GERMANY Law and Practice Contributed by: Wolfram H. Krüger, Barbara Rybka, Markus Wollenhaupt and Alexander Zitzl, Linklaters
8.5 Tax Benefits Buildings are subject to depreciation at an annual rate of usually 2% or 3% on the acquisition costs. However, the law provided for an optional degressive depreciation of 5% after acquisition/construction of residential buildings whose construction commenced/ commences between 1 October 2023 and 30 Sep - tember 2029. Further, an additional special deprecia - tion is available for residential buildings for which the building permit was applied for between 1 September 2018 and 31 December 2021 or between 1 January 2023 and 1 October 2029 and which satisfy further prerequisites. Land and shares are not depreciable. Taxable rental income will be reduced by the costs incurred for rendering the lease (eg, interest and main - tenance). If an investor maintains a permanent establishment in Germany, profits from the sale of real estate allo - cable to this permanent establishment can be off - set by accounting for a reserve that reduces taxable income, subject to specific conditions. This reserve will reduce the acquisition costs of real estate that are acquired in later years. Thus, the built-in gains of the sold real estate are not realised upon the sale of such real estate; hence, the tax on such built-in gains may economically be suspended by transferring the built-in gains to newly acquired real estate. Tax benefits have recently been introduced regarding photovoltaic facilities. VAT-zero-rating applies to the supply of small photovoltaic facilities for residential buildings. Income from the operation of small photo - voltaic facilities will be exempt from income tax.
Lower Saxony and Saarland) intend to make use of such clause. 8.4 Income Tax Withholding for Foreign Investors 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 will enter into force on 1 January 2025 and significantly alter the determination of the assessment base. The federal states Baden-Wuerttemberg, Bavaria, Hesse, Ham - burg, Saxony, Lower Saxony and Saarland made use of the opening clause allowing them to adopt their own assessment base for property tax. Trade tax is (i) levied by municipalities at rates vary - ing between 7% and 17.15%, and (ii) payable by the corporation or partnership which is not deemed to be tax transparent for the purpose of trade tax. Similar principles apply to profits from the sale of real estate. The sale of interest in a partnership is treated as a (partial) sale of the assets held by the partnership. Capital gains from the sale of shares in a corporation holding German real estate are subject to German (corporate) income tax if: • the company is resident in Germany; or • more than 50% of the value of the shares in such company is based directly or indirectly on German real estate. However, if the shares are held by a corporation, the German participation exemption regime providing for an effective tax exemption of 100% or 95% might apply.
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