Property transfer tax
Property transfer tax is a transaction tax. It applies to all transactions listed in section 1 of the Grunderwerbsteuergesetz (GrEStG – German Property Transfer Tax Act) that lead to a change of ownership of German properties. It is incurred regardless of whether the parties involved are foreign or domestic.1 Transactions that are subject to the Property Transfer Tax Act are free from VAT in accordance with section 4 no. 9 a of the Umsatzsteuergesetz (UStG – German VAT Act), hence property transfer tax is also referred to as a special transaction tax.2
The property comprises the land and the essential components. In particular, these include buildings but not machinery or operating equipment.3
The sale of companies or parts of companies can be free from property transfer tax under certain circumstances. This depends on the extent to which there is a change of ownership in the economic sense. For properties owned by partnerships, property transfer tax is payable in accordance with section 1(2) a GrEStG if at least 95% of the assets transfer to new partners within five years. If this threshold is not reached, the transaction is a share deal and therefore exempt from property transfer tax. Other companies, particularly corporations, can also benefit from this tax exemption. In accordance with section 1(3) GrEStG, the 95% threshold also applies to other companies. A share deal is often implemented for major property transactions as, compared to an asset deal (a direct property acquisition, conclusion of a property purchase agreement), it is the more economical alternative. The basis of assessment for property transfer tax, in accordance with section 8(1) GrEStG, is the value of the consideration. The notarised purchase price is used, regardless of whether this is the market value of the property. In exceptional cases, valuation in accordance with section 8(2) GrEStG in conjunction with the Bewertungsgesetz (German Valuation Act) is possible. This is necessary if symbolic consideration has been agreed instead of an actual purchase price.
The amount of property transfer tax is determined by the individual federal states.4 It currently varies from 3.5% in Bavaria and Saxony to 6.5% in Schleswig-Holstein, North Rhine-Westphalia and Saarland (August 2015).5
In accordance with section 13 no. 1 GrEStG, the acquirer is primarily considered the taxable party, though other participants in the transaction, for example the seller, may also be liable. As joint and several liability applies, it is advisable to regulate the payment obligation in the purchase agreement.6
The notary is required to issue corresponding notification when concluding a property purchase agreement. The respective tax authority then sets the property transfer tax.7