New Real Estate Transfer Tax (RETT) Rules for Share Deals in Germany

Michael Schindlbauer, Legal Counsel, Eyemaxx Real Estate AG

In Germany, real estate transfer tax (“RETT”) has to be paid in different percentages, depending on the respective federal state. This applies not only to asset deals but also to share deals, when the buyer takes over more than 95 percent of the shares in a (property holding) company. To prevent RETT, solutions have been developed to circumvent the tax. Such solutions ensure that not all shares in a (property holding) company are sold, but e.g. only 94 percent. In case of a (property holding) corporation the remaining 6 percent can be bought by another non-related (business partner) company or remain with the seller. Further on, in case of a (property holding) partnership, the respective shares can be held for at least five years. After the five-year period has expired, the investor holding 94 percent of the shares may also take over the remaining six percent. In that case, RETT only has to be paid for the remaining 6 percent share while the previous 94 percent remain free of the tax. In order to prevent such constructions to circumvent RETT, the German government wanted to introduce changes to the 95 percent limit as well as to the five-year period mentioned above starting with January 1, 2020. Due to massive criticism and in particular in respect to the concerns raised during the public hearing in the Bundestag on October 14, 2019, the German government has decided to reconsider the proposed changes in the German RETT-law to reform the taxation of real estate share deals.