GERMANY Law and Practice Contributed by: Tanja Schienke-Ohletz, Flick Gocke Schaumburg
There are tax allowances for transfers every ten years; for spouses EUR500,000, for children EUR400,000 and for grandchildren EUR200,000. However, for brothers, sisters and third persons, it is only EUR20,000. There are also three tax classes in German inherit - ance and gift tax law. Tax class I covers transfers between spouses and direct descendants at a rate of 7–30%, while tax class II covers transfers between siblings, uncles, aunts, nephews and nieces at a rate of 15–43% and transfers to third parties at a rate of 30 or 50%. For the tax exemptions see 10.4 Artworks Exempt from Inheritance/Donations Taxes . 10.4 Artworks Exempt from Inheritance/ Donation Taxes Works of art, art collections, scientific collections, libraries and archives are exempt from inheritance tax under the following conditions, which must be met cumulatively: • if their preservation is in the public interest due to their significance for art, history or science; • they are made available to an appropriate extent for the purposes of research or public education; and • the annual costs generally exceed the income generated. In this case, the beneficiary items are to be valued at 40% of their value (15% for real estate). A full tax exemption is possible if, in addition, there is a willingness to subject the items to the applicable provisions of monument preservation and they have been in the family’s possession for at least 20 years or are listed in the register of nationally valuable cultural assets. The purchaser must fulfil the requirements; in par - ticular, proof of subjection to monument preservation must be provided. Arts and crafts and frequently reproduced works are not eligible, nor are works of poetry or music, manu - scripts, literary works or pieces of music; works of fine
art such as paintings and sculptures are particularly eligible. The above tax exemption can be fulfilled as follows: the works of art can be made available to a museum through a loan agreement in order to make them avail - able for the purposes of public education or research. This should be prepared before the succession. For 100% tax exemption, it is sufficient to involve the monument protection authority. This should be suf - ficiently documented. Furthermore, the art or the entire art collection can also be transferred tax-free to a charitable foundation. It must be recognised as charitable under German law. The exemption shall cease to apply with retroactive effect if the conditions for recognition as a charitable organisation cease to apply within ten years of the transfer and the assets are not used for charitable pur - poses. It should be noted that the recipient organisa - tion must meet the requirements of German charitable law. In practice, this will be difficult or impossible for almost all foreign organisations. It is also possible to transfer art or art collections to a natural person or a non-charitable organisation, pro - vided that the latter undertakes to use the art/art col - lections for charitable purposes. Tax exemption is not about the recipient organisa - tion, but about the use itself. In practice, this should be secured by a funding agreement. This provision makes it possible to transfer art tax-free to a charity abroad. 10.5 Trusts Germany has not ratified the Hague Trust Convention, which means that trusts are not recognised as inde - pendent legal entities in Germany. Trusts do not exist as legal entities under German law. The reason for this is that German law does not allow beneficial owner - ship to be separated from equitable ownership. Under German law, a trust cannot therefore hold works of art as a legal entity itself.
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