German Real Estate Transfer Tax on Indirect Transfers of (German) Entities

In brief

Germany levies Real Estate Transfer Tax (RETT) not only on direct transfers of German real estate (asset deals) but also on indirect transfers via share deals. RETT applies regardless of the tax residence of the investor. Accordingly, non‑German residents are fully within scope if the relevant statutory thresholds are met.

RETT triggering events can include direct or indirect

1. acquisitions of shares;
2. mergers;
3. interpositions of entities; and
4. other measures

concerning a lower-tier corporation owning any German-sited real estate.

It is not required that the German-sited real estate forms the predominant asset of the corporation. The same principles generally apply to partnerships.

In detail

Background

German RETT applies not only to direct transfers of shares in a corporation owning German sited real estate but also to indirect changes in ownership arising from transactions abroad at higher tiers. Under certain circumstances Germany “looks through” multi-tier structures and may treat foreign transactions – mergers, acquisitions, reorganizations, etc. – as RETT-relevant if they alter the effective ownership of an indirect subsidiary owning German-sited real estate.

Tax exemptions for intragroup transfers

Certain intragroup transfers may qualify for a RETT exemption. However, the conditions are strict and must be assessed in each specific case.

Tax rate, tax base and taxpayer

The tax rate depends on the German state where the property is located and currently ranges between 3.5% and 6.5%. In the case of an indirect transfer of shares, RETT is assessed based on the special German real estate value, which is usually close to the fair market value. The taxpayer depends on the transaction undertaken and, therefore, on the applicable RETT provision. The taxpayer can be the foreign purchaser / recipient, or the foreign beneficial owner, or the German corporation owning the real estate, or the German partnership owning the real estate.

Reporting obligations

Any RETT-relevant transaction must be reported within two weeks. In case of a foreign taxpayer, the deadline is extended to one month. Disclosure must be made even if the (intragroup) transaction is exempt from tax.

Recommended actions

For non-German residents, RETT on share deals is often a material cost factor and must be analyzed at an early stage.

Key considerations include:

• always request information on German real estate when analyzing any corporate restructuring, purchase / sale, merger, or intragroup reorganization at a higher tier, also abroad;
• conduct a RETT assessment early in transaction planning when an entity with German real estate appears anywhere in the structure;
• monitor historic and future share transfers within a 10-year period;
• carefully structuring of minority holdings;
• coordination of signing and closing notifications; and
• allocation of RETT risk and cost in transaction documentation.

For more information, please contact our German tax team.