Real estate taxes in Germany
Properties located on German territory are submitted yearly to the German tax regime. Even if the owners reside abroad, they must pay local taxes and figure out what taxes they will have to pay when selling a property in Germany. So what should you know about the capital gains tax in Germany? ADEN Immo walks you through a quick overview of the German real estate tax system.
Keep in mind that fiscal law for real estate is changing quickly in Berlin. The city is growing fast and the government is trying to minimise speculation. This article is a general overview of the capital gains tax in Germany. It is based on ADEN Immo’s experience as real brokers but we are not responsible for any mistakes, omissions or modifications. Please consult the publications of the Berliner Senate or a tax advisor for detailed information.
Buying a property: real estate transfer tax and registration
When a real estate transaction is completed, the buyer usually has to cover about 15% on top of the property price in fees and taxes. These include: the broker fees (7.14% with tax), the public notary fees (0.5%), the costs for registering to the cadaster (1%), and the real estate transfer tax (Grunderwerbsteuer, also known internationally as RETT for Real Estate Transfer Tax). The amount for the Grunderwerbsteuer varies according to the federal state and the city where the property is located. Berlin, for instance, charges 6.5% of the property value while in Bavaria the rate is 3.5%. There is also a fee for registering the transaction in the city’s cadasters, called the Grundbucheintrag, which is to be paid to the public notary directly. The remaining side costs come from the notary and the broker fees: find out more details in our COMPLETE GUIDE TO BUYING A PROPERTY AS A FOREIGNER (PDF). These two taxes are one-time fees to be paid at the moment of the transaction. But the owner also also has to cover an annual tax, the Grundsteuer.
Municipal real estate tax: the Grundsteuer
In Germany, real estate taxes are paid to the municipality, and calculated on an annual basis (although they are usually paid every trimester). The basis for calculating the tax rate remains complicated and actually still depends whether the property is located in former West and former East Germany: an unbalanced tax system which is under scrutiny and is likely to change soon. Still, the real estate tax is quite low. There are very few circumstances under which it would be exonerated. For a standard flat in Berlin, real estate taxes would average between 80 to 150 euros annually, depending on the location and the size of the apartment. Income generated from renting a property is also subject to income taxation. Find out more in our COMPLETE GUIDE TO GERMAN REAL ESTATE TAXES.
Capital gains tax
Property prices are increasing every year all across Germany, especially in urban areas in the past decade. Therefore, it is likely that the sale of real estate will generate extra income: this is called capital gains. Under what conditions should you expect a capital gains tax in Germany? This brief guide will only look at the case of residential properties owned by private individuals.
- Firstly, the profit from the sale of private real estate that was the main residence of the owner for two complete years (January to December) is exempt from capital gains tax.
- Secondly, the profit from the sale of private real estate that was held for ten complete years is exempt of capital gains.
- In all other cases, the profit between the sales price and the acquisition price is considered to be part of your income in the fiscal year in which the property is sold (more precisely, when the buyer pays the purchase price). So, for an apartment that was bought for €100,000 in 2010 and sold for €150,000 in 2015, the capital gains will be of €50,000. This is a rough example, since there are many costs related to the acquisition and improvement of the property that can be deducted from the calculation (for instance, broker and notary fees).
The profit is then considered to be part of your income in the fiscal year in which the German property is sold, more precisely in which the buyer pays the purchase price
In the end, real estate continues to be exempt from capital gains tax if it has been held for more than ten years. However, in 2009, Germany introduced a very strict capital gains tax for financial products: shares, funds, certificates, etc. called the Abgeltungsteuer. Will the German tax system be advantageous for you?