Global menu

Our global pages


Revival of the real estate transfer tax reform on share deals: New initiative of the Lower Saxony Minister of Finance – latest information from the ZIA expert panel of March 10, 2021

  • Germany
  • Tax planning and consultancy


Reform of the real estate transfer tax on share deals: What has happened so far?

Since the end of 2018, there has been discussion on tightening the taxation on share transfers of real estate-owning companies - so-called share deals - with real estate transfer tax (RETT), as under certain conditions such transactions can be carried out with preferential tax treatment or even RETT exempt under current law. In this respect, alleged taxation leaks in case of share deals were supposed to be closed. Due to strong criticism of the previous draft legislation, the legislative process was interrupted at the end of 2019. It was not until the legislative process for the Annual Tax Act 2020 that the topic came up again at all by the end of last year.

New initiative from Lower Saxony...

In a recent press release, Lower Saxony's Finance Minister Reinhold Hilbers made a push to take up this issue again with a new legislative proposal to "solve the problem of the issue of share deals comprehensively and fairly". In a panel of experts of the Zentraler Immobilien Ausschuss e.V. (ZIA) on March 10, 2021, Finance Minister Hilbers explained the key points of his proposal to reduce tax structuring options, while at the same time providing "SME-friendly" options for restructuring without triggering real estate transfer tax:

| Reduction of the current limit of 95% of the shares, above which a transfer of shares can trigger RETT, to a maximum of 90%. Mr. Hilbers does not support a further reduction, e.g. to 75%, because this would result in considerable damage to the small and medium-sized business sector and would be doubtful from a constitutional point of view, too.

| Adjustment of the minimum holding period of five years currently applicable for the tax-exempt transfer of shares in real estate-owning partnerships to a "reasonable extent". Even without naming a specific time limit, the discussed extension of ten years may thus move into the range of seven years.

| Implementation of neutral taxation in terms of legal form, i.e. the exemptions currently applicable to partnerships should be equally applied to corporations and thus provide for entirely equal treatment of all companies.

… still encounters many unanswered questions from practice

In the discussion with the tax experts, various unresolved issues have been highlighted, e.g.

| the practically oriented drafting of a stock exchange clause which would allow share transfers from listed companies to be exempt from RETT,

| the planned changes under the recently published draft of the Act to Modernize the Law on Partnerships (MoPeG), which could suspend the currently applicable real estate transfer tax benefits,

| the potential discrimination of German shareholders compared to foreign shareholders of companies holding German real estate in the case of indirect share transfers.

Nevertheless, it became apparent from the discussion that the perceived unequal treatment of partnerships compared to a German "Häuslebauer" (German term for individuals building their family house) as a trigger for the tax debate could be solved less by adjusting the exemptions currently provided for by law but rather by a perceptible reduction in the RETT rates or even by exempting the first acquisition of real estate. After all, the lower the tax burden, the less incentive there is to choose tax arrangements.

Implementation of RETT reform in the current legislative period questionable

It remained open, however, whether the draft bill could still pass through the legislative process before the Bundestag elections in September 2021. Mr. Hilbers believes this is feasible, although the likelihood of agreement is low. It is thus to be expected that if the legislative process will not be initiated in April/May this year at the latest, the real estate transfer tax reform of share deals is unlikely to be implemented in this legislative period.

Practical advice

Due to the significant impact of the new regulations, investors should continue to keep an eye on further legislative developments, both in real estate transactions and in regular M&A transactions, in order to be able to assess and manage the impact on current and future transactions. We expressly welcome the fact that politicians are interested in a critical and constructive dialog and will continue to work for a practical solution.