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?

 

There are no restrictions for non-nationals and non-residents to buy a property in Germany. In most cases, foreigners will have to take a mortgage with a German bank. Getting a mortgage from a European bank, while technically possible, is very unusual and difficult. But there are a good number of choices to get a mortgage with a German bank (called a Hypothek). This article walks you through the main types of mortgage in Germany for foreigners.

Disclaimer: ADEN Immo provides this content for your information only and has made every reasonable effort to be factually accurate based on our experience as real estate brokers. ADEN Immo disclaims any and all liability for damages incurred directly or indirectly as a result of errors, omissions or discrepancies.

 

How to get a bank loan/mortgage from a German bank?

You don’t legally need to be a resident to open a bank account in Germany. But non-residents usually get offered lower amounts, around 50% of the property price. This mean that you may need to pay up to 50% of the property upfront, which can be quite a sum! For German residents, the amounts differ in each situation, and banks will fund up to 80% of the property price.

The four largest banks in Germany are Deutsche Bank, Commerzbank, Postbank, and Hypovereinsbank. All of them offer mortgages, but it’s good to check the small print as each package differs slightly. Most banks also have an online mortgage calculator, which can give you a better idea of the interest rates and fees. Make sure to ask if they have an English-speaking counsellor to help you!

 

Making a downpayment

In the process of buying a property in Germany, once you have a clear project in mind, it is good to get a mortgage agreement ‘in principle’ from different banks. This will give you a better idea of what you can afford and will improve your profile in the eyes of sellers.

Foreigners are expected to provide a rather large part of the property price on their own. Most banks will ask for up to 50% of the property price upfront! Especially in large cities like Berlin, the government wants to reduce real estate speculation and encourage property sales for long-term residents, so they make financing more difficult for non-residents. If you are transferring your down-payment from a foreign currency, make sure to check your exchange options! Some external institutions (like TransferWise) offer interesting options to transfer money from one currency to another.

 

Taxes and fees

Keep in mind that in addition to the price of the property, the buyer will have to pay an additional 15% in fees and taxes. Most of these side costs are deductible from your income tax if your fiscal residence is in Germany. The side costs of a real estate transaction in Germany include:

  • Real estate transfer tax (Grunderwerbssteuer): depending on the federal state, these vary between 3.5 and 6.5% (6% for Berlin-Brandenburg)
  • Notary fees: around 0.5%
  • Registration fees (Grundbuch): around 1%
  • Real estate agent (Makler) fees: usually around 6% + tax, for a total of 7.14%
Graph showing the complete costs of a real estate transaction

Graph showing the complete costs of a real estate transaction

 

Types of mortgages in Germany for foreigners

Keep in mind that getting a mortgage with a German bank is a legally binding agreement. Failure to repay a loan may have hefty consequences, such as the repossession of the property by the bank. In Germany, individual credit scores are closely monitored (also known as the Schufa).

The German housing market barely suffered the 2008 financial crisis, probably because German banks are quite conservative with their lending policies for mortgage in Germany for foreigners. Both the property and the mortgage-taker are evaluated by the lender. They will look into your income, savings, and employment history (being self-employed or in a short-term contract could be obstacles). Age is also a factor (being close to retirement age is considered a higher risk).

Make sure to get offers from several banks and read the contracts with a legal expert before engaging into a mortgage. Last but not least – if you live in Germany and are a German tax payer – there are several state supported programmes that can come in useful should you wish to buy a property or build your own. Find out more detailed information in this useful article from How To Germany about mortgage for foreigners.

Curious about the transaction process of a property sale in Germany? Check out our complete guide to buying a property in Berlin as a foreigner!

The Real Estate Transfer Tax in Berlin

In recent years, the Real Estate Transfer Tax (Grunderwerbsteuer) has increased significantly and is now one of the principal sources of income for the federal states (the Länder). The Berlin metropolitan region, for instance, has seen the Grunderwerbsteuer increase from 3.5% to 6% between 2007 and 2014. Similarly, Northrhine Westphalia, the most populous state in Germany with close to 20 million inhabitants, has risen the tax from 3.5% in 2011 to 6.5% in 2015. Only Bavaria has remained at 3.5%.

The Real Estate Transfer Tax (Grunderwerbsteuer, in German) is one of the most important taxes in Germany. It is imposed on all real estate transactions, meaning that every apartment or house sold (privately) is subject to it. It is independent from other real estate taxes like the Grundsteuer, which is the local tax paid every year to the municipality. The Grunderwerbsteuer is owed to the federal states instead of the federal government. It is used to fund public projects like infrastructure, but also support to refugees and displaced people, for instance.

Graph showing the complete costs of a real estate transaction

The Grunderwerbsteuer (Real Estate Transfer Tax) amounts to 6% on top of the property price in Berlin-Brandeburg.

Role in the real estate transaction process

Although there have been scandals of real estate transfer tax avoidance in recent years (for instance in the sale of the Sony Centre in Berlin!) for private persons the payment of the tax is necessary to finalise a real estate transaction. Below are summarised the main steps in the sale of a property in Germany:

    • Offer is made to the current owner
    • Offer is accepted
    • Reservation is made through a real estate broker
    • Contract is drafted by a public notary
    • For two weeks (minimum), the contract is reviewed by both parties
    • Contract is read at the notary’s office and signed
    • Real estate transfer tax (Grunderwerbsteuer) is paid by the buyer to the Länd
    • Notary receives the confirmation and registers the sale in the cadaster  (Grundbucheintrag)
    • Buyer sends the total payment to the seller within 4-6 weeks

It is important to note that as long as the notary has not seen proof that the real estate transfer tax (Grunderwerbsteuer) was paid, he will not finalise the transaction. There are few instances when the tax does not apply. Only some specific circumstances are exempt from the Real Estate Transfer Tax:

    • inheritance cases, where property is transferred solely to one person or partially
    • divorce cases, where a spouses purchases the shares of the other partner
    • family cases, where the buyer is related directly to the seller
    • transformation from joint ownerships to individual ownerships

In the end, the Grunderwerbsteuer is applied by the acquisition of built or unbuilt land –this includes houses, apartments, cottages, as well as buildings. It is important to be aware of the real estate transfer tax when planning a real estate investment in Germany! Find out more about taxes, fiscal considerations and all other things to keep in mind in our GUIDE TO BUYING REAL ESTATE IN BERLIN.

Disclaimer: ADEN Immo provides this content for your information only and has made every reasonable effort to be factually accurate based on our experience as real estate brokers. ADEN Immo disclaims any and all liability for damages incurred directly or indirectly as a result of errors, omissions or discrepancies.

Sources:

https://www.berlin.de/sen/finanzen/steuern/informationen-fuer-steuerzahler-/faq-steuern/artikel.9062.php

http://www.ilp-legal.de/aktuelles1/101-real-estate-transfer-tax-in-germany

https://www.pwc.de/en/steuerberatung/overview-of-the-german-real-estate-transfer-tax-rates.html

Prices and trends in 2018 for Berlin’s real estate market: an overview

Disclaimer: ADEN Immo provides this content for your information only and has made every reasonable effort to be factually accurate based on our experience as real estate brokers. ADEN Immo disclaims any and all liability for damages incurred directly or indirectly as a result of errors, omissions or discrepancies.

Metropolitan areas in Germany are booming all across, and the Berlin real estate market is particularly dynamic. On average, property values have doubled in the past 10 years and could continue increasing! The country is considered the economic powerhouse of Europe, with an employment rate as low as 3.6% and a sustained GDP growth of 1.9%. This situation is an attractive investment opportunity in Germany. How and why is the Berlin real estate market growing so fast? Does it still make sense to invest in the creative seed of the EU?

Berlin’s turbulent history left it a rather poor and empty city after the fall of the Wall in 1989. In the 1990s, it was one of the only European capitals losing inhabitants every year! Since 2005, however, Berlin has been growing very fast. More than 62,000 people moved to the city in 2016, and 47,000 in 2017 according to the Berlin-Brandenburg Statistics Office.

How prices have evolved in the Berlin real estate market (2006-2017)

How prices have evolved in the Berlin real estate market (2006-2017)

 

A creative city expanding fast

Fast population growth creates a strong demand for housing. But the Berlin real estate market is not expanding fast enough: there is a shortage of housing, which drives prices up for property sales and rentals. New construction is slow to pick up, and the existing buildings are not enough to take in all the new Berliners every year. This makes Berlin a very competitive market. In the graph below, you can note the increase in property values in Berlin since 2006:

Where are Berlin’s newcomers from? The city is celebrated for its creative industry, cultural scene, quality of life and innovative tech companies. Therefore it attracts a qualified workforce from over 250 countries to come work or study in Berlin. And the influx of refugees is also making the population of the city (and of Germany) grow considerably: over 50,000 asylum seekers have settled in Berlin since 2012.

 

The different districts of Berlin real estate market

The Berlin real estate market is very attractive for international buyers. On an international comparison, property prices remain moderate and the cost of living is quite low. In 2018, the average quotation per square meter is around 4100 euros –while London plummets at 13,500 euros per square meter!. In the past ten years, property prices in Berlin have more than doubled: one square meter of living space, in 2008, was quoted on average at 1800 euros.

Across the metropolitan area of Berlin, there are strong differences for property sales and rentals. The districts of Mitte, Friedrichshain and Prenzlauer Berg, in the former East side of Berlin, have seen the most change, along with the creative havens of Kreuzberg and Neukölln.

They were some of the cheapest areas ten years ago, and today almost no properties on offer in these districts are below 3000 euros per square meter! Overall, property values have grown exponentially for the past decade, particularly in some districts. FOR DETAILED MAPS AND DISTRICT BY DISTRICT ANALYSIS, DOWNLOAD OUR COMPLETE GUIDE TO THE BERLIN REAL ESTATE MARKET IN 2018 (PDF)

  

Overall, the capital city of Germany is a city of tenants. Out of 1,9 million apartments in Berlin, over 1,6 million are rental apartments! Because of the housing shortage, there are much more people looking to rent or buy apartments than there are on offer. Young, high-income households are increasingly immigrating to the city in large numbers. This suggests excellent long and short-term investment opportunities in the real estate market in Berlin!

Don’t hesitate to consult with ADEN IMMO for further guidance on how to sell or buy a property! The Berlin real estate market is attractive at the moment. However, transactions and regulations remain a complex affair. Both buyers and sellers should seek adequate professional advice to recognise and take advantage of the unexploited potential of the city of Berlin.

Sources:

Senatsverwaltung für Stadtentwicklung (2001): Bevölkerungsentwicklung in der Metropolregion Berlin 2002-2020, Statistische Landesamt Berlin, Senatsverwaltung für Stadtentwicklung

IVD Berlin-Brandenburg (2016): Immobilienpreisservice des IVD Berlin-Brandenburg e.V.

  

 

Our social networks

Find our favorites in preview and our real estate advices on our networks

  

Real estate experts in Berlin and Paris

ADEN IMMOBILIEN is an international team of experts focused on real estate in the German and French capitals.

ADEN IMMOBILIEN is your reference for properties in Berlin and Paris: sales, rentals, new development projects and buildings.