GERMANY Law and Practice Contributed by: Wolfram H. Krüger, Barbara Rybka, Markus Wollenhaupt and Alexander Zitzl, Linklaters
Local Authorities In many areas, the general public building law is substantiated in local development plans ( Beba - uungspläne ) issued by the local authorities that make provisions for the permitted use and size of the property. If there is no development plan, the permitted use can be determined by the Federal Building Code and the Federal Land Use Ordinance. If no local development plan exists or significant amendments are required for a development to be permitted, the owner might enter into an urban development agreement ( städtebaulicher Vertrag ) with the local authori - ties with the aim of establishing/amending the project-related development plan to secure the building project. 2.9 Condemnation, Expropriation or Compulsory Purchase The fundamental right to property is protected by the German constitution, which only allows the government to expropriate for public inter - est, if authorised by German law, for appropri - ate cause and against compensation. There are federal and federal state laws enabling expro - priation. The procedure varies, depending on the law it is based on. Compensation is based on the market value of the property at the time of expropriation. Municipalities also have the right to expropriate, as a last resort, to fulfil their goals under the Fed - eral Building Code, especially if the real estate is 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
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