German Real Estate Transfer Tax Rules for share deals
As in Belgium, German Real Estate Transfer Tax (“RETT”) is triggered by the notarization of a direct real estate purchase. The tax rate ranges from 3,5% to 6,5% depending on the location of the property. However, contrary to Belgium, share deals are under some circumstances also subject to RETT, this even without having to invoke the rules on fiscal abuse.
As of 1 July 2021, RETT is triggered at the level of partnerships or corporations owning real estate (directly or indirectly) when at least 90% of the interest in the partnerships or the shares in the corporations (certain listed companies are exempted) are transferred to one purchaser or a group of purchasers within 10 years.
The transfer of the shareholding between two Belgian companies could thus for example result in a taxable acquisition of real estate property in Germany according to the German RETT rules.
New option model for German partnerships
So far, German partnerships have always been subject to the principle of transparent taxation. Hence, the partners of a partnership are subject, depending on their legal form, to personal income tax or corporate income tax, irrespective of whether their share of profits has been paid out or retained to strengthen equity in the partnership.
By contrast, corporations are taxed in accordance with the separation principle. The shareholders are only taxed once dividends are paid out. Although the corporate income tax rate is significantly lower than the personal income tax rate, the aggregate tax rate for paid out profits is similar for partnerships and corporations.
As of 1 January 2022, the separation principle can be applied to German partnerships as well. A partnership that opts for the separation principle will thus be treated as a corporation for German tax purposes as of 2022.
Obviously, the tax regime of Belgian partners of German partnerships will be affected following the decision of the German partnership to opt for taxation as a corporation in Germany.
After a delay of more than two years, Germany adopted the Anti-Tax-Avoidance Directive (“ATAD”) on 30 June 2021. The bill implements the following provisions in German tax law:
- Exit Taxation (applicable as of 2020);
- Controlled foreign company (CFC) rules (applicable as of 2022);
- Hybrid mismatches (applicable as of 2020 or 2022, depending on the provisions).
In general, these rules are quite similar to the ones in Belgium. However, the German law foresees some particularities which could have a significant impact. The new CFC-rules could for example have repercussions for German shareholders of Belgian investment companies, since dividends will be qualified as passive income under some circumstances and since Germany considers a tax rate below 25% as a low tax rate.
Federal Constitutional Court regarding interest on tax debts
Germany applied a default interest rate of 0,5% per month to outstanding tax debts (6% per year). The amount of the interest rate had been challenged before the Federal Constitutional Court of Germany which considered an interest rate of 0,5% per month as of 2014 as unconstitutional due to its excessive nature. Belgian taxpayers who paid the rate in 2019, 2020 or 2021 could receive a refund based on the decision of the Federal Constitutional Court under certain circumstances.
For Belgian companies operating in Germany it is highly advisable to assess the impact of these new tax developments. Please reach out to us for any assistance needed in this regard.
Markus Fort (email@example.com)
Tiberghien’s international tax team will continue to monitor these and other tax developments relevant for Belgium / Luxembourg based multinational enterprises. Our editorial board consists of:
Koen Morbée (International and EU corporate tax, firstname.lastname@example.org);
Michiel Boeren (International and EU corporate tax, email@example.com);
Katrien Bollen (HR tax and global mobility, firstname.lastname@example.org);
Ben Plessers (Transfer Pricing and Valuations, email@example.com);
Gert Vranckx (VAT, customs, excises and other indirect taxes, firstname.lastname@example.org);
Rik Smet (International and EU corporate tax, email@example.com).
In case you have further questions on this publication or want to discuss a tax query, please do not hesitate to contact the author(s) or one of the members of the editorial board.
This newsflash is for information purposes only and cannot be relied upon as legal advice.