The Act on Real Estate Transfer Tax (Grunderwerbsteuergesetz; GrEStG) entered into force for transactions concluded after 31 May 2014 when the old provision expired due to the decision of the Constitutional Court. The Constitutional Court has stated that the Act may not differentiate between transactions against consideration (where the basis for the tax has been the consideration) and transactions without consideration (where the basis has been three times the taxable value) because the taxable value deviates extremely from the actual value of real estate (the taxable value is sometimes only one-tenth of the actual value).
As the Constitutional Court on the other hand allowed that certain persons are subject to a lower tax (eg, the close family), the new law now differantiates between transfers of real estate (by contract, inter vivos or inheritance) within the close family and transfers to other, unrelated parties.
Transfers within the close family
The close family is defined as spouses, registered partners, common law spouses (Lebensgefährte – newly added), parents, children (including stepchildren and adopted children), grandchildren and sons- and daughters-in-law. Now the basis for the calculation of the land transfer tax is three times the taxable value but in no case more then 30% of the actual value, and this basis applies to all transaction within the close family irrespective of the fact that they are against consideration or without consideration. The tax rate is 2% of the basis.
Transfers of real estate outside of the close family are subject to a real estate transfer tax of 3.5% of the consideration. If there is no consideration, or if the consideration is lower then the actual value, then the basis for the tax is the actual value.
The transfer of 100% shares in a company that holds real estate to one buyer and the aggregation of all shares in a company with one shareholder also triggers a land transfer tax. In this case, the basis for the tax of 3.5% is three times the taxable value, but in no case more then 30% of the actual value.
The Act on Taxes in Connection with Restructurings (Umgründungssteuergesetz) has been upheld and still provides that the basis for the land transfer tax is two times the taxable value. This applies inter alia to mergers, de-mergers, conversions of limited liability companies into partnerships or sole shareholder and contributions in kind.
Changes to the old law
The contribution of real estate to private foundations (Privatstiftungen) and transfers to nephews, nieces and siblings are no longer privileged. The tax basis is no longer three times the taxable value but the actual value if such transfers are made without consideration.
On the other hand, contracts within the close family are subject to a lower tax if they are concluded against consideration, because now the basis is not the consideration but three times the taxable value with a cap at 30% of the actual value.
So some transactions are cheaper than in the past, while many are considerably more expensive. With respect to corporate restructuring, the tax benefits have been upheld and the new law does not change the status quo.
A downside is also the uncertainty as to how the actual value is assessed and whether an evaluation by an expert is necessary to avoid penalties for incorrect assessment and payment of land transfer tax. Furthermore, the new law on the land tansfer tax deviates in details from the act on the registration fee for changes of the owner in the land register. This will certainly lead to mistakes in calculating the land transfer tax and the registration fee (in the past the basis was the same).
The new Act on Land Transfer Tax favours only transactions in the close family and no longer transaction without consideration. The result: Some transfers are cheaper and others more expensive. With respect to corporate restructuring, the situation did not change.