GERMANY LAW AND PRACTICE Contributed by: Wolfram H Krüger, Barbara Rybka, Markus Wollenhaupt and Alexander Zitzl, Linklaters
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 tight - ened the rules with effect as of 1 July 2021 (see 2.10 Taxes Applicable to a Transaction ) RETT neutral share deals are significantly more difficult to realise. 8.3 Municipal Taxes The municipalities charge property tax which is assessed on a value ( Einheitswert ) currently usu - ally below the market value, with the average tax rate varying between 1.3% and 1.5%, depend - ing on the municipality. A new property tax act will enter into force on 1 January 2025 and sig - nificantly alter the determination of the assess - ment 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-Wuert - temberg, Bavaria, Hesse, Hamburg, Saxony, 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 usu - ally below the market value, with the average tax rate varying between 1.3% and 1.5%, depend - ing on the municipality. A new property tax act will enter into force on 1 January 2025 and sig - nificantly alter the determination of the assess - ment 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-Wuert - temberg, Bavaria, Hesse, Hamburg, Saxony, Lower Saxony and Saarland) intend to make use of such clause. proportion of the lease income,
ie, remain below a certain threshold in relation to the rental income, they are not harmful. Trade tax is (i) levied by municipalities at rates varying between 7% and 17.15%, and (ii) pay - able by the corporation or partnership which is not deemed to be tax transparent for the pur - pose 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 partner - ship. Capital gains from the sale of shares in a corpo - ration 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 pro - viding for an effective tax exemption of 100% or Buildings are subject to depreciation at an annu - al rate of usually 2% or 3% on the acquisition costs. However, the Growth Opportunities Act ( Wachstumschancengesetz ) will provide for a degressive depreciation of 5% for the first six years after acquisition/construction of residen - tial buildings whose construction commenced between 1 October 2023 and 30 September 2029. Land and shares are not depreciable. Tax - able rental income will be reduced by the costs incurred for rendering the lease (eg, interest, maintenance). 95% might apply. 8.5 Tax Benefits
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