GERMANY Law and Practice Contributed by: Wolfram H. Krüger, Barbara Rybka, Markus Wollenhaupt and Alexander Zitzl, Linklaters
order for any agreed intermediate milestones. In any case, the liquidation damages must be deducted from any damages for delay of works under the Civil Code. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance A warranty bond of 10% of the net fee is market standard to secure the performance of the contrac - tor’s work until completion. From completion onwards, a warranty bond of 5% of the amount of the final invoice for malperformance within the liability period is market standard. Generally, warranty bonds are provided as bank guar - antees. 7.6 Liens or Encumbrances in the Event of Non-Payment Contractors of a construction project (or parts of such) may acquire a right over the property, comparable to a lien, in the form of granting a mortgage on the property to secure the contractor’s remuneration ( Sicherung- shypothek des Bauunternehmers ). However, this is only applicable if the buyer is also the owner of the relevant property on which the construction work is performed and the work, the value of which is to be secured, has already been performed. In addition, the contractor may claim a lien ( Werkunternehmerpfan- drecht ) on movable items the contractor has been instructed to create or modify for the buyer. Once the contractor’s payment claim has been satis - fied, it is obliged to approve the deletion of the encum - brance in the land register and to return the movable item to the buyer. 7.7 Requirements Before Use or Inhabitation For all building projects, the necessary building per - mits must be obtained before the start of construction work. This includes the official approval of necessary fire safety standards and other technical certificates by the building authority or the responsible engineer. In some, but not all federal states, the building pro - ject is formally accepted by the building authority after completion.
In some instances, if the building is intended for a specific commercial or industrial purpose, a business licence must also be issued.
8. Tax 8.1 VAT and Sales Tax
VAT is in principle not applicable to the sale of German real estate. If the property is sold business to busi - ness, the seller may waive the VAT exemption, trig - gering VAT at a rate of 19%. The buyer owes the VAT triggered to the tax authorities (reverse charge). If the buyer intends to use the real estate to render non-VAT- exempt supplies, the VAT triggered may be reclaimed as input VAT; hence no VAT would be payable. These principles do not apply for operating facili - ties ( Betriebsvorrichtungen ), the transfer of which is always subject to VAT. Furthermore, no VAT would be triggered if the real estate is transferred by way of a transfer of a going concern ( Geschäftsveräußerung im Ganzen ) which is not subject to VAT by law. A transfer qualifies as a transfer of a going concern, if the buyer continues the VAT-able business rendered by the sell - er, which typically applies if the buyer continues the existing lease agreements. 8.2 Mitigation of Tax Liability German tax law does not provide any commonly used methods to mitigate the RETT burden in asset deals. Since the German legislator tightened the rules with effect as of 1 July 2021 (see 2.10 Taxes Applicable to a Transaction ) RETT neutral share deals are signifi - cantly more difficult to realise. 8.3 Municipal Taxes The municipalities charge property tax which is assessed on a value ( Einheitswert ) currently usually below the market value, with the average tax rate varying between 1.3% and 1.5%, depending on the municipality. A new property tax act entered into force on 1 January 2025 and significantly altered the deter - mination of the assessment base. The federal states may make use of the opening clause allowing them to adopt their own assessment base for property tax; currently, seven federal states (including Baden- Wuerttemberg, Bavaria, Hesse, Hamburg, Saxony,
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