Update: Tightening of the real estate transfer tax for share deals

On 21 April 2021, the Bundestag passed a reform of the real estate transfer tax. This entails a lowering of the minimum shareholding threshold and an extension of the holding periods. Real estate transfer tax can now also be incurred in case of changes of shareholders of corporations. An entirely new feature is the introduction of a stock exchange clause. We are already informing you here about these and other innovations and their practical significance - especially for transactions that are already in progress.

A reform of real estate transfer tax has been a recurring political topic since July 2018. In May 2019, the Federal Ministry of Finance presented a concrete draft bill. After a long period of political wrangling over the details, the Bundestag's Finance Committee was recently able to agree on a draft that has now been passed by the Bundestag. It could be approved by the Bundesrat in the near future. We have summarised the most important innovations for you:

Reduction of the minimum shareholding threshold to 90% and extension of the holding periods to basically ten years

In case of an acquisition of shares in real estate-owning companies (share deal), such transactions were only taxed to date under the German Real Estate Transfer Tax Act [Grunderwerbsteuergesetz, GrEStG] in the following cases: if either 95% of the shares or the economic control of the real estate-owning company were combined in one hand or if the number of partners in a partnership changed by at least 95% within five years.

This rate is now going to be reduced from 95% to 90%. At the same time, the holding period is going to be extended from five to ten years. The holding periods of §§ 5, 6 GrEStG, which privilege the acquisition of real estate in the relationship between partnership and partner if adhered to, are also going to be extended from five to ten years.

Real estate transfer tax in the case of changes of shareholders in corporations

Furthermore, a new paragraph 2b is to be added to § 1 GrEStG. This will also subject changes of shareholders in real estate-owning corporations to real estate transfer tax, provided that at least 90% of the shares are transferred to new shareholders within ten years. It is irrelevant in this connection whether the shareholder structure changes directly or indirectly as a result. 

Introduction of a stock exchange clause

In contrast to the original version, the bill now passed contains the much-discussed stock exchange clause in the form of § 1 (2c) GrEStG. According to this, certain transfers of shares in listed corporations are to be disregarded to the extent that the share transfer takes place on grounds of a transaction on a recognised stock exchange. This aims to prevent an excessive taxation of listed corporations.

Reduction of the real estate transfer tax: new version of § 6 (4) GrEStG

If a partner in a partnership acquires real estate, the real estate transfer tax can be reduced in accordance with § 6 (4) GrEStG of the draft. However, this only applies if the partner has previously held an interest in the company for at least 15 years, unless the previous acquisition of the interest in the company had already triggered real estate transfer tax (in particular pursuant to § 1 (2a) GrEStG).

For practical purposes

As things stand at present, the new regulations should come into force and be applied as of 1 July 2021. Insofar as transactions relevant to real estate transfer tax are already in the planning, we therefore recommend that these be implemented quickly - before the regulations become applicable.

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