot be estimated on an abstract basis.
EUR10,000.
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15.825% corporation tax including a solidarity surcharge is payable on profits, and (generally) trade tax on taxable profit for trade tax purposes at a minimum rate of 7% (depending on the relevant municipality), which is defined as taxable profit for corporation tax purposes plus certain add back items and less certain deductions. The trade tax rates vary, since this tax is levied by the municipalities. A company, or corporation can have a tax presence in more than one municipality. The company or corporation can qualify for a trade tax‑exemption if it generates income only from leasing its own property. Business expenses, depreciation and amortisation are tax deductible. Deductions can also be claimed for interest, provided that the deductibility is not limited by the interest cap rule, introduced by the Business Tax Reform Act 2008. Under the interest cap rule, interest expenses are generally fully deductible as business expenses in an amount equal to the interest income of the business unit (Betrieb). If interest expenses in excess of interest income (that is net interest expenses) exceed EUR3,000,000, deductibility is limited to 30% of EBITDA (earnings before interest, taxes, depreciation and amortisation). Exemptions to this interest cap rule may apply.
In respect of trade tax, 25% of all interest on debt payments (as far as interest payments have already been deducted) and 6.25% of the expenditure on temporary usage rights (for example licences and concessions) must be added back into the taxable income to the extent it exceeds EUR200,000.
A GmbH must deduct withholding tax on dividends at the rate of 25% plus a solidarity surcharge thereon (total tax rate 26.375%).
Withholding tax may be credited against the investors’ income or corporate income tax. As regards private investors, in certain circumstances a flat tax of 26.375% may apply which is treated as settled by the withholding tax deducted.
If the EU Parent-Subsidiary Directive applies, (ie if dividends are paid by a German GmbH or AG to another EU corporation, which has held 10% of the shares in the German GmbH or AG for an uninterrupted period of 12 months prior to the distribution of dividends), and the shareholder is sufficiently large and active, no withholding tax is payable as long as the shareholder provides an exemption certificate to the company. The shareholder must apply for this certificate from the German Federal Central Tax Office (Bundeszentralamt für Steuern). If the shareholder has not obtained an exemption certificate but the requirements of the Parent-Subsidiary Directive and the substance requirements are met, the tax will be refunded upon application.
If the EU Parent-Subsidiary Directive does not apply, but a double‑tax treaty does, withholding tax of between 10% and 15% is normally payable (although this is generally deductible against tax due on taxable German income).
Withholding taxes exceeding these rates will be refunded upon application provided the shareholder meets the substance requirements. In addition, withholding taxes may be refunded eg if the shareholder held a stake of at least 10% of the share capital as of the beginning of the relevant fiscal year of the distributing entity.
German tax law provides a special tax regime for REITs when the following requirements are met:
The maximum direct shareholding by any one person or entity is limited to 10% of the shares. In addition, at least 15% of the shares must be held in free float and, at the date of the admission of the REIT, 25% of the shares must be held in free float. A share is held in free float if the shareholder holds less than 3% of the voting rights in the REIT.
At least 75% of the assets of a REIT must consist of real estate (an existing residential building cannot be part of the assets) and 75% of the REIT’s gross yield must result from leasing or selling immovable assets.
A REIT’s income is exempt from corporate and trade tax as long as at least 90% of its profits are distributed to the shareholders. If less than 90% of the profits are distributed the tax authorities may impose penalty payments amounting to between 20% and 30% of the difference between 90% of the profits and the dividends actually distributed.
Distributions are fully taxable at shareholder level. The REIT must impose a withholding tax of 25% (plus 5.5% solidarity surcharge thereon). Presently this withholding tax will be credited against assessed income tax and/or refunded if applicable.
As of 1 January 2009 the taxation of private income from capital investment was changed by the Business Tax Reform Act 2008. From that date private capital investment income became subject to a final withholding tax of 25% (plus 5.5% solidarity surcharge thereon) if certain requirements are met.
The fund is subject to corporation tax at a 15% tax rate for certain domestic income. The taxable domestic income includes, in particular:
The fund is subject to German trade tax if it is engaged in trade or business.
German investors in an investment fund are subject to tax on the following income (so called ‘Investment Income’):
The Investment Income may be tax-exempt to a certain extent (so called partial exemption – Teilfreistellung). For real estate funds, the partial exemptions amount to 60% if the fund holds domestic real estate properties and 80% if the fund holds foreign real estate properties. A qualified real estate fund is an investment fund which invests more than 50% of its value in real estate or real estate companies.
At the level of German private investors, investment income is subject to a final tax burden of 25% (plus solidarity surcharge of 5.5% thereon) in accordance with section 20 para 1 no. 3 of the German Income Tax Act.
Special investment funds are subject to the same principles set out above. Hence, the special investment fund is generally subject to German corporate income tax on certain domestic income. Other than the mutual investment fund, a German special investment fund may opt for a transparent taxation regime (Transparenzoption). When opting for the tax transparency status, certain income is directly allocated to investors.
The German Investment Tax Act offers various options to optimise the tax burden of an investment fund structure by considering certain investor-specific tax positions.
A KG is a tax‑transparent entity. The taxation of income from letting real estate in Germany by a partnership depends, for corporation tax purposes, on the status of its partners and, for trade tax purposes, on whether or not the real estate is held through a permanent establishment.
Corporate partners are subject to German corporate income tax at the rate of 15.825% (including solidarity surcharge). Individuals who are partners are subject to German income tax at their individual tax rate.
If the partnership has a permanent establishment in Germany it is subject to German trade tax on income. The partnership may qualify for a trade tax‑exemption if it generates income only from leasing its own property. If there is no German permanent establishment, no trade tax will be payable.
There is no additional tax on profit repatriation from the German partnership to investors.
The sale of real estate by the partnership, as well as a sale of an interest in a partnership which is not engaged in a trade or business, is treated as the partial sale of the underlying assets by the partners. Thus, the taxation depends on the legal status of the individual partners. Corporate partners are subject to German corporate income tax at the rate of 15.825% (including solidarity surcharge). Individuals are subject to German income tax at their individual tax rate.
If the German partnership is engaged in a trade or business, the partnership itself is subject to German trade tax at a rate minimum 7% on capital gains arising from the sale of real estate (although certain deductions and exemptions may apply). The trade tax rate depends on the municipality. The same applies to any capital gains from the sale by a corporation of its interest in a partnership.
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Does the concept of a 'permanent establishment' apply when a foreign person invests in real estate and, if so, how much does it cost to set up such a permanent establishment, how long does it take and what corporate governance requirements apply?
In Germany, real estate assets can be held in two ways: either with or without a permanent establishment (Betriebsstätte). In the first case the investor either sets up a registered permanent establishment in Germany (ie a branch office) or acts through a non-registered permanent establishment.
A permanent establishment is a fixed place of business (eg an office) in which the investor's trade or business is carried on. Investors can therefore only directly invest through a permanent establishment if they operate a trade or business. This is deemed to be the case in any of the following scenarios:
The cost of setting up a registered permanent establishment starts at EUR3,000, including fees for registration in the commercial register and notary’s fees.
At best, setting up a permanent establishment is likely to take four weeks (including preparatory work, obtaining the necessary documents and filing for registration). However, since registering a permanent establishment requires certain documents from the investors’ home country (such as certified official register excerpts, a certificate from the secretary and experts’ opinions) the process more usually takes about six weeks. Registration itself may take additional time after the application for registration has been filed, depending on the workload at the local court in charge of the commercial register.
Last modified 13 Mar 2025