What are the main taxes for non-residents when purchasing real estate in Germany?

Overview of the rights and obligations of non-residents in Germany

In this article, we will take a detailed look at the key aspects of the rights and obligations of non-residents in the context of tax issues related to the purchase and ownership of real estate in Germany. To begin with, it is worth noting that in this country, the purchase of real estate is available to individuals of any nationality. There are no restrictions regarding the type of property being acquired — it can be an apartment, a commercial building, or a plot of land located in one of the federal states of Germany.

Nevertheless, regardless of your citizenship and place of residence, non-residents are required to pay taxes to the same extent as local citizens.

Who are non-residents in Germany?

Non-residents in Germany are considered to be those individuals who stay in the country for less than 183 days a year. Only income earned within Germany is subject to taxation. For example, if you decide to rent out property you have purchased, the income from that rental will also be subject to taxes. Tax obligations also apply to property tax as well as gift tax.

It is important to highlight two main points:

• If you are a citizen of Belarus or Russia, be sure to notify the tax authorities of your intention to open a foreign bank account or establish a company before purchasing real estate.

Double taxation agreements

It should be noted that Germany has signed agreements to prevent double taxation with the Russian Federation and 95 other countries. This means that if you have paid taxes in Germany, you will have the opportunity to avoid being taxed again in Russia, provided you have the necessary documentation.

The strictness of the tax system

It is also worth noting that Germany's tax system is characterized by a high level of strictness. Failure to pay taxes can lead to serious consequences, ranging from hefty fines to the possibility of visa cancellation or even loss of residency. Tax debts can result in the sale of your property at auction.

Tax obligations when acquiring real estate

Non-residents purchasing real estate should also consider their tax obligations. What specific payments can they expect?

• When purchasing new real estate, the new owner must pay the property transfer tax (Grunderwerbsteuer). This tax varies by region and can range from 3.5% to 6.5%.

Permanent tax liabilities

It is important to remember that this is not only about taxes when purchasing, but also about tax obligations when owning real estate. Owners of such properties are also required to pay property taxes while using their real estate. Additionally, if you decide to rent out your property, you will be obligated to pay tax on rental income. Furthermore, when selling your property, such income is subject to taxation in the form of capital gains tax.

Additional financial aspects

Additionally, there are various financial aspects related to inheritance and gifting of real estate. Inheritance tax can be quite substantial, so it's worth considering possible options for its optimization in advance.

Tips for reducing taxes

In addition, useful tips for reducing tax expenses include prudent management of your finances and careful study of local legislation. This helps minimize taxation and preserve your investments.

Conclusion

Ultimately, if you are a non-resident and plan to invest in German real estate, it is essential to be aware of your rights and obligations in order to avoid undesirable financial consequences and effectively manage your assets.

Tax rates on real estate purchases in Germany

In 2021, property acquisition tax rates in Germany vary by region. For example, in Berlin, the rate is 6.0%, while in Brandenburg it reaches 6.5%. In Baden-Württemberg and Bremen, the tax is 5.0%. A lower tax rate is set in Hamburg at 4.5%, and in Lower Saxony, it is 5.0%. Meanwhile, in North Rhine-Westphalia and Saarland, the tax will be 6.5%. Other regions, such as Saxony-Anhalt and Schleswig-Holstein, have current rates of 5.0% and 6.5%, respectively. It is interesting to note that in Thuringia and Hesse, the tax rate is set at 6.0%, while in Bavaria and Saxony, it is the lowest at just 3.5%.

Responsibilities of the parties in a purchase

As a rule, the expenses for taxes and related fees, including notary services, realtor fees, and the transfer of ownership rights, are borne directly by the buyer. The seller, in turn, takes on the responsibility of removing any possible encumbrances from the land registry, if they exist. All these aspects are clearly outlined in the contract, which helps to avoid potential misunderstandings.

Information about the real estate acquisition process

If you are interested in the process of acquiring real estate in Germany and opportunities for remote investing, we recommend exploring our other articles. In particular, we offer materials that cover:

• real estate purchases
• remote methods of investing in German real estate

Real estate market development

The real estate market is constantly evolving, and many are starting to think about the possibilities for conducting transactions remotely. This raises the question: how can this be feasible? There are various cases available for successful investments. For example, an impressive offer is a rental property in Germany priced at8,755,000 euroswith a total area4874 m²located in Dortmund, in the North Rhine-Westphalia region. This commercial property combines an Edeka supermarket and office spaces, which are fully leased. Its unique location on a busy shopping street and proximity to important transport routes make it attractive to many tenants.

Interesting real estate projects

Another interesting project is a new commercial building in Lower Saxony worth2,540,000 eurosThe area of this building is1235 m², and it will become the home of a new Netto supermarket. The building is expected to be completed in the summer.2017 yearand the contract with the tenants, already signed for15 yearswith the possibility of extension, makes this investment practically reliable.

It is also worth mentioning the office center in Ulm with an area of700 m², which has become an example of a successful project in Bavaria, where our company invested. This office complex is part of a modern building that includes not only office spaces but also restaurants, as well as more20 high-quality apartmentsThis complex has already become a new landmark in the city, which confirms the successful implementation of its concept.

New residential projects

We shouldn't forget about new residential projects, such as an apartment with an area of98 m²In Berlin, which offers its owners unique conditions. It is located in the business district, just ain 10 minutesFrom the city center. The two residential buildings included in this project offer architectural views of the Spree River and the surrounding areas, while the landscaped park makes this location particularly attractive for living.

Real estate for sale

Currently, there are 184 properties for sale, among which a store located in the city of Tübingen, Germany stands out. This ready-made business covers an area of 3,472 square meters and is priced at 9 million euros.

Investors also have the opportunity to acquire the Kaufland project, which is an attractive offer for those looking to invest in large economic initiatives; its cost is 9.3 million euros. The investor will have the chance to become a shareholder in the company that manages both the land and the hypermarket, with an existing lease contract that has a term of 15 years. The lease has already been signed with one of the leading retailers, which has a high credit rating, adding extra appeal to this investment.

Hotel in Munich

Additionally, there is a hotel in Munich that can be purchased for 19.5 million euros. This modern establishment has a total area of 2,850 square meters and offers an annual yield of 4.6%. The hotel features 70 double rooms, all equipped with a bathroom, shower, and fully furnished kitchen.

On the first floor, there is a kitchen, a breakfast room, a conference hall, a fitness center, a sauna, and a laundry room. The hotel can be offered either with a valid lease agreement or without it, providing options for buyers to choose the most suitable option.

Office in Berlin

There is also an interesting offer in Berlin – an office space of 174 square meters, priced at 799,000 euros. This commercial property is located in the Friedrichshain district and was built in 2018.

The building is in excellent condition, and the office occupies the first floor, which includes an internal area of 126 square meters, as well as:

• The terrace is 45.27 square meters.
• The balcony is 2.28 square meters in size.

The facade has a 15-meter display window, which makes it very attractive to tenants.

Another commercial space in Berlin

Another commercial property is also up for sale in the center of Berlin, priced at 579,000 euros, with an area of 125 square meters. The office is located near the famous Kurfürstendamm boulevard and is situated in a building constructed in 1965.

Currently, the building is undergoing major renovations, which are expected to be completed in 2021. This space is conveniently located in the city center, in close proximity to all major attractions and transport hubs.

Hotel in the center of Munich

In the center of Munich, there is also a 4-star hotel available for 24.5 million euros. This city hotel attracts tourists throughout the year, as its occupancy rate exceeds 80%. The building has 6 floors and is in good condition.

The hotel is currently leased to a professional management company, which guarantees stable income for its owners.

Commercial building in Berlin

A commercial property with an area of 8,089 square meters is also available in Berlin, which can be purchased for 8.65 million euros. The building is located in the Prenzlauer Berg district and was constructed in 1964, with a major renovation completed in 1995.

It is in good condition and includes a land plot of 4,932 square meters. The usable area is 8,088.6 square meters, and there are also 82 parking spaces, of which 67 are rented out.

Commercial real estate in Mecklenburg

In conclusion, it is worth noting another attractive offer: commercial real estate with an area of 1,131 square meters in the Mecklenburg region, priced at 1.61 million euros. This is a unique opportunity for investors looking to invest in promising projects in Germany, where the real estate market continues to develop steadily.

New supermarket in Demmin

In the area of Demmin, known for its developed commercial infrastructure, a new, modern supermarket building has been constructed.

A villa is for sale in Berlin.

A villa is for sale in the center of Berlin for €3,900,000, covering an area of 377 square meters. This stunning property, designed according to Bauhaus style principles, is located in the elite district of Konradshöhe. The construction was completed in 2022 and is just 300 meters from the beautiful Havel River, making it an especially attractive place to live. An architect from the German capital created a unique custom design that pays special attention to modern amenities and details, including all the necessary elements for comfortable living.

Land plot in Brandenburg an der Havel

In addition, there is a plot of land in Brandenburg an der Havel being offered for €5,500,000, with an area of 17,200 square meters. This area is located on the shores of the picturesque Melensee lake, creating an atmosphere of seclusion and tranquility for future developers. The plot already has a valid permit for the construction of 101 apartments, making it a very attractive offer for both individual and large builders. The planned residential development volume is about 9,769 square meters, which opens up wide horizons for investments in residential real estate.

Income property in Duisburg

A profitable apartment building is also for sale in Duisburg, offered at €640,000, with a total area of 507 square meters. This property, built in 1959, was fully renovated in 2019, minimizing the need for major repairs in the near future. The building contains 8 apartments, has undergone cosmetic repairs to the exterior walls, and features new window units, new plumbing, and a heating system. This property has significant potential for increasing rental income, making it an attractive option for investors, especially during a change of ownership.

A plot of land in Waldmore

A plot in Waldmoor is equally interesting, available for purchase at €459,000. It has an area of 2,200 square meters and offers great opportunities for both private developers and large investors. The location of this land in a picturesque and tranquil area creates ideal conditions for the construction of eight residential buildings. Key features of this property include its convenient location in a quiet area that is still close to the city center.

Property taxes in Germany

It is important to note that in Germany there are property taxes that apply to all owners. The country has a land tax (Grundsteuer), regulated by the property tax law that was enacted back in 1936.The basic rate of this tax is 0.35%.from the cadastral value of the property. Each municipality sets its own increase coefficient, which varies depending on:

• like real estate;
• locations;
• year of construction;
• total area.

On average, property taxes in Germany range from 1.0% to 2.8%, which is relatively low compared to other European countries, making it advantageous for property owners. For example, the tax on an apartment of 70-80 square meters would be quite reasonable. Consequently, Germany continues to be attractive for real estate investments for both locals and foreign investors, providing stable conditions for further growth and development.

Tax obligations of property owners in Germany

In large German cities, property owners face the annual necessity of paying taxes ranging from 200 to 250 euros, while owners of larger homes may sometimes have to shell out amounts reaching up to 600 euros. In smaller towns, the tax rates are much more lenient.

It is important to understand that if the owner possesses a private house, it is he who is responsible for paying the land tax. For apartment buildings, the obligation to pay the tax usually falls on the owner of the entire building, who then redistributes the tax burden among the residents by establishing a payment schedule.

Ways to pay taxes

There are several suitable methods for making tax payments:

• Visit the tax office in person;
• Make a bank transfer to the tax authority's account.
• Take advantage of the convenience of the online service through the Elster portal.

Please pay attention to the additional aspects related to property management in Germany.

Housing rental and taxation

When it comes to renting housing, taxation here depends on the amount of income. Income tax (Einkommensteuer) ranges from 0 to 45%:

• Residents are exempt from paying taxes on an annual income of up to 9,000 euros.
• Non-residents are subject to a tax rate of 14%.
• If the income is in the range of 9001 to 13996 euros, the tax rate is 14%.
• For incomes from 13,997 to 54,949 euros, a rate of 24% is already in effect;
• For amounts from 54,950 to 260,532 euros, a rate of 42% applies.
• For income exceeding 260,533 euros, 45% tax is reserved.

It should be noted that the tax calculation is based on net profit after deducting all possible expenses and depreciation. To optimize the taxable base, owners are advised to keep all receipts and documents.

Expense deduction

Among the deductible expenses, we can highlight:

• The management company's fee;
• Interest payments on loans;
• Utilities;
• Land tax;
• Depreciation (up to 3% annually);
• Expenses for repairs and improvements to real estate.

The tax return is submitted every year by July 31 of the year following the reporting year.

Tax aspects of real estate sales

Attention should also be paid to the taxation aspects related to real estate sales. Why is Germany considered favorable for investors interested in commercial real estate? All owners are required to pay property tax (Grundsteuer), which is 0.35% of the assessed value of the property.

When selling real estate within the first ten years after its purchase, you will be subject to speculation tax (Spekulationssteuer). It is calculated at the income tax rate and is paid along with other income for the last financial year.

This means that the profit from the sale of real estate is combined with your other income (salary, rental income, dividends, and others) before the applicable tax rate is determined.

Determining the selling price

When determining the selling price, the net difference between the purchase price and the selling price is taken into account, considering all possible expenses related to the acquisition:

• Organizational taxes;
• Notary and lawyer fees;
• Registration of rights;
• Costs for repair and modernization of property;
• Mortgage payments and other expenses.

It's important to know how to properly account for all these details to optimize your tax obligations in Germany.

Taxes on individuals and legal entities in Germany

In Germany, tax rates for individuals range from 14.77% to 47.475%, depending on the level of net income. For companies, there is a fixed tax rate of 15.825%. Let's take a closer look at some key aspects regarding this tax.

Real estate sales tax

If you have owned the property for more than ten years, or if your property has been used exclusively for residential purposes for the year preceding the sale, you may be able to avoid paying capital gains tax. However, these rules do not apply to legal entities, which must pay tax on profits from the sale of real estate in any case.

Inheritance and gift tax

When it comes to inheritance and gift tax, German laws distinguish between two types of tax liability. Limited tax liability applies if neither party involved in the transaction—the donor or the heir—is a resident of Germany. In this situation, tax must be paid only if the transferred property is located within the country; if it is located outside of Germany, no tax is levied. Unlimited tax liability arises when at least one party—either the donor or the heir—is a resident of Germany, and in this case, tax will be charged on any transferred assets regardless of their location.

Agreements between Russia and Germany

It is important to note that there are no agreements between Russia and Germany aimed at preventing double taxation in the context of inheritance tax. Typically, the basis for calculating gift and inheritance tax (Erbschaftsteuer and Schenkungsteuer) is determined based on the market value of the asset.

Tax rates and deductions

The tax rate ranges from 7% to 50% depending on the value of the property. There are tax deductions that depend on the degree of kinship between the donor and the heir. The classification of tax deductions by degree of kinship is as follows:

• Spouses or cohabiting partners:500,000 euros.
• Children or grandchildren whose parents have passed away:400,000 euros.
• Children or grandchildren with living parents:200,000 euros.
• Parents:100,000 euros.
• Brothers and sisters, distant relatives:20,000 euros.
• Divorced spouses and adoptive parents:20,000 euros.
• Other parties, including legal companies:20,000 euros.

Tax exemption

In certain situations, it is possible to be completely exempt from tax, for example, when inheriting a family home. Local citizens often turn to professional tax consultants for proper declaration filing, as the tax system in Germany is quite complex and offers many legal ways to minimize tax liabilities.

Tax benefits

There are tax benefits for:

• Families with children.
• Owners who are renovating their homes.
• Those who use part of their living space as a home office.

Structure of deals and tax refunds

It is also recommended to analyze the structure of transactions in advance when acquiring real estate to take potential tax advantages into account. In some cases, it may be more practical to register the property under a legal entity and finance it through bank loans. Tax refund issues require special attention, as there are certain nuances that can affect the ability to reduce the overall tax burden.

Conclusion

As I came to the conclusion, the topic of purchasing real estate in Germany for non-residents requires not only careful study of rights and obligations but also a deep understanding of tax aspects. Modern Germany is open to investments from foreigners, which is certainly a big plus for those considering the possibility of acquiring property. However, as in any other country, it is important to be informed about the associated taxes to avoid any issues.

In the article, I described the main types of taxes that non-residents encounter, starting from the property transfer tax and ending with taxes on rental income. It was important for me to emphasize that compliance with tax legislation in Germany is not just a formality, but an obligation that can impact future financial plans.

Principal tax liabilities

• Tax on the transfer of ownership rights- This is the first and primary tax that must be paid when purchasing real estate.
• Income taxes- If you rent out property, you are required to pay taxes on the income received.
• Inheritance and gift tax- An important aspect to consider when planning inheritance matters.

Considering that the provisions of inheritance and gift tax can also significantly impact the estate planning of property owners, I have highlighted information about the double taxation agreement, which can be quite useful for owners from countries such as Russia and Belarus. This opens new horizons for investing in the German real estate market, allowing for the minimization of tax risks.

Possibilities of remote purchasing

We should not forget about the possibility of remote real estate purchases, which is becoming increasingly relevant in our technological era. I provided examples of successful transactions and properties that may interest investors with varying capital, demonstrating that the market is not stagnant and offers numerous investment options.

Thus, as I conclude the article, I hope that my readers have gained a complete and accurate understanding of the process of acquiring real estate in Germany, the tax obligations, and the opportunities that lie ahead. I hope that the information provided in the article will be useful for anyone planning to invest in this stable and prosperous country.