How to optimize taxation when purchasing real estate in Germany: Asset Deal or Share Deal?

However, it should be remembered that the Due Diligence process is more complicated in a Share Deal."When acquiring a company, additional risks arise, including the verification of legal obligations.", - comments Yuri Poryadochnov.

Asset Deal and Share Deal

Each of the options,Asset DealandShare DealIt has its pros and cons.

• Asset Dealallows you to revise the value of the assets at the time of acquisition, increase depreciation, and more easily identify the history of the property.

• Share Dealdoes not provide for a tax on the transfer of ownership rights if less than 95% of the company's shares are acquired.

• For individuals95% of the profits from the sale of a subsidiary are exempt from taxation..

Choosing between an Asset Deal and a Share Deal

HoweverShare Dealrequires a more careful approach to the Due Diligence process and does not allow for a reassessment of asset values at the time of purchase. Thus, the choice betweenAsset DealandShare DealIt depends on individual factors and the investor's goals.

A real estate buyer in Germany pays an additional 9-16% on top of the property's price as extra costs when closing the deal. A third of this amount is the property transfer tax, which ranges from 3.5% to 6.5% depending on the location of the property.

Asset Deal and Share Deal

At the sales stage of a Share Deal, there are more opportunities to optimize taxation. In a Share Deal, the buyer acquires less than 95% of the company. The remaining shares or stakes are transferred to a third party or retained by the previous owner. Otherwise, the deal will be classified as an Asset Deal, and a tax on the transfer of ownership rights will need to be paid.

In addition, the amount of depreciation for the asset is calculated differently in an Asset Deal and a Share Deal. This affects the taxable income base.

Pros and cons of Asset Deal and Share Deal

• Asset Deal

  • It is possible to review the value of the asset at the time of purchase and increase the depreciation charges; it is easier to track the history of the asset and find out if there are any encumbrances or debts.

  • You need to pay the tax on the transfer of ownership rights.

• Share Deal

  • There is no tax on the transfer of ownership rights if less than 95% of the shares or stocks of a company are purchased; for legal entities, 95% of the income from capital gains upon the sale is exempt from tax if the holding company sells a subsidiary. The tax-exempt threshold for individuals is 40%; there are no expenses for opening a company if ownership is structured through a legal entity.

  • The costs for the company's Due Diligence need to be covered; the asset values cannot be reassessed as of the purchase date.

Depreciation deductions

In an Asset Deal, the buyer can deduct depreciation expenses from the taxable profit base each year at a rate of about 2% (for residential properties) or 3% (for commercial properties) based on the price at which the building was purchased. The cost of the land is not taken into account. In a Share Deal, the buyer can also deduct depreciation expenses from the taxable profit base, but this is calculated not as a percentage of the purchase price of the company shares, but from the carrying amount of the property — the purchase price of the asset minus accumulated depreciation.

Conclusion

Deciding to conduct a real estate transaction in Germany, one should pay attention to all aspects of taxation and legal matters to ensure that the deal is profitable and safe for all parties involved. Before choosing between an Asset Deal and a Share Deal, it is important to carefully consider the pros and cons of each type of transaction and select the most effective option according to the investor's goals.