1. Is stamp duty, transfer tax or a similar tax payable on the direct sale, purchase or leasing of real estate? If so, what are the rates and who is required to pay the duty or tax?

In the case of an asset deal, Germany does not levy stamp duty. It does, however, levy a German real estate transfer tax (RETT), among other taxes, on the direct transfer of real estate, in particular the transfer of buildings and / or land. 

However, the sale of fixtures (Betriebsvorrichtungen), even if connected with the building or land, and / or moveable assets, is not subject to RETT.

The RETT rate ranges currently from 3.5% to 6.5% depending on the German Federal State in which the real estate is located.

The seller and buyer are jointly and severally liable for the RETT. However, it is typically agreed in the respective sale and purchase agreement that the RETT is borne by the buyer.

2. Is stamp duty, transfer tax or a similar tax payable on the indirect sale or purchase of real estate, e.g. by means of the sale of an SPV which holds real estate in the jurisdiction? If so, what are the rates and who is required to pay the duty or tax?

In the case of a share deal, Germany does not levy stamp duty. It does, however, levy RETT, among other taxes, on the sale of an SPV which holds German real estate (i.e.: the indirect transfer of real estate) if 90% or more of the interests in a partnership or shares in a corporation which owns German real estate:

• are acquired by new partners / shareholders within a period of 10 years; or
• are unified directly or indirectly in the hands of the same person or entity (and / or entities related to each other, or being part of a tax group).

The RETT rate is currently between 3.5% and 6.5% depending on the federal state in which the German real estate is located. With regard to the liability for the RETT:

• in the case of an acquisition of interests or shares: liability for RETT is borne by the partnership or corporation; and
• in the case of a unification of interests or shares in the hands of the same person or entity: liability for RETT is borne by the person or entity.

3. Is value added tax, goods and service tax or a similar tax payable on the sale or purchase of real estate, and the letting of real estate? If so, what are the rates and who is required to pay the tax?

The transfer (i.e. sale and purchase) of real estate is in general exempt from VAT. A seller can, in principle, opt for VAT in a sale and purchase agreement regarding real estate. However, if a transfer of real estate is regarded as a so-called transfer of a going concern (TOGC; Geschäftsveräußerung im Ganzen), the sale is not subject to VAT and the buyer will step into the seller's position with respect to VAT. This applies in particular to any actual or latent correction obligations regarding input VAT.

The letting of German real estate is only subject to VAT if the landlord validly opts for VAT and waives the respective exemption from VAT. An option is not available to the extent real estate is used or intended to be used for residential purposes or for rendering services by the tenant which are not subject to VAT.

There are no other goods and services or similar taxes in Germany levied in connection with the sale, purchase or letting of real estate.

Germany is part of the European VAT system and as such levies VAT at a regular rate of 19%.

VAT payable on the transfer of real estate falls within the scope of the reverse charge procedure so that the buyer is required to pay the VAT and can deduct it as input VAT to the extent that the real estate is used for supplies or services not exempt from VAT.

VAT payable within the letting of real estate can be deducted if and to the extent the option is validly executed. In principle, a seller can deduct input VAT with respect to any services it receives in connection with the leases from other entrepreneurs (Unternehmer).

4 Are there any annual taxes that may be payable on the ownership of real estate, e.g., annual land tax, municipal taxes, surtaxes, etc.?

Germany levies land tax (LT) on the holding of real estate. LT must be paid by the owner of the real estate but is typically borne by the tenant as ancillary costs to the rent.

Until the end of 2024, German LT was based on the assessed “uniform tax value” (Einheitswert) of real estate (generally based on capitalised earnings).  However, the German Federal Constitutional Court (Bundesverfassungsgericht) decided that the uniform tax values does not correspond to the economic reality. A LT reform was therefore introduced as of January 1, 2020. From 2025, the new LT will be levied.

The new regulations stipulate that undeveloped land will be valued according to the standard land value, while (predominantly) commercially used land will be valued according to the “asset value method”. It should be noted, however, that the LT Act reform allows the “Länder” (German federal states), within the framework of a so-called opening clause, to apply their own procedure for the valuation of land.

LT is calculated as follows:

• Assessed LT value (Grundsteuerwert) x tax measurement figure (Steuermesszahl) = LT base value (Grundsteuermessbetrag);
• LT base value x LT levy rate (Grundsteuerhebesatz) = LT.

The tax measurement figure varies and the LT levy rate depends on the type and location of the real estate.

5. What is the tax rate imposed on rental income?

Corporations are subject to German corporate income tax (CIT) at a rate of 15% plus 5.5% solidarity surcharge, thereon resulting in an overall CIT rate of 15.825%. Additionally, corporations are typically subject to trade tax (TT) at a rate of between 13% and about 18%, depending on where the relevant corporation maintains its German permanent establishment(s). The overall tax rate for corporations, which is also applicable to rental income, is therefore between 28% and about 34%.

However, in an international context, real estate transactions are typically structured in a way so that no TT falls due. This typically involves the use of a company being resident abroad, which holds the German real estate. In case of a domestic company, which holds the real estate, proper tax structuring may lead to a TT exemption for income generated from the lease or sale of the real estate.

6. Is interest on borrowings used to acquire real estate deductible for tax purposes against rental income? If so, (i) are there any restrictions, such as thin capitalization, transfer pricing or interest limitation rules; and (ii) is there any withholding tax on interest?

In general, interest on borrowings used to acquire real estate is deductible for tax purposes against rental income.

The German Interest Barrier Rule (IBR) may limit the deductibility of interest payments for tax purposes. Under the IBR, interest expenses of a given business are tax-deductible only up to an amount equal to the sum of (i) the interest income of such business in the same fiscal year, and (ii) the offsetable EBITDA (verrechenbares EBITDA) of such business (being defined as 30% of the EBITDA calculated for tax purposes).

However, there are three exemptions to the IBR. The IBR shall therefore not apply if:

• the total net interest expense of a given business is less than €3 million (in a given fiscal year);
• the given business is not a related party to any other person (within the meaning of the German Foreign Taxes Act) and does not have a permanent establishment outside the country in which its residence, habitual abode, registered office or business management is located (“stand-alone clause”);
• the given business belongs to a consolidated group and the equity ratio of the given business is either higher than / equal to or not more than 2% lower than the equity ratio of the whole consolidated group at the end of the preceding financial statement reporting date (“equity comparison”).

For the latter two exemptions there are counter-exemptions, which are fairly complicated. Overall, if the interest expenses in question are €3 million or higher per fiscal year, there are several structuring options, which may result in the IBR not being applicable.

In general, there is no withholding tax on interest, assuming a fixed interest rate applies (unless the German real estate serves as collateral for the loan). In case of variable interest rates a withholding tax on interest may apply.

7. Are deductions for capital expenditure available against rental income for tax purposes, for example capital allowances or deductions for depreciation? If so, are deductions available for expenditure on both land and buildings, or on buildings only?

For buildings, a tax-deductible straight-line depreciation is available at a rate of either 2%, 2,5% or 3% per year, depending on the type of building. No depreciation or capital allowance is available for the land. An overall purchase price for the land and building is allocated according to the fair market value of both. Allocating the purchase price for the respective land and building in the purchase agreement is, among third parties, an indication of the respective fair market values and hence may avoid discussions with the tax authorities.

For residential buildings, a temporary degressive depreciation at a rate of 5% of the respective book value is available if the start of construction or the acquisition by a legally binding contract occurred after September 30, 2023 and before October 1, 2029.

For the construction or acquisition of new apartments (Mietwohnungsneubau), a special depreciation at a rate of up to 5% per year in the year of construction or acquisition and the following three years is available in addition to the straight-line or degressive depreciation.

8. Are there any other material restrictions on the costs and expenses which may be deducted in calculating a person's taxable rental income, e.g. transfer pricing or anti-hybrid rules?

The deductibility of intragroup interest payments for tax purposes may be limited by transfer pricing. The recognition of an interest agreement for tax purposes depends on its arm's length compliance (Fremdvergleichsgrundsatz). As part of the new Growth Opportunities Act, a new transfer pricing rule on cross-border intragroup financings into Germany has been introduced. Accordingly, the arm’s length principle is not complied with if:

• credible demonstration is not possible with regard to: (1) the probability of the repayment from an ex-ante perspective (cash flow test) and (2) the economic necessity of the financing and its use for the business purpose (business purpose test) or;
• interest rate for a cross-border financing relationship with a related party exceeds the interest rate at which the company could obtain financing from unrelated third parties on the basis of the group rating. Only the interest rate determined on the basis of the group rating is deemed to be at arm’s length.

In addition, there are anti-hybrid rules according to which a deduction of business expenses is denied if e.g. the tax qualification or attribution of a capital investment is different and does not lead to taxation of the interest or to a lower taxation of the interest than under German law (tax mismatch, Besteuerungsinkongruenz). Further rules exist.

9. Are there any restrictions on the use and/or the carry-forward of losses?

Tax losses which cannot be set off against earnings of the same fiscal year can be carried over to other fiscal years. The taxpayer may choose between a tax loss carry-back to the previous year (only available for CIT purposes, not for TT purposes) and an infinite tax loss carry-forward to subsequent years (available for both, CIT and TT purposes).

A tax loss carry-back is limited to an amount of €1 million. Tax losses carried forward can be deducted in subsequent year(s) by up to €1 million per year without any limitations. If the loss exceeds €1 million, it can be additionally deducted temporary by 70% (from 2028 again by 60%) of the amount by which the income exceeds €1 million.

As a rule, a transfer of more than 50% of the share capital or voting rights in a corporation results in the entire forfeiture of the tax losses this corporation is carrying forward. Several transfers of the share capital or the voting rights within five years will be summed up for the purpose of determining the extent to which the tax losses carried-forward are forfeited (e.g., a transfer of 25% of the share capital in 2020 followed by a subsequent transfer of 30% in 2021 will result in the entire forfeiture of all tax loss carry-forwards in 2021). These loss deduction rules apply to shares directly held and indirectly held through another corporate entity.

As an exemption to these rules, tax losses and tax losses carried-forward are not forfeited if the transferor and the transferee are both subsidiaries, directly or indirectly, held and wholly owned by the same parent company. If this exemption, known as the Group Clause, does not apply, tax losses and tax loss carry-forwards may be preserved to the extent the corporation owns assets containing unrealized gains which, if realized, would be taxable in Germany. This is known as the Hidden Reserves Clause.

Additionally, if the business of the respective corporation is continued without any change after the transfer of shares or voting rights, the tax loss carry-forwards may on application be preserved, if certain further, formal requirements are met.

10. Are capital gains arising on the direct sale of real estate taxable? If so, what are the rates and are there any exemptions?

Capital gains arising on the direct sale of real estate (asset deal) are taxable for corporations at the regular overall tax rate of 15.825% CIT and (if applicable) between 13% and about 18% TT. There is an exemption with regard to TT if the corporation exclusively leases and manages real estate.

11. Are capital gains arising on the indirect sale of real estate taxable, e.g. by means of the sale of an SPV which holds real estate in the jurisdiction? If so, what are the rates and are there any exemptions?

Capital gains arising on the sale of shares in a corporation holding real estate should be 95% tax-exempt, so that only 5% of such capital gains are subject to CIT and (if applicable) TT, if the corporate seller is tax resident in Germany. 100% of the capital gains should be tax-exempt if a non-German corporate seller does not have a business in Germany.

12. Is there a withholding tax on rental income?

No, Germany does not impose withholding tax on rental income.

13. Is there a withholding tax on capital gains derived from real estate? If so, does the withholding tax apply to both direct and indirect sales, or to direct sales only?

Withholding tax on capital gains derived from real estate can be imposed by the German tax authorities (at their discretion). The tax authorities can oblige the buyer to withhold and pay 15.825% of the purchase price as a lump sum to secure the corporate income tax due on the purchase price for the account of the seller if German real estate is sold by non-German corporations. This applies to direct sales of German real estate sold by non-German corporations. In general, there is no withholding tax in case of an indirect sale.

14. Does the jurisdiction have a REIT regime? If so, please outline the tax treatment of the REIT and the main conditions that must be satisfied to enter and remain within the regime.

Yes. Germany does have a REIT regime. REITs have been permitted in Germany since 2007.

A stock corporation may fall under the REIT regime if (in particular) the following conditions are met:

• submission of the company name to the relevant court for entry in the commercial register;
• registered office and business management in Germany;
• shares of the REIT stock corporation to be admitted to trade on the stock exchange; request for stock exchange admission within three years of registration of the stock corporation as pre-REIT;
• at least 15% of the shares in free float (25% at the time of admission to the stock exchange);
• mandatory dividend distributions to investors;
• no real estate trade; and
• minimum equity capital: not less than 45% of the value of immovable assets (in the individual or group financial statements).

If the conditions are met, a REIT stock corporation is exempt from CIT and TT.

15. Apart from REITs, are there any other tax-efficient real estate investment vehicles or structures which are commonly used to acquire, hold and exploit real estate in the jurisdiction?

In an international context, German real estate is typically acquired through a foreign PropCo (in many cases resident in Luxembourg) to avoid a German TT charge. There is therefore no tax benefit to using a German real estate investment vehicle.

Nevertheless, proper tax structuring may lead to a TT exemption for income generated from the lease or sale of the real estate in the case of a domestic company which holds the real estate.

16. Are there any structures commonly used to mitigate real estate transfer tax liabilities on acquiring and/or disposing of real estate?

If due to factual circumstances the real estate itself needs to be acquired or sold, there is no way to avoid German RETT.

However, if instead of the real estate itself, it is possible to sell the interests in a real estate holding partnership, or the shares in a real estate holding corporation, one may make use of the 90% threshold rule in respect of the interests or shares that need to be sold, transferred or unified in order for RETT to be triggered.

RETT also falls due on any act or transaction in which either:

• 90% or more of the interests in a real estate holding partnership or of the shares in a real estate holding corporation are (directly or indirectly) transferred within a period of ten years to new partners / shareholders, or
• 90% of the interests in such partnership or of the shares in such corporation are (directly or indirectly) unified in “one hand,” where one hand is either an individual, an entity or a group of entities related in a certain way.

The real estate does not have to be the sole or main asset of the partnership for the RETT to accrue; it is sufficient for the partnership to hold any German real estate.

Additionally, there are several other ways for a RETT charge to be triggered in dealing with German real estate (e.g., the economic unification of 90% or more of the direct or indirect economic interest). These need to be taken into account when structuring a real estate transaction in Germany.

Notification periods and other formal aspects also need to be complied with to avoid additional tax burdens, e.g. a double RETT.

17. Are there any material differences in the way individuals and companies are taxed on acquiring, letting and/or disposing of real estate?

The taxation systems for individuals and for corporations are completely different and hardly comparable. For individuals, there is no fixed income tax rate, but a progressive income tax rate.

In the context of real estate, an individual may sell a certain number of real estate assets during a certain period of time and with a certain minimum holding period without the capital gains being subject to any income taxation. Furthermore, individuals do not pay trade tax unless their activities exceed a certain threshold in respect of relevant “trading activities”.

This guide does not constitute tax advice and readers should note that the laws of each jurisdiction are regularly refined and/or revised, so the statements made in this report are not definitive. However, this guide does provide a summary overview of the state of the law as at 31 January 2025 and will hopefully serve as a useful tool for investors to ensure they understand the unique provisions and distinctions in the various jurisdictions.