Author’s note: Given the current discussion of the reform of future property tax calculation, an explanation of the calculation of tax liability has been waived.
Property tax is a municipal tax on real property.1 It is regulated in the Grundsteuergesetz (GrStG – German Property Tax Act).2 Agricultural and forestry businesses, business premises and private land are subject to property tax. Public sector property holdings and property holdings used directly for charitable purposes in particular are exempt.3 If there is a significant reduction in a property’s income – for example due to vacancy – companies can also apply for a (partial) waiver of property tax in accordance with section 33 GrStG.4
For communities with corresponding tax rights, property tax and trade tax are a significant source of income.5
The party liable to pay property tax is initially the owner of the property. There is joint and several liability for properties with multiple owners. However, as property tax is usually allocated to the tenant as a recoverable additional cost in rented buildings, the tenant pays this indirectly.6
Property tax is levied annually at the beginning of the calendar year. However, it is payable in quarterly instalments.7 For property transactions occurring during a year, the acquirer of the property is liable for property tax arrears in accordance with section 11 GrStG. As this liability to the tax office cannot be excluded, internal exemption regulations are usually agreed in the purchase agreement.8
The tax object is the property as defined by the German Valuation Act (section 19 I no. 1 BewG). The owner does not produce property tax returns; rather the property tax is assessed directly by the determination procedure.9
In tax terms, property tax, in accordance with the net principle, can be deducted from operating assets as a business expense and from productive private assets as income-related expenses, resulting in a reduction of tax liability.10