Buyers Guide to Property In Germany

Allow approximately 10% of the purchase price to cover all fees and taxes. If you are getting a mortgage from a German Bank allow up to 2% of the loan amount.

Taxes

Real Estate Transfer Tax (Grunderwerbsteuer):The purchase tax (similar to stamp duty) on real estates, amounting to 3.5% of the purchase price (4.5% in Berlin) has to be paid within two weeks of completion of the sale. For this purpose the tax authorities will insist on German representation.

Following the payment, the tax office will issue a clearance certificate, which is necessary for transferring the property from seller to buyer. Legal and registration fees vary up to a maximum of 2% of the purchase price and need to be paid in the same time period.

Rental Income Tax: The basis for assessing tax on rental income in Germany is Gross rent (including service charges) less allowable costs. A minimum tax rate of 25% applies to net rental income plus a so-called "solidarity surcharge" which is levied on income tax at a current rate of 5.5% of the tax liability.

Allowable costs include all expenses incurred relating to the rental of the property during the year. Such expenses included gas, electricity, water, heat, street cleaning, refuse, property management, insurances etc. Renovation costs are also allowed as a deduction, subject to certain limitations. Interest pain on borrowings to fund the purchase of the property will be available for offset against rental income.

Total costs relating to the acquisition of the property may be written off over a number of years, these include the purchase price of the property, notary fees, purchase tax and legal fees. The annual rate of depreciation allowed depends on the age of the property. For a new building: 4% for the first 10 years, 2,5% for the next 8 years and 1.2% for the next 32 years.

Losses may be carried forward and set off against rental income in subsequent years.

Real Estate Tax (Grundsteuer):The amount of tax depends on the value of the land and the building erected on it. However, the amount is often calculated not on the basis of the market value of the real estate but on a value that is usually much lower. Real estate tax is defined by the municipalities and is usually between one and two percent of the defined real property value. The tax is paid every quarter. At the end of the year the landlord has the right to claim this back from the tenant. This charge can also be set off against tax.

Capital Gains Tax (Kapitalertragsteuer): No capital gains tax arises on the sale of a property after 10 years of the date of acquisition. Where a property is sold within 10 years, the capital gains arising are taxable. The gain is calculated by deducting the original cost from the sales proceeds and a claw back of depreciation expenses already claimed arises. The net gain will be taxed on the same basis as rental income, 25% plus a surcharge of 5.5% of the tax liability.

Property Tax: The tenant pays the property tax on a rented property in Germany. The amount varies according to the municipality.

Value Added Tax (Umsatzsteuer): The current rate of VAT in Germany is 19 percent, as of January 1st 2007.

This information is a brief introduction for individual non-resident investors in Germany, and should not be viewed as tax advice. Independent tax advice should be taken from an appropriately qualified person.