What taxes are payable on the sale of real estate and can these be reduced or offset in any way?
If the investor is a corporation with a permanent establishment in Germany, through which it sells real estate located in Germany, any capital gains are subject to corporate income tax at the rate of 15% plus a 5.5% solidarity surcharge thereon, leading to an effective tax rate of 15.825%. Income is also subject to trade tax at a rate of generally between 7% and 19.25%, unless the corporation qualifies for a trade tax exemption. If the corporate investor is exclusively engaged in long term letting and management of real estate, a special trade tax exemption may apply upon application.
If the investor is an individual with a permanent establishment in Germany, through which he sells real estate located in Germany, any capital gains are subject to income and trade tax unless the investor qualifies for a trade tax exemption. If the individual is exclusively engaged in letting and managing real estate, a special trade tax exemption may apply upon application.
If the investor is a non-resident corporation selling real estate located in Germany, any capital gains are subject to corporate income tax at the rate of 15% (plus a 5.5% solidarity surcharge thereon), leading to an effective tax rate of 15.825%.
If the investor is an individual selling real estate located in Germany and the real estate is held as a private asset, capital gains are only subject to income tax in Germany if the real estate was held for less than ten years or if the sale qualifies as a trade or business activity.
An additional tax bracket of 45% applies to taxable income in excess of around EUR 277,000 for individuals and around EUR 555,000 for married couples who are subject to joint taxation if the income qualifies as leasing income. If the real estate was held for ten or more years and the property concerned was not an asset belonging to a trade or business, the income deriving from the sale is not taxable in Germany.
Where a private individual disposes of shares in a German company that are not a business asset, capital gains are subject to a tax rate of 25% plus a solidarity surcharge of 5.5% thereon (ie in total 26.375%). Where the shareholder held a direct or indirect stake of 1% or more in the company during the preceding five years, capital gains on the disposal are subject to the taxpayer's individual tax rate, however 40% of such capital gain is tax exempt.
If the shares disposed of are in a company that is an asset of a German permanent establishment, or of the taxpayer's trade or business, any capital gains are subject to income tax and trade tax regardless of the holding period or the size of the stake in the company. However, 40 percent of the capital gains are tax exempt at the level of an individual.
If a corporation disposes of shares in a German company, effectively only 5 percent of capital gains are subject to corporation tax and trade tax in Germany.
However, for non-resident corporations and individuals this tax regime may be affected by German double taxation treaties. In most German double taxation treaties capital gains are subject to tax in the country in which the selling shareholder resides and are tax exempt in Germany. However, according to a number of double taxation treaties, Germany's right to levy taxes applies where 50 percent or more of the German company's value consists of German real estate. In this case capital gains on the disposal of shares can be taxed in Germany, however in most of such cases the taxpayer is entitled to a tax credit in his country of residence.
The taxation of capital gains from the disposal of a partnership interest in a German partnership depends on whether its partners are corporations or individuals and whether the partnership operates, or is deemed to operate, a trade or business. If the partnership operates, or is deemed to operate, a trade or business, the partnership can perform its activities with or without a permanent establishment in Germany.
