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Food and Drink: Germany: Sales of groups with German real estate

    • Food and drink - International

    12-07-2013

    Food and Drink (FAD) businesses with German real estate need to be aware of new rules in the country, effective June 2013.

    The sale and purchase of real estate is subject to Real Estate Transfer Tax (“RETT”). The tax rate is 3.5% to 5.5% of the purchase price or the “relevant tax basis” in Germany.

    The sale and purchase of shares is subject to RETT if the company owns German real estate.

    Previously, RETT blocker structures were used by international manufacturing businesses to avoid RETT. Following the introduction of the Section 1 paragraph 3a German Real Estate Transfer Tax Act (“RETT Act”) these structures no longer necessarily work as economic, direct or indirect participations in a company holding German real estate of at least 95% is now a sufficient shareholding to trigger RETT. These new rules are applicable to all transactions completed after 7 June 2013.

    This is a real threat to international FAD companies. Even if RETT blocker structures were implemented prior to 7 June 2013, these structures do not provide sufficient protection from RETT in the future. In particular the sale and transfer of shares in foreign (ie non German) intermediate holding or parent companies where a subsidiary holds German real estate may trigger RETT in Germany if 95% or more of the shares in the parent company or intermediate holding company are transferred.

    However, it may still be possible to avoid RETT on the purchase of shares in companies holding real estate in Germany if the seller remains a minority shareholder with a participation of at least 5.1%. Other structures may also be available.

    There is however some good news. The restructuring of a group of companies whose subsidiaries own real estate in Germany used to be potentially subject to RETT. A direct or indirect transfer of shares in a company holding real estate often triggered RETT. The only available tax exemption required a transfer of the shares by way of merger, spin-off or split-off. Since 7 June 2013, additional methods of transfer which benefit from a RETT exemption include a contribution or a transfer prescribed in the articles of association.

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