On 21 April 2021, the German Federal Parliament (Bundestag) passed a new law amending the Real Estate Transfer Tax Act. The new law largely corresponds to the heavily criticised government draft bill dated 23 September 2019 as last amended by the Finance Committee of the Bundestag. Final adoption is expected in May 2021.
The new law limits the possibilities for saving real estate transfer tax by using share deal structures. This is relevant for real estate companies as well as their shareholders and investors.
The key changes are the following:
Thresholds reduced to 90%
- All relevant participation quotas (thresholds) triggering real estate transfer tax will be reduced from “at least 95%” to “at least 90%”.
Holding Periods extended to 10/15 years
- The holding period exempting transactions from otherwise payable real estate transfer tax shall be extended from 5 to 10 years.
- For structures involving a subsequent consolidation of partnership interests in one hand, the relevant period is extended to 15 years.
Changes regarding Shares in Corporations
- A transfer of at least 90% of shares in a corporation within 10 years to new shareholders is now subject to real estate transfer tax (not applicable to listed companies). Thus, in the future only 89.9% of shares in a corporation can be transferred to new shareholders within 10 years without triggering real estate transfer tax.
- Under the current regime, special rules (with a holding period of 5 years) applied to partnerships interests. For corporations, a tax-free transfer of 100% shares to two independent transferees (split 94.9/5.1) was possible.
- The new law shall come into effect on 1 July 2021.
- For share deals in corporations, the new law applies to all share transfers becoming effective on or after 1 July 2021. Share transfers becoming effective prior to 1 July 2021 will not be taken into account for the purpose of calculating the 90%-threshold.
- There will be no grandfathering for share transactions signed prior to 1 July 2021 but becoming effective on or after the effective date which will be taxed according to the new rules.
In light of the new law, careful planning of restructurings or acquisitions of shares/participations in companies which directly or indirectly hold real estate becomes even more important.
Should you have any questions in relation to the above or regarding further details of the new law, we will be happy to advise you.