Newsflash: Stricter Rules for Share Deals in German Real Estate Transfer Tax


Cologne, 10th May 2019


On May 08, 2019, the German Federal Ministry of Finance (Bundesfinanzministerium) presented the draft of the "Act on the Further Tax Stimulation of Electric Mobility and the Amendment of Further Tax Regulations". This draft now regulates, among other things, the tightening of legislation in connection with real estate transfer tax (RETT) for so-called Share Deals, i.e. share transfers involving companies owning real estate, which was already discussed at state level in June 2018. The planned new regulation essentially consists of the following:

1. Lowering of the Minimum Participation Threshold to 90% and Extension of the Holding Periods for RETT Benefits in Share Deals
In the area of share deals involving entities that hold real estate, tax is currently only levied if either 95% of the shares or economic control of the landowning company are at least indirectly united in one hand, or if the shareholder structure of a partnership changes by at least 95% within 5 years. With regard to these acquisitions within the meaning of Sec. 1 Para. (2a), (3) and (3a) of the German Real Estate Transfer Tax Act, the draft provides for a reduction of the participation quota from 95% to 90%. It is also planned to extend the holding period from 5 to 10 years in accordance with Sec. 1 Para. (2a) of the German Real Estate Transfer Tax Act. Equally, the holding period required to benefit from a reduction of RETT in case of transactions between a partnership and its partner will be extended to 10 years.

2. Real Estate Transfer Tax in the context of a change of ownership in a corporations
Furthermore, a new Para. (2b) is to be included in Sec. 1 of the German Real Estate Transfer Tax Act, pursuant to which a change of ownership in real estate owning corporations would be subject to real estate transfer tax, provided that at least 90% of direct or indirect ownership change within 10 years. The provision is very far-reaching, as it can lead to recurring real estate transfer tax, particularly in the case of listed companies, depending on the trading volume. 

3. New Sec. 6 Para. 4 of the German Real Estate Transfer Tax Act
Under the new Sec. 6 Para. (4) of the German Real Estate Transfer Tax Act, the reduction of RETT to transactions between a partner and the partnership he is invested in, will only be granted, if the co-owner's partner held its interest for at least 15 years prior to the transaction, unless the prior acquisition by which the partnership interest was acquired had been subject to RETT.

4. Suggested procedure
It is expected that changes to the draft will occur at short notice. It is uncertain whether these will come into force in their present form or in any other form. The draft currently provides for the new regulations to be applied from 1 January 2020. It is uncertain whether this date will be maintained or whether the application may be accelerated. Any pending transactions should therefore be processed as quickly as possible. Otherwise, there is a risk of an increased RETT burden, with tax rates currently ranging from 3.5% and 6.5% of the value pf the real estate.

Dr. Gunnar Knorr


Telephone: +49 221 2091 541
Telefax: +49 221 2091 333