GERMANY Trends and Developments Contributed by: Christian von Oertzen and Philipp Windeknecht, Flick Gocke Schaumburg
Reform of the Foundation Law The creation of foundations, in particular charitable foundations, is common among wealthy individuals in Germany, partly due to the changes in the German gift and inheritance law in 2016. In some cases, these foundations are majority shareholders of enterprises with several thousand employees and thus dispose of considerable fortunes. More than 25,000 foundations exist in Germany. A bill aimed at modernising Ger - man foundation law was passed in 2021 after various amendments. The bill includes a further harmonisation on the federal level (each German state still has its own foundation law), the recognition of the consump - tion foundation, possibilities to change the statutes, a possible merger of several foundations into a new foundation, and more liberal asset management. The new foundation law has been in force since July 2023. Moreover, the foundation law of most German states has been amended as a result of the changes on the federal level. Introduction of a Foundation Register in 2026 To date, there is no foundation register in Germany in which all foundations are listed. A foundation register will be established on 1 January 2026. All foundations must be entered in this register. Existing foundations have until 31 December 2026 to register. The following data will be published in this register: • basic data of the foundation (name, registered office, date of recognition, period for which the foundation was established, if applicable); • information on the members of the foundation board and their power of representation; • information on the statutory restrictions on the power of representation of the foundation board; and • details of the special representatives and their power of representation. Back-Up Inheritance Tax for German Foundations Private law foundations play a prominent role in the German tax and estate planning regime. This is espe - cially true for family foundations, which are not an own legal form but rather a private benefit foundation focused on beneficiaries who are related to the foun - dation’s founder. In addition to the regular tax burden of a private benefit foundation (gift tax and, potentially,
capital gains tax and real estate transfer tax), a back- up inheritance tax is levied on the estate of the family foundation every 30 years. The gift and inheritance tax rate is favourable, since it is based on the relationship between the settlor and the beneficiaries. Whether the back-up inheritance tax and the privi - lege of the tax rate violate European law is currently unclear. The German tax authorities hold that the privi - lege of the tax rate only applies to foundations estab - lished in Germany, as only these foundations are liable for the back-up inheritance tax. The provisions are not applicable to foreign foundations. In his statement to the Court of Justice of the European Union (CJEU) in 2025, the Advocate General expressed the opinion that such an application of the provisions does not violate the free movement of capital. Gratuitous Transfer of Real Estate: Valuation Changes In case of gratuitous transfers, three valuation meth - ods are generally applicable depending on the type of real estate: • the sales comparison method (taking into consid - eration the recent sale of comparable properties in the area); • the income capitalisation method (on the basis of the rental income earned from the building); and • the cost method (adding the value of the land and the costs of the building). In the past, the valuations regularly led to a lower value than the fair market value of the real property. Howev - er, the Annual Tax Act 2022 provided changes result - ing in higher valuations and thus possibly increasing gift and inheritance tax on German real estate. In con - trast to this development, the Muenster Fiscal Court decided in a recent ruling that a valuation discount may be applicable to a co-ownership share in a real property, compared to full ownership. The valuation discount is subject to a well-founded appraisal. More - over, the Higher Regional Court Hamm ruled in 2023 that a substantial discount (30% to 50%) is applicable to a co-ownership share in a real property held by a community of heirs.
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