GERMANY LAW AND PRACTICE Contributed by: Wolfram H Krüger, Barbara Rybka, Markus Wollenhaupt and Alexander Zitzl, Linklaters
located in a development area ( Entwicklungsge- biet ). 2.10 Taxes Applicable to a Transaction Asset deals are subject to RETT, with the rate varying between 3.5% and 6.5% depending on the federal state in which the asset is located. VAT is in principle not applicable to the sale of real estate. If the property is sold B2B, the seller can waive the VAT exemption, thus VAT at 19% applies. The buyer has to pay this VAT 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 actually be payable. RETT-neutral share deals were significantly impeded by the recent RETT reform. Share deals trigger RETT if at least 90% of the partnership interest/shares of a partnership/corporation holding German real estate is transferred within ten years to new partners/shareholders. In addition, RETT is triggered if at least 90% the shares in a corporation or partnership holding German real estate are directly or indirectly uni - fied in one hand or the hands of affiliated entities. 2.11 Legal Restrictions on Foreign Investors Generally, there are no legal restrictions on for - eign investors acquiring real estate in Germany. However, a notary may only notarise a real estate sale and purchase agreement with a foreign enti - ty as the buyer and, therefore, a foreign entity can only acquire real estate in Germany if the entity is registered in the German ultimate ben - eficial owner register ( Transparenzregister ). Due to the European single market, registrations in
an equivalent register of an EU member state are also sufficient.
3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate
Generally, acquisitions are financed by both debt and equity, with the ratio between the two depending on the market. Equity is often provid - ed downstream in the form of shareholder loans that are expected to be subordinated to the debt financing. If insufficient equity is available in the company’s group, additional funds may need to be obtained from mezzanine lenders. For mez - zanine loans, there will typically be an increased margin, giving the lender a way to participate in the profit and/or the possibility to transform the loan into an equity participation (“equity kicker”). Portfolios are often financed by syndicated loans involving different lenders, and secured debt is traded between the lenders. For refinancing, the so-called Pfandbrief (covered bond) is often used. In this case, the loan and granted security must comply with a strict standard. Furthermore, sale-and-leaseback transactions can be seen as a different form of financing, as the former owner/now tenant of the property activates new liquidity. 3.2 Typical Security Created by Commercial Investors The most important security granted over real estate is the land charge ( Grundschuld ) or mort - gage ( Hypothek ). While the more often-used land charge is non-accessory in nature and connect - ed to the secured claim via a security purpose agreement, the mortgage is accessory in nature and attached to the underlying claim. Both are
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