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Understanding taxation after buying a property in Berlin & Germany

Posted by investabcom on June 1, 2016
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When you plan to invest in a flat, a house or a building in Berlin, you have to understand all the rules around taxation after buying a property in Germany, and how it relates to your current situation, should that be as a local resident or as a foreign investor.

Property tax after purchase in Germany

Property tax (Grundsteuer)

The underlying law governing property tax in Germany is known under the name “Grundsteuergesetz” or “GrStG“. It is managed and applied as a municipal tax by the city in which the property is located. The property tax is to be paid by the owner.

This Grundsteuer is lower than in most countries due to relatively low amount of landlords among the German population. The government is trying to incentivise property ownership to move the population out of rental contracts as much as possible. Germans are notably known to be unwilling to invest into stone or land. In Berlin for example, only 15% of local residents own their flats. A lower property tax means a higher yield & lower cost on your investment.

Calculating property tax in Berlin

To be able to calculate property tax in Berlin, certain criteria & rules have to be considered. The base tax rate is 2.6. It evolves depending on the type & location of the property as well as on the building year. The additional rates are then fixed by the local tax authorities.

The rate is calculated with the “unit value” (Einheitswert) divided by the “Economical replacement value” (Ersatzwirtschaftswert). We will notice once again the special case of Berlin, still bearing the traces of the East-West divide.

Former West-Berlin
  • Detached house (except co-ownership): Up to € 38,346.89 unit value: 2.6‰, anything above that unit value:  3.5 
  • Houses with 2 lodgings: 3.1
  • All other types of buildings: 3.5%
  • Empty plots: 3.5%
Former East-Berlin
  • Family homes (except condos)
    • Old buildings (build before 31/03/1924): First € 15,338.76 unit value; 6 ‰. Any additional unit value over this first one; 10‰.
    • New buildings (built after 31/03/1924): First € 15,338.76 unit value; 5 ‰. Any additional unit value over this first one; 6‰.
  • Rental properties, commercial properties, mix usage properties, other land plots & co-owned houses/condos.
    • Old buildings (built before 31/03/1924) : 10 
    • New buildings (built after 31/03/1924) : 6 

When do you pay the property tax in Germany (Grundsteuer) ?

In Berlin, property tax is paid at different times, depending on the amount due to the city.

  • More than € 30: paid quarterly until the 15th day of February, May, August & November
  • Between € 15 & € 30: paid bi-annually until the 15th day of February & August
  • Less than € 15: paid annually until the 15th of August.

You can read the full details on the implications of the Grundsteuer on Berlin’s website here.

Income tax (Einkommenssteuer)

What taxation system applies to owners residing outside Germany?

If you bought property in Germany in order to rent it out, you now need to declare your rental income. You might check if your home country has bilateral tax agreements with Germany to optimize your statement and avoid double taxes. It is possible to avoid paying income tax for income generated in Germany, and usually you need to only pay taxes on your rental income in Germany. Depending on the rules applying your own country, you might still have to declare this in order to pay wealth tax, if applicable. Our partners are experts in international transactions and can help you with all the relevant processes depending on your situation.

How is rental income taxed in Germany?

The owner must go through a tax statement process every year via the document known as “Steuererklärung für beschränkt Steuerpflichtige“, tax statement for non-residents. As a non resident, the tax rate can vary between 15% & 45%, depending the amount generated that year if you don’t have any other income in Germany than rental income.

  • Up til € 8 004: tax-free
  • Above € 8 004 for singles et € 16 008 for married couples: tax rate between 15% & 42%.
  • Above € 250 001 for singles et € 500 000 for married couples: 45% tax rate.

Additionally to the base rate, also account for the “Solidarität Zuschlag” (solidarity contribution) of 5.5% applied since Germany’s reunification.

You can of course deduct a number of costs linked to your property in an effort to minimize your costs. Those are:

  • Banking costs & loan interests, even for a loan made outside of Germany
  • Running costs: rent management costs such as heating, warm water, insurance, or even property tax.
  • Book-keeping, real estate consulting costs
  • Depreciation from the first year
    • Property built before 1925: 2,5% of the building purchase price per year during 40 years.
    • Property built after 1925: 2% of the building purchase price per year during 50 years.

Conclusion

Every special situation requires a special treatment. Our partners can help you understand, optimize and declare your taxes the right way so you pay less taxes while respecting laws of both countries. Get in touch with us to tell us about your situation. We would love to help.

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