On 17 May 2021, the German legislator introduced a bill amending and changing the German RETT Act with legal effect as from 1 July 2021. The main focus of the amendments is on so-called share deals, i.e. transactions in which not the property itself but shares in property-holding corporations/partnerships are transferred. From 1 July 2021 on, even minor changes in corporate structures could lead to tremendous RETT burdens.

The bill provides for the following key points:

• Reduction of shareholding quotas to 90% (previously 95%) to be applied for acquisition of shares as well as for unification of shares;
• Extension of the holding periods/observation periods to 10 years (or 15 years) (from currently 5 years);
• Movement Rule (previously only for partnerships) to apply to corporations as well.
• Introduction of a stock exchange clause according to which trading in shares in a corporation via certain stock exchanges or trading places is disregarded when determining the transferred shareholding quota.

Although the changes might not seem significant at first sight, they could lead to tremendous impacts for property owning corporations and partnerships. The following are examples of only a few of these impacts:

• It is no longer possible to sell 100% of the shares in a corporation RETT-neutrally;
• If signing of the SPA by one buyer acquiring 100% shares in a property owning corporation takes place by 30 June 2021, RETT could be triggered twice;
• A corporation, which holds 100% interest in a property owning partnership, will only be able to transfer 89.9% of its interest RETT-neutrally to another investor. The remaining 10.1% can be transferred to the same investor after a further 15 years, so that RETT is then only triggered on the 10.1%.
• In case of existing partnership structures, the extension of the holding period from 5 to 15 years triggers RETT on 100% of the property tax value if interest is transferred before the holding period ends (e.g. due to a put-option granted in the case of a step acquisition).
• Some of the currently applicable provisions are to be applied in parallel with the future provisions. This means, for example, that if 94.9% of the shares are transferred in 2020, a further transfer of 0.1% in 2022 will trigger RETT.

For property owning partnerships and corporations, it is crucial to analyze existing structures and intended transactions with regard to the upcoming changes in RETT law, especially in cases of future share deals.

Please do not hesitate to contact us if you have any questions in this regard. We would be happy to assist you.