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How to achieve a refund of land tax on real estate in case of vacancies?

Refund of property tax on real-estate according to the Federal Real Estate Tax Act

Real estate lessors whose property is vacant for a longer period can reclaim a part of their paid property tax on real-estate.

How to apply for the refund of property tax on real-estate?

The major requirement for the refund is a significant drop in rent income – mostly triggered by vacancies – which besides must not be provoked by action of the real estate owner. The benchmark for such reduction in rent income is the common rent for assets of same type, location and fitting. Therefore the refund is not granted in case the lessor terminated the rent contract during the relevant period i.e. with the target to execute an asset refurbishment. Requirements are subject to a close review of the tax authority.

Furthermore the lessor must prove that he has undertaken action to achieve a letting at a market oriented price. Documentation at an early stage of the attempts to find new tenants is highly recommended.

Which form and due time need to be considered for the application?

The request for the refund of the property tax on real-estate can be made informally at the municipal town or city authorities.

In the federal city states Berlin, Bremen and Hamburg the application should be addressed to the tax authority. The deadline – which cannot be extended – is always the 31st March of the following year. An extension of the deadline is impossible (cut-off date).

How much will be refunded?

In case that the reduction in rent-income is more than 50% a 25% discount of the property tax on real estate will be granted. If the asset was completely vacant in the relevant period 50% of the property tax on real estate will be refunded.

Contact:

Thomas Jäger, Partner, Tax Advisor

Robin Friedrich, Auditor, Tax Advisor

Tags: property tax on real-estate, vacancy, real estate tax, Real Estate

By Thomas Jäger, Partner, Tax Advisor, Robin Friedrich, Auditor, Tax Advisor, published 2014-02-24

Unsere News geben Veröffentlichungen jeglicher Art nur auszugsweise wieder. Für Informationsfehler können wir daher trotz Sorgfalt keine Haftung übernehmen. Individuelle Beratung im Einzelfall kann dies nicht ersetzen. Auf Inhalte von Internetseiten, die wir verlinkt haben oder auf die wir hinweisen, haben wir keinen Einfluss. Eine Haftung hierfür wird daher ausgeschlossen.

How to achieve refund of capital gains tax on dividends from minority shareholdings?

A European Court of Justice ruling in October 2011 (case C-248/09) has opened up the possibility of certain “old cases” becoming eligible for a refund of German capital gains tax. This applies to corporations with a limited tax liability which have their principal place of business and management in an EU/EEA state and no more than a 10% shareholding in domestic corporations. This possibility of a refund derives from the new regulation governing the taxation of what are referred to as free-float dividends, but only concerns those taxes on dividends received up to the 28th of February 2013.

Generally speaking, an informal application for a refund can be submitted to the German Federal Central Tax Office, but it must be accompanied by proof of compliance with the following criteria:

  • unlimited tax liability in the state the corporation is domiciled (place of management);
  • direct participation in the stock or nominal capital of the distributing company;
  • the corporation applying for the refund is the actual recipient of the dividends (shareholder) and the dividends are attributed to it for tax purposes;
  • the entitlement to a refund must not be excluded under Sec. 50d para.3 of the German Income Tax Act (the company applying for the refund is commercially active and neither natural persons nor third-country nationals have a shareholding in it);
  • no refunds are possible under other regulations (e.g. double taxation agreement);
  • in the state where the company is domiciled, the German capital gains tax may neither be attributed to the corporation submitting the application or to its shareholders, nor may it be deducted as an expenditure.

If the prerequisites are fulfilled, the capital gains tax is refunded based on a notice of exemption for all profit payments disbursed in a calendar year. The fulfilment of the above prerequisites shall be demonstrated by a certificate of the foreign tax authority. The limitation for applications for previous years is based on the general period of limitation applicable to taxes (four years).

According to our information, the German Federal Central Tax Office is currently preparing an appropriate form which can be submitted to the foreign tax office in order to certify that the above criteria are fulfilled. It remains to be seen when this form will be available and how the foreign tax offices will respond to it.

Contact:

Thomas Jäger, Partner, Tax Advisor

Ulrike Schmid, Tax Advisor

Tags: tax advice, capital gains tax, minority shareholding

By Thomas Jäger, Partner, Tax Advisor, Ulrike Schmid, Tax Advisor, published 2014-02-14

Unsere News geben Veröffentlichungen jeglicher Art nur auszugsweise wieder. Für Informationsfehler können wir daher trotz Sorgfalt keine Haftung übernehmen. Individuelle Beratung im Einzelfall kann dies nicht ersetzen. Auf Inhalte von Internetseiten, die wir verlinkt haben oder auf die wir hinweisen, haben wir keinen Einfluss. Eine Haftung hierfür wird daher ausgeschlossen.

How to benefit from lower rates despite increases in real estate transfer tax (RETT)?

As Germany’s federal states continue to increase real estate transfer tax (Grunderwerbsteuer), many companies – especially those planning to purchase real estate at year end – are keen to find out what they can do to benefit from the old (lower) tax rates.

Real estate transfer tax (Grunderwerbsteuer) in Germany was originally set at 3.50%. Since September 1, 2006, however, the country’s individual federal states have been able to set their own real estate transfer tax rates. For many states, this has become a lucrative source of income. And so it seems that these increases are set to continue. Berlin, for example, aims to raise its real estate transfer tax rate to 6.00% as of January 1, 2014. In fact, Saxony and Bavaria are the only states that have kept real estate transfer tax at 3.50%. However, it can only be a matter of time before these last two states also raise their rates.

Table showing current and planned real estate transfer tax rates:

If the individual federal states continue to increase tax rates, companies must take appropriate steps to minimize the impact on planned real estate transactions. A company planning to make a transaction subject to real estate transfer tax can reduce the tax burden by ensuring that the taxable transaction is realized in good time.

Real estate transfer tax is generally due when the purchase is realized. In most cases, this is upon execution of the notarized contract of purchase. The actual transfer of ownership, benefits and encumbrances, which usually takes place at a later date, as well as the date on which the purchase price is paid and the transfer is entered in the land register are therefore irrelevant. It is important to note, however, that real estate transfer tax is not generally triggered when a letter of intent or option rights are agreed or granted. The tax is only applicable when these options are exercised.

The following information is particularly relevant in relation to the most common conditions stipulated in contracts of purchase:

If a federal state is planning to increase real estate transfer tax, the date of the change and performance of the legal transaction are the most important factors. The regional tax offices of Rhineland and Münster issued guidelines on this on August 16, 2011. According to this information, the date on which the purchase contract is certified by a notary plays a defining role in the sale of real estate; in other words, the determining factor is whether the transaction is certified before or after the date the tax change enters into effect. This said, each case is individual and every company needs to exercise caution. If, for example, a contract contains a condition precedent or is subject to a specific approval, the real estate transfer tax is generally deferred until the condition has been met or the approval given. In the view of the financial authorities, the tax often only becomes applicable once the condition that enables the purchase transaction to be carried out has entered into effect.

On July 29, 2013, however, the Fiscal Court in Düsseldorf ruled that real estate transfer tax triggered at the time a condition was met was nonetheless to be paid at the rate applicable at the time the contract was concluded. In this particular case, a contract was concluded in 2004. Part of the purchase price, however, was dependent on approval to be granted by public authorities. This condition was not met until 2012. Although the real estate transfer tax rate had increased by this time, the Fiscal Court ruled that the tax should be paid at the rate applicable at the time the contract was certified by the notary in 2004.

Conditions subsequent are the only conditions that do not have a restrictive impact on the purchase transaction. In the case of a condition subsequent or the agreement of withdrawal rights, the real estate transfer tax becomes chargeable once the notarial purchase contract is concluded. Similarly, the tax debt is not deferred if a contract contains a postponement clause. In other words, real estate transfer tax also usually arises in this instance at the time the contract of purchase is certified by the notary.

In this regard, it should also be noted that if a completed purchase transaction is rescinded, the tax can be lowered on request, provided that the reduction takes place less than two years from the time at which the tax became applicable. This is also the case if the purchase price is reduced at a later date, for example, if conditions are not met. If conditions that reduce the purchase price enter into effect over an extended period, the purchaser should take steps to ensure that the real estate transfer tax is provisionally assessed in line with § 165 of the German General Tax Code (Abgabenordnung). Furthermore, the regulations governing retrospective tax reduction following a drop in the purchase price or the rescission of a purchase only apply if the purchase has been duly reported to the fiscal authorities. This important step is sometimes neglected, especially if a company “indirectly” purchases real estate following the acquisition of shares in companies that own real estate.

Summary:

When a company finds a property it wants to purchase, it should sign the notarized contract sooner rather than later. As a rule, the date of the notarized certification is the deciding factor when assessing the tax burden – and not the transfer of benefits and encumbrances and so it is irrelevant if this takes place at a later date. Parties can draft contractual conditions to protect themselves against any uncertainties they may still have about the purchase at this time. There is no way of avoiding real estate transfer tax, however, by drawing up contracts in good time, you can eliminate additional costs resulting from changes to the tax rate.

Contact:

Thomas Jäger, Partner, Tax Advisor

Tags: Real Estate, Taxes, real estate transfer tax

By Thomas Jäger, Partner, Tax Advisor , published 2014-02-13

Unsere News geben Veröffentlichungen jeglicher Art nur auszugsweise wieder. Für Informationsfehler können wir daher trotz Sorgfalt keine Haftung übernehmen. Individuelle Beratung im Einzelfall kann dies nicht ersetzen. Auf Inhalte von Internetseiten, die wir verlinkt haben oder auf die wir hinweisen, haben wir keinen Einfluss. Eine Haftung hierfür wird daher ausgeschlossen.