GERMANY Law and Practice Contributed by: Wolfram H. Krüger, Barbara Rybka, Markus Wollenhaupt and Alexander Zitzl, Linklaters
8. Tax 8.1 VAT and Sales Tax
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:
VAT is in principle not applicable to the sale of German real estate. If the property is sold busi - ness to business, the seller may waive the VAT exemption, triggering VAT at a rate of 19%. The buyer owes the VAT triggered to the tax authori - ties (reverse charge). If the buyer intends to use the real estate to render non-VAT-exempt sup - plies, the VAT triggered may be reclaimed as input VAT; hence no VAT would be payable. These principles do not apply for operating facilities ( Betriebsvorrichtungen ), the transfer of which is always subject to VAT. Furthermore, no VAT would be triggered if the real estate is trans - ferred by way of a transfer of a going concern ( Geschäftsveräußerung im Ganzen ) which is not subject to VAT by law. A transfer qualifies as a transfer of a going concern, if the buyer contin - ues the VAT-able business rendered by the seller, which typically applies if the buyer continues the existing lease agreements. 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 -
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