Real estate investors with their corporate seat and management outside of Germany may be subject to German taxation on capital gains from share deals. Non-resident individuals (investing directly or through partnerships or funds) will primarily be affected.
According to a German draft tax bill, the sale of shares by foreign-based shareholders of foreign-based companies primarily holding real estate in Germany will trigger a new capital gains exit tax as of 1 January 2019. This change may signal a need for alternative exit strategies.
In classic No-PE structures (i.e. a structure avoiding a permanent establishment in Germany), foreign-based companies investing in German real estate are subject to German corporate income tax (at a rate of 15.8%) with respect to the company’s rental income and sale proceeds in case of asset sales of German real estate. Neither rental income nor capital gains are subject to German trade tax (generally ranging from 7-17%) if neither a company’s corporate seat nor permanent establishment is situated in Germany.
Share deal exits from No-PE structures are currently not taxable in Germany, i.e., capital gains from share deals with the target being a foreign-based real estate company (for example a Luxembourg S.à.r.l with non-German based shareholders) are not subject to German corporate income or trade tax. The draft bill aims to change that from January, 1, 2019. Continue Reading