CITYMAKLER DRESDEN is the local estate agent for foreign real estate investors in Dresden and Saxony. We have extensive experience of advising foreign property buyers, and accompanying them through real estate transactions. Not only do we evaluate property by international standards, as demanded by our clients, but we can also help answer tax questions for our foreign business partners.

When it comes to real estate, Germany has a simple tax system which is beneficial for property owners. Based on European Union law, it encourages private and commercial property investment. Taxation is simple and easy to understand for foreigners, when a German tax consultant assists you in completing the annual tax return. In the case of single flats the yearly fee is around €100, for larger multi-flat buildings the maximum fee would be €1000.  

Please note: We ourselves are not tax consultants and may not, under German law, offer tax advice. The following tips which we would like to give you have been thoroughly researched and checked by a German tax consultant. Our researches are based on the tax situations of non-German EU citizens, especially from the UK and Ireland, who have purchased real estate in Germany. We assume no liability for the accuracy of this information.

Income from letting property

Legal basis for tax assessment:

Tax assessment for foreign buyers is based on the relevant double tax agreement”  between Germany and the buyer’s country of residence. When a foreigner acquires German real estate and keeps this in his possession for a period of time, he receives thus income (positive or negative) from letting and leasing. He is thus obliged to make an annual tax return in Germany, under the “restricted tax liability.”  

Any losses must be reported and can only be offset in Germany. Under EU law it is not possible to transfer losses in the purchaser’s country of residence to Germany. Depending however on the relevant double tax agreement, it could be that the losses can be offset in the country of residence by progressive provision. A tax consultant in the country of residence will be able to give more detailed information.

Establishing the profit which is liable to taxation:

The foreign purchaser must submit a tax return in Germany, detailing all incomings and outgoings relationg to the property. The calculation of profit and lost is based on German law, on the same basis as for a German property owner. The central point of the calculation is to establish the returns (e.g. rental income) and to deduct outgoings relating to the property (normal deductions, special deductions for protected properties, ancillary costs, interest payments, costs for tax consultants, estate agents, etc). Most of the costs relating to the property or in obtaining rental income are deductible. Certain costs, for example ancillary costs which can be passed onto the tenants or major renovation works are not deductible, or can only be deducted within limits. A German tax consultant will provide more detailed information.

Taxation levels:

The level of income tax is based on the basic table (*) of income taxation. Currently the lowest level of tax for foreign property owners is 25%, which would be the level for an annual profit of  €15,000. Higher profits are subject to progressive taxation, and so the tax liability can increase.

Here is an example of the tax liability for a foreign real estate owner:

Please note: There is opinion that the lowest taxation level of 25% breaches EU law. At the moment there are several cases pending before European financial courts. Therefore, when a foreign owner receives the tax demand, he should always make use of his legal right to appeal and to apply for the requirement for full payment to be set aside.

Sale of property for profit

Private sale for profit within a 10-year period are also counted as part of the German income of the foreign property owner. In other words, the resale of real estate within a period of 10 years will be examined very thoroughly by the tax authorities. In everyday language such deals are known as “speculation.” If there is a period of less than 10 years between the acquisition and sale of the property, the profit (or possible loss) in Germany must be declared and tax is due. The profit is only free from taxation when the owner had the property for 10 years or more. All German property is subject to this law, as are all German property owners. The property is based on the book value (the value which the property has in the assets portfolio of the owner, or in his tax return) and the sale price. The book value is usually based on the acquistion price, after deductions as listed above.

The tax level and the calculation in the coutry of residence of the purchaser is based on the same methods as used for calculating current income (rental returns). A tax consultant will be able to give more detailed information.

(*) Keywords

Double-tax agreement

Within the EU there is the principle of the single income. Theoretically, the foreign property owner could also be liable for taxation on his foreign income in his country of residence. To avoid such double taxation, the income is either released from tax obligations in the country of residence or the tax payable in Germany will be taken into account. It will be for the relevant country of residence to decide how the German taxation is to be taken into account. We know of two possibilities which are used within the EU:

Method 1:

The income from property in Germany is released from tax liability in the country of residence of the owner; in other words, no tax will be due on it. This income could however be taken into account when assessing the per cent of tax due in the home country. This would mean that in the country of residence there is a higher tax level.

E.g.

Income in country of residence               100,000 euros

Income from property in Germany            40,000 euros

TOTAL:                                                 140,000 euros

Tax rate e.g.:                                       40%  at 140,000

Tax rate e.g.:                                       35%  at 100,000

This would mean an income tax rate of 40,000 euros (40% of 100,000 euros). Without a German income the property owner would have to pay only 35,000 euros in his country of residence.

Method 2:

German taxation would be taken into account when assessing tax in the country of residence. Thus, the entire income from throughout the world would be assessed and subject to taxation in the home country. The tax which has already been paid in Germany would be given credit when assessing income tax in, for example, Ireland. (But only at the rate for which such tax would be due in Ireland).

Conclusion:

It would be for each client to decide for themself, after discussion with a tax consultant, which method to make use of. Germany uses of method 1, while the Irish revenue uses method 2.

There is therefore no double taxation, although there can be a part double-liabilty/higher liability through the progressive provision (level of the percentage tax rate). From the link between inland and foreign incomes, it could be that the level of income in the country of residence of the foreign purchaser for the actual tax liabilty of the German property. The foreign purchaser should discuss the situation with his tax consultant.

Limited tax liability

There is limited tax liability when the foreigner is not resident here in Germany (is not registered as living here) and does not have his normal place of resident here (is less than 180 days in the country), and is only liable for taxation on his income acquired in Germany. Other income from sources outside Germany would not interest the German revenue.

Taxation table:

Here you find the updated Taxation table. In germany Its a progressive calculation:
 
https://www.abgabenrechner.de/bl2007

Concluding remarks:

When it comes to taxation on real estate, Germany has a simple tax system which is advantageous for the property owner. It is based on European law and encourages both private and commercial investment in real estate. The tax situation is simple and easy to understand for the foreign owner when he works with a German tax consultant when making the annual, obligatory tax return. This would cost, between about €100 for single flats and maximum €1000 for larger buildings with multiple units.