Dear Sir or Madam, dear Clients, dear friends,
on 21.04.2021 the law amending the Real Estate Transfer Tax Act (GrEStG) was passed by the Bundestag. The amendments will come into force on 1 July 2021. The main change is the end of the tax exemption of the so-called share deals.
What is the aim of the amendments by the German government?
Combating the avoidance of real estate transfer tax on real estate transactions through so-called share deals. This practice involving share purchases will not be banned, but it will be made considerably more difficult.
Who does it concern?
All shareholders of real estate companies who intend to sell plots and real estate in the near future.
What will change?
Until now, it was possible to avoid real estate transfer tax by transferring real estate as part of the assets of partnerships or corporations.
In the case of corporations, shares in the company were transferred to two or more independent new owners in such a ratio that none of the acquirers holds more than 95% of the shares in one hand, e.g. in the ratio 94.9% and 5.1%.
In the case of partnerships, avoidance of real estate transfer tax could only be achieved if at least 5.1% of the shares in the real estate company were sold after at least 5 years after the transfer of the first 94.9%.
The adopted amendments will essentially change the following things:
- The shareholding threshold above which real estate transfer tax arises in the event of a change of shareholders will be lowered from 95% to 90%.
- The required holding period for the remaining minimum 5% shares will be increased from 5 years to 10 years.
- A change to new shareholders is now also relevant for corporations, irrespective of their acquisition quota. Thus, the previous regulations for partnerships were applied to corporations. As of 1 July 2021, it is therefore no longer possible to avoid real estate transfer tax when transferring all shares in real estate-owning corporations in one step. A transfer free of real estate transfer tax now requires a step-by-step transfer of the shares in such a way that in the first step a maximum of 89.9 % of the shares in a real estate-owning corporation are transferred and in the second step the remaining 10.1 % are transferred to an independent second acquirer only after the expiry of 10 years.
Another change relates to the valuation of real estate transfers in company shares. Up to now, it was possible to reduce the real estate transfer tax burden by selling plots below the market value in the case of conversions in the retroactive period. Because of the resolved amendment to the law, the actual real estate value will be used in future as the starting point for calculating the tax due even in the case of such reduced purchase prices.
Finally, the prior and subsequent holding periods for possible tax exemptions in the case of transfers from a person to a partnership, or vice versa, have also been extended from 5 years to 15 years.
In this respect, share deals are not rendered impossible, only made significantly less attractive overall as the result of the changes.
If you now need urgent action or advice, please contact us - we will be happy to assist you!
Best regards