GERMANY LAW AND PRACTICE Contributed by: Wolfram H Krüger, Barbara Rybka, Markus Wollenhaupt and Alexander Zitzl, Linklaters
3.4 Taxes or Fees Relating to the Granting and Enforcement of Security Land charges/mortgages as well as share pledg - es require notarisation which triggers mandatory statutory notarial fees. Furthermore, the manda - tory registration of land charges/mortgages on the land register triggers registration fees. If the land charge/mortgage is granted by a foreign entity, the land registry often requests a cost advance before registration. Enforcement of security is done via court pro - ceedings for which court fees are payable. The court will only initiate the proceedings once the secured creditor applying for the proceedings has paid a cost advance. No taxes apply to the granting and enforcing of security. However, if a land charge/mortgage is enforced by way of public auction, RETT of between 3.5% and 6.5% (depending on the Ger - man federal state in which the property is locat - ed) is payable, for which the successful bidder and the property owner are jointly liable. Additionally, interest on loans granted by a for - eign lender and secured by German real estate would trigger German domestic income for the lender; ie, interest would in principle be subject to German income tax if no double tax treaty excludes the German right to tax this income. 3.5 Legal Requirements Before an Entity Can Give Valid Security Depending on the security-granting entity, finan - cial assistance and corporate benefit rules must be complied with. The prohibition on financial assistance only applies to German stock companies ( Aktienge- sellschaften ). If there is a control agreement or a profit transfer agreement ( Beherrschungs- oder
registered as rights in rem in the land register, as encumbrances over the freehold property or a hereditary building right. In addition, the typical security package includes the assignment of rental income, claims under the acquisition agreement, the property man - agement agreement, insurances and contrac - tor agreements. Bank accounts and shares or interest are pledged to the financing bank. The property/asset manager is expected to conclude a duty of care agreement. If developments are financed additionally, cost overrun and/or finance costs shortfall guaran - tees are commonly granted by the sponsor. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders There are no restrictions on granting security over real estate to foreign lenders and no restric - tions on repayments made to a foreign lender under a security document or loan agreement. However, the payment of interest to foreign lend - ers can be restricted. Under German tax law, banks and other financial services providers must withhold taxes on interest payments made to foreign lenders that do not themselves qualify as a bank or financial services provider. If a foreign lender has a permanent establish - ment in Germany and the loan is attributable to this establishment, the foreign lender is subject to German taxation on the profit resulting from the loan. Depending on the applicable double- taxation treaty, the interest will generally either be tax-exempt in the foreign jurisdiction or the German tax will be credited against the tax liabil - ity arising in this jurisdiction.
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