On 7 May 2021, the German Federal council approved a reform of Real Estate Transfer Tax (RETT), which applies to transactions of real estate company shares. While this is still to be approved by the Federal President and published in the Federal Official Gazette, the reform is expected to apply from 1 July 2021.
The reform is intended to avoid the difference in taxation between the transfer of direct, taxable real estate, and those made through the sale of shares of real estate companies (which are currently not subject to RETT).
The reforms are as follows:
The level of investment is reduced from 95% to 90%
This reform states that the Tax on Transfer of Assets (German RETT) applies where at least 90% of the shares of a real estate company are transferred, directly or indirectly. In order for the acquisition of a real estate company to be not subject to tax, it must limit its share to 90%.
Tenure periods will rise from 5 years to 10–15 years
The reform states for the seller to hold the stock for a minimum period of 10 years (a change from the current 5 years). In addition, periods of tenure for which certain exemptions apply will also be extended from 5 years to 10 years, or even to 15 years, as is the case with the period of prior tenure. After that period, the RETT would not apply – so if the shares are transmitted within that period the transaction would be subject to tax.
Exemption for listed entities
Transfers of shares to new shareholders through a stock market transaction are not subject to the above limitations. They are exempt, even if more than 90% of the shares are transferred. Therefore, real estate funds and companies, publicly traded in the EU, EEA or other equivalent stock exchanges authorised under German law, are outside this tax. Over-the-counter operations will not be covered.
Entry into force
This reform is expected to enter into force on 1 July 2021, and will apply to transactions taking place after this date. Transactions signed before 1 July 2021, but closed after 1 July, will also be subject to the new rules.
These changes affect not only real estate companies resident in Germany, but also those non-residents with real estate investments in the country.
If you have any queries, please contact your Auxadi team.
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