German Property Market – Rules, Regulations and Taxation

Legal Restrictions

There are no specific legal restrictions on cross-border real estate investments in Germany for foreigners. Normally a valid passport and an adequate capital will be sufficient to purchase property. It should be noted that private investors will not be given residential status merely by acquiring property in Germany, as is the case in some other European countries.

With regard to indirect real estate investments, however, some general rules apply. They are laid down in different laws and are binding for both foreign and domestic investors.

Ownership in Germany

The owner of a property is generally in possession of both the plot of land and any buildings upon it. The rights to ownership and inheritance are guaranteed by law.

If an investor acquires a single flat in a multi-family house, it is a matter of property ownership. However, this property ownership does not entail ownership of the land and building associated with the property. Instead the investors obtain a co-ownership share of the jointly owned property which the flat is a part of. 

According to private law, the owner has the freedom to use and dispose of the property and the privilege of arranging legal relations through contracts.

Taxation and Ancillary Costs

The mere payment of the purchase price is not enough to purchase a house, an apartment or a plot of land in Germany. There are various ancillary costs such as notary fees, land registry costs, brokerage fees and land transfer tax. 

The land transfer tax is the sales tax (value added tax) with the purchase of real estates. Since 1 September 2006, the federal states have been allowed to determine the tax rate themselves and they make use of it. Instead of the 3.5 % real estate transfer tax prescribed in § 11 of the Real Estate Transfer Tax Act, a tax between 3.5 % and up to 6.5 % is usually required.

The notary costs are between 1.5% and a maximum of 2% of the purchase price and are usually paid by the buyer. The sale of land and real estate requires the assistance of a notary, as only notarized purchase contracts are legally binding.

In principle, both buyer and seller are tax debtors in the sale of real estate. In most cases, however, the payment obligation is passed on to the buyer in the notarized sales contract. If the due real estate transfer tax has been paid, the buyer receives a clearance certificate from the responsible tax office. The buyer needs this certificate in order to have his newly acquired property entered in the land register and thus be regarded as the legal owner.

In addition, some of the tax breaks available to investors have been removed or limited. A capital gains tax of 25% (plus a solidarity charge of 5.5 %) applies to any property owned for less than 10 years, meaning that for many expats buying property in Germany is only attractive for longer stays or investments.

– Tobit Robbenmenke 25.10.2019

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