GERMANY Law and Practice Contributed by: Christian von Oertzen and Philipp Windeknecht, Flick Gocke Schaumburg
Transfer of Real Estate Property and Art In principle, a 10% tax relief for gifts and inheritances is available for personally held real estate that is let for residential purposes and that is located in Germany, the EU or the EEA. Since 2024, the relief also applies to properties in non-EU/EEA countries that exchange inheritance and gift tax information with Germany. There are also up to 100% reliefs for loss-making property or assets of artistic, historical or scientific importance, provided that the donee retains the prop - erty for ten years and additional conditions are fulfilled. 1.3 Income Tax Planning Tax Step-Up for Family Partnerships Real estate that is privately held for more than ten years can be transferred to asset management lim - ited partnerships without triggering income tax. The transferred real estate receives a step-up in basis to its fair market value. The step-up allows an additional depreciation volume for income tax purposes, and it can be repeated after ten years. 1.4 Pre-Immigration and Exit Planning Immigrating to Germany may give rise to significant legal and tax consequences. Individuals who become resident in Germany are generally subject to German income tax on their worldwide income, and to inher - itance and gift tax on their worldwide assets. Visas are generally required only for non-EU nationals. Settlors, trustees and beneficiaries should be aware that Germany has a strict taxation regime on trusts and foreign foundations. Changes in the trust deed prior to moving to Germany may prevent some of the strict taxation rules. Individuals holding assets through corporate or holding structures should carefully con - sider Germany’s controlled foreign corporation rules. In addition, corporate income tax implications may arise if a company establishes a permanent establish - ment or its place of effective management in Germany. Even if the stay in Germany is intended to be tempo - rary, the potential application of Germany’s exit tax regime should be taken into account. Assets could be transferred to an opaque trust or foreign foundation to shelter them from exit taxation. Furthermore, immi - grating to Germany may affect governing succession and matrimonial law; hence, implementing a choice of law and choice of court could be advisable.
for each EUR750,000 by which the amount exceeds EUR26 million. Above EUR90 million, the relief for business assets can no longer be claimed. If the value of the acquired assets exceeds EUR90 million or the transferee opts not to use the ablation model, they can only apply for an examination of need for relief. The transferee is not required to use “privileged” business assets, but they have to use 50% of the value of all other assets that they already own or that they acquire within a ten-year period to pay the regular rate on the privileged busi - ness assets. They also have to use 50% of the value of the manage - ment assets that they already own or acquire within a ten-year period to pay the regular rate for business assets. The total rate for acquired assets that do not qualify as privileged business assets can be 80% or more. This makes tax planning complicated for entre - preneurs if the value of the privileged business assets exceeds EUR26 million. Management assets So-called management assets within the preferential business assets are fully taxable at the regular rate in so far as the value of such assets exceeds 10% of the acquired company’s assets. The management assets will be calculated and totalled at the group company level (consolidated appraisal of management assets). Therefore, all management assets in the company and its subsidiaries will be taken into consideration and must be valued. Special Tax Relief for Family Businesses The maximum special tax relief for family businesses is an additional 30%. There are special requirements for the articles of incorporation that have to be fulfilled (eg, limitation on disposal and on distributions or with - drawals). These provisions have to be incorporated in the articles of incorporation two years before the relevant transfer, and have to remain unchanged and respected for the subsequent 20 years. Family busi - nesses are therefore advised to examine their articles of incorporation and amend them if their provisions do not meet the special requirements of tax relief for family businesses.
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