Real Estate Investment in Germany

Advice for foreign clients on German Real Estate Law

Land Register, Property Purchase Contract, Tax etc.

We advise foreign clients on investments into residential and commercial real estate. In particular, we advise on property development or regeneration projects. We have particular experience in advising on the purchase of retail properties/retail centers (Fachmarktzentren). We advise throughout Germany and have particular market knowledge and network partners in two of Germany’s most relevant real estate locations, Berlin and Hamburg. We are familiar with the particularities of inbound-investment and support foreign investors with hands-on legal and tax advice throughout the entire investment process.  

Private buyers find a survey here: Buying property in Germany

Legal Ownership  

Natural persons – both German and foreign nationals – may acquire real property. They may acquire sole or joint ownership. Joint ownership occurs for instance in case the deceased has more than one heir. All heirs will then be registered as joint owner of the German real estate. Further, companies and partnerships – both German and foreign – may acquire ownership. Please note that the German land register requires certified proof of (a) the existence of a foreign company/partnership and (b) the power of representation of the individual(s) representing the foreign company/partnership (e.g. directors). We are familiar with the particularities applicable in each individual case (e.g. certificate of incorporation; certified foreign company register excerpt) and are happy to liaise with foreign legal counsel or notaries.

Land Register

Legal ownership is acquired upon registration in the local land register. The land register is a public register operated by the respective local court. For each property a separate land register folio exists. The folio displays the identity of the owner, the size and location of the property, restrictions on the use of the property or encumbrances. The land register may be accessed by the general public. Yet, a person interested in reviewing a land register folio must demonstrate a legitimate interest (e.g. interest in purchase of the property) in order to be granted access to the register. Purchasers should always examine up-to-date extracts from the land register prior to acquisition of a property.   Other Public Registers Other real estate- related public registers exist. When acquiring real estate which is located on former industrial sites, the register for polluted areas (Altlastenregister) should be consulted. Further, the register for public charges (Baulastenverzeichnis), i.e. obligations towards the competent building authority, should be consulted.     

Purchase Process

Property purchase contracts must be concluded before a German notary. Yet, the parties must not necessarily appear in person but may authorize a representative by way of a written power of attorney. Please note that this power of attorney must be certified either by a German notary, a German consular officer or a foreign notary. In the latter case, the power of attorney must be attached with an apostille. The notary serves as an independent party throughout the purchase process and liaises with involved public authorities such as the land register and the tax office. A notarial escrow account may also be used in order to balance out the parties’ respective risks. A property purchase contract typically contains the following provisions:

  • the obligation to sell and purchase;
  • seller’s declaration of conveyance of title to the purchaser
  • preconditions to maturity of purchase price;
  • payment conditions;
  • transfer of benefits and burdens (Nutzen- und Lastenwechsel);
  • encumbrances;
  • liability for defects as to quality and title;
  • power of attorney for purchaser for encumbrance of property in order to obtain mortgage financing   

Once the land registry receives the application for transfer of title it examines whether certain formal requirements have been fulfilled. Such requirements include the presentation of a certificate of non-objection of the competent tax office, i.e. confirmation that real estate transfer tax has been paid.

The registration of the transfer of title can take up to several months. Theoretically, the purchaser could validly transfer the property to a (higher-bidding) third party. No purchaser will accept this uncertainty. Therefore, typically, the seller grants a priority notice (Vormerkung) in favour of the purchaser. The priority notice will be registered in the land register immediately after the notary’s appointment. The priority notice protects the purchaser as no third party may validly acquire good title to the property as long as such a priority notice is registered in the land register.    

Transaction Costs, (Realtor) Fees and Taxes  

Typically, the purchaser bears the notary’s fees as well as the land register fees. These fees are calculated on the basis of a statutory cost schedule and depend on the commercial volume of the respective transaction (typically the purchase price is the decisive factor).   If the purchaser has used a realtor he is likely to be charged a broker fee in the region of 3 – 7 % of the purchase price.   In addition, the purchaser bears real estate transfer tax (=stamp duty in the UK, Ireland, Australia). The applicable tax rate varies between the respective federal states (e.g. current tax rate in Bavaria: 3,5 % as opposed to 6 % in Berlin). The land register will not register the purchaser as new owner until the tax office confirms that real estate transfer tax has been paid.    

Example: A property in Berlin is bought at a price of EUR 800,000.00. The purchase price will be transferred via the notary’s escrow account. A land charge needs to be registered at EUR 600,000.00 face value in order to obtain bank financing.  

  • Notary fees: approx. EUR 6,664.00    
  • Land register fees: approx. EUR 3,200.00  
  • Realtor fee: EUR 56,000.00  
  • Real estate transfer tax: EUR 48,000.00    
  • Aggregate transaction costs: 113,864.00      


German law provides for a multitude of financing instruments for real estate transactions ranging from classic bank financing to mezzanine capital. Investors interested in providing loans to German borrowers are advised to obtain banking regulatory advice as German banking regulatory rules (requirement of a banking license) regarding loans are rather strict.  

Land Charges

Typically, a land charge (Grundschuld) is used as collateral in real estate financing. The land charge deed must be certified by a notary and registered in the land register. Under the land charge owner agrees that a certain amount of money will be paid from the property to the lender. Typically, it is agreed that the land charge is enforceable upon an event of default under the loan agreement.   A land charge is enforced by sale of the property in a public auction  , or by compulsory administration of the property. The general practice for real estate lending on a larger scale is for the borrower and the lender to agree on a private sale of the property in order to achieve a better sale price for the property.  

Other Types of Collateral

Besides a land charge, lenders will usually also ask for a security assignment of the lease proceeds (if applicable) and, if a special purpose vehicle (SPV) is party to the loan agreement, demand an account pledge over the SPV’s accounts as well as a share pledge  over the shares of the SPV.  


Below we provide an outline on the taxation of real estate in Germany. Real estate may be subject to the following taxes in Germany:    

  • Income tax (individuals), corporate tax (companies)
  • Real estate transfer tax
  • Value added tax
  • Trade tax
  • Real estate tax
  • Inheritance tax, donation tax  


Individuals being domiciled or resident in Germany are subject to German income tax. This includes the taxation of real estate income (rental income and capital gains from the disposal of real estate). Most double taxation treaties entered into with Germany provide for taxation of real estate income in the jurisdiction where the real estate is located. Therefore, individuals being neither domiciled nor resident in Germany are subject to German income tax with income from real estate located in Germany.    Income tax rates range from 14 % to 42 %. Income equal or in excess of EUR 52,882.00 is taxed at a rate of 42 %. Any income in excess of EUR 250,731.00 is subject to a tax rate of 45 %. In addition, a solidarity surcharge (Solidaritätszuschlag) at a rate of 5.5% of the respective income tax liability is levied.

Capital gains deriving from the sale of real estate are tax exempted if

  1. the property was held for more than 10 years and
  2. the property does not qualify as a business asset.

A property is regarded as a business asset if the taxpayer qualifies as a real estate trader. As a basic rule, an individual is deemed a real estate trader if it sells more than three properties within a period of five years.

Dividends which are distributed to individuals are subject to withholding tax (Abgeltungssteuer) of 25 % plus a solidarity surcharge of 5.5% of the tax liability, i.e., at effectively 26.375 %. Withholding tax is retained by the debtor of the dividend and then paid to the tax office. This applies also for shareholders residing abroad. However, foreign shareholders may benefit from a lower withholding tax rate depending from the respective double taxation agreement.  

Proceeds from the sale of a property which qualifies as a business asset (see above) or from the sale of shares in a property owning company may a tax exemption of 40 % (partial-income rule) if certain conditions are met.  


German companies are liable to German corporate tax (Körperschaftssteuer). Corporate tax is levied at a rate of 15% on the tax base plus a solidarity surcharge of 5.5% of the corporation tax liability, i.e., at 15.825% in total. Taxation is enforced irrespective of whether profits are distributed or not. This also applies to foreign companies having their seat of management in Germany. Foreign companies not having their seat of management in Germany are subject to German corporation tax provided they generate, inter alia, income from real estate located in Germany.

Dividends from a German company or a foreign corporation with its seat of management located in Germany are subject to withholding tax at 25%. A foreign corporate shareholder can benefit from a reduction of the withholding tax rate down to:                 

  • 15%,
  • an even lower rate in the case of a respective double taxation treaty, which provides for a further reduction,
  • or even zero, if the requirements of the respective EU directive are met.

Shareholding companies enjoy an exemption of 95% (effective corporation tax rate = 0.8%) provided they have a minimum shareholding of 10 % in the subsidiary.

Tool for tax efficient exit: Purchase of a German real estate holding company via a corporate vehicle and benefit from the 95% exemption from capital gains.     .    

Trade Tax on Business Income  

Business income is subject to local trade tax (Gewerbesteuer) at a rate of up to 17.2%, depending on the applicable local tax rate. Real estate income is subject to trade tax if the property both

  1. qualifies as a business asset and additionally
  2. is to be allocated to a German permanent establishment.  

Real estate qualifies as a business asset if it is (i) used in connection with business activities (such as by a real estate trader), (ii) held by a business partnership (rather than by a pure asset managing partnership) or (iii) held by a corporation (directly or indirectly via a partnership).  

The tax base for trade tax is determined by the taxable income for income tax or corporation tax purposes, modified by certain additions (such as 25% of interest expenses) and deductions (such as the extended trade tax exemption for real estate lease income, see below).

For dividends, liquidation proceeds and capital gains from a disposal of shares in a corporation, the above mentioned exemptions for corporation tax also respectively apply for trade tax. With respect to dividends and liquidation proceeds, however, a minimum shareholding of 15% is required.

A real estate holding company may apply for an extended trade tax exemption if its only activity is renting out its real estate. In this case, effectively payment of trade tax can be avoided entirely.  

Another viable route for avoiding trade tax is acquiring German real estate via foreign entities (e.g. Luxemburg S.a.r.l. or Dutch B.V.) provided that the place of effective management is located in the jurisdiction where the statutory seat of the foreign entity is.

To sum up, tax leakage with respect to income from real estate investments in Germany in many cases can be limited to income or corporation tax.  

Interest Deduction  

Typically, real estate investments are highly leveraged. Interest expenses are balanced with real estate income in order to minimize the tax base and thereby decrease tax leakage due to income, corporate and trade tax. Therefore, interest deduction must be considered for a tax efficient investment structure.

Yet, the use of interest payments as a tax-deductible is not limitless. The so called “interest barrier rule” (Zinsschranke) limits the deduction of interest expenses to an amount of 30% of the tax based EBITDA of the taxpayer. However, certain exemptions from this limitation exist.   

Value-Added Tax (VAT)  

The current applicable basic VAT rate in Germany is 16%. The sale of German real estate is, generally speaking, exempted from VAT. However, an option to VAT can be made in the purchase contract if the purchaser qualifies as entrepreneur for VAT purposes. The purchaser is then liable to VAT (reverse charge) on the purchase price and can deduct input VAT as the case may be. If a property is rented out the sale of the property might qualify as a sale of a going concern business unit (Geschäftsveräußerung im Ganzen) and therefore not be subject to VAT.  

Real Estate Transfer Tax (RETT)  

Simply put, real estate transfer tax (Grunderwerbssteuer) (RETT) falls due upon transfer of a property to a new owner. The RETT rate ranges between 3.5% and 6.5%, depending on in whic Federal state the real estate is located. RETT is usually computed based upon the purchase price. RETT is triggered in case of a direct (asset deal) or indirect (share deal) change in either the legal ownership of real estate located in Germany.

This includes

  • The transfer of legal title to a property (asset deal)
  • the transfer of at least 90% of the shares in a real estate holding company or partnership to a new (indirect) shareholder/partner within a period of 10 years
  • the direct and/or indirect consolidation or transfer of at least 90% of the shares in a real estate holding company or partnership among the existing shareholders/partners within a period of 10 years

There are a number of exemptions from RETT, for instance in case of a donation or property transfers between certain family members or in case of certain reorganization measures within a group of companies.

Tool for tax efficient transactions: Co-investments conducted by a majority shareholder (e.g. 89.9 % of the shares) and a third-party minority investor (e.g. 10.1 % of the shares) may serve as a so called “RETT-blocker” and result in a RETT-free property transaction. Alternatively, the seller may retain a 10.1% shareholding in the target company.

Real Estate Tax  

Real estate tax (Grundsteuer) is assessed annually on 1 January and based on a property’s value. The applicable tax rate may vary between different cities in Germany.   The real estate tax rate ranges from 0.8% to 2.8% of the tax base, depending on the location of the property. The average effective tax rate across Germany is approx. 1.5%. Real estate tax can be used as tax-deductible expense for income, corporation and trade tax purposes.    

However, in 2018, the Federal Constitutional Court ruled that the method in which properties are valued for the purposes of real property tax is unconstitutional. The amount of real property tax due on properties of a similar value can vary enormously. This leads to significant inequality of tax treatment, which the Federal Constitutional Court considered to be unjustifiable. A reform of the land tax is on the way, yet details are still to be defined.

Inheritance Tax, Donation Tax

Real estate located in Germany is subject to inheritance tax and donation tax. Tax rates range from 7% to 50%. As a general rule non-German residents are subject to both inheritance and donation tax with regard to real estate located in Germany either transferred by way of inheritance or donation to a third party. Yet, inheritance and donation tax can be reduced by using tax exemptions (e.g. EUR 500,000.00 each 10 years between spouses, EUR 400,000.00 each 10 years between parents and their children). Further, we are experienced in setting up family estate holding companies which protect the family’s assets against creditors and help reducing tax leakage.

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