Non resident property owners in Germany are liable to tax on income derived in Germany. You will be classed as resident for tax purposes in Germany if you spend more than 183 calendar days in Germany, or you hold your main residence there.
German taxes payable when purchasing a property are as follows:
German Transfer FeesThe transfer of German real estate is subject to a real estate transfer tax (RETT) of 3.5 % on the purchase price of the property.
VAT is charged at the standard rate of 19% (as from 2007) or a reduced rate of 7%. The transfer of real estate is not subject to VAT; however, it is possible to ‘opt to tax’ depending on the purchaser’s VAT status.
Ongoing property taxes payable in Germany are as follows:
German Income TaxEU citizens are subject to a minimum German income tax rate of 15% on the scale of 14%-42%. Non EU citizens will be subject to a minimum rate of 25% on the scale. The German tax office (Finanzamt) estimate your liability based on the previous final liability and quarterly payments are then due in March, June, September and December. Your final liability is then calculated by the submission of an income tax return by the 31st May annually
Non residents are subject to German withholding tax on income from rental or leasing of certain property.
When there are 2 or more non-married owners of the property a Partnership will need to be created.
German Corporate Income Tax is payable if property is purchased through a company and is calculated @ 25% on the company profits after costs. No tax is withheld on rental payments to non-resident companies holding German property. A Solidarity tax of 1.25% approx is also applied.
Local German Property taxA communal tax is levied by the local authority in each region. There are 2 types of local German property tax: Type A applies to agricultural property and type B to building land & buildings. The tax is calculated using the unit value (einheitswert) as fixed by the Finance Authority (ie assessed value which is usually lower than the purchase price) and rates depend on the location (municipality) of the property. Rates in West Germany range from 2.6% - 6%. The average rate for residential property is 3.5%. A multiplier is then applied to the % calculation.
Other applicable taxes are as follows:
German Capital Gains Tax (CGT) is calculated at the same rate of personal income tax. If you have held the property for more than 10 years, you will be exempt from CGT in Germany. Subject to certain conditions, if you re-invest the funds into an alternative property in Germany, you will also be exempt from CGT in Germany.
German Inheritance Tax (IHT) and German Gift Tax- Rates varying between 7% -50% depending on the type of property or gift involved. The value of each asset is determined in accordance with the Valuation Law. The rates of German IHT or gift tax vary and depend on the relationship between the donor and beneficiary and the value of the inheritance/gift.
Non-Resident property owners may be liable to declare German rental income as worldwide income within their annual tax return.
UK and Irish residents are obliged to declare German sourced income in their annual resident tax return. There is a Double Tax Treaty agreement between Germany, the UK and Ireland so relief for certain German taxes will be given against UK / Irish taxes payable on your German property.
Property Tax International specialise in the completion and filing of non-resident German income tax returns. PTI also provide a complete range of UK and Irish domestic tax filing services for the self-assessed and self-employed.