Property in Germany
Who holds the property decides the tax burden — often more than the purchase price does. We advise before the purchase, during it and on the obligations that recur every year.
Who should hold the property?
You are free to choose the legal form. The owner can be:
- a private individual
- a group of private individuals
- a combination of individuals and companies
- one or more legal entities
Whether the parties are German or foreign makes no difference. What does matter is the consequence: the legal form decides whether profits from letting and sale are subject to income tax or to corporate and trade tax — and whether a later sale can remain tax-free after a holding period.
Changing the legal form later is possible only with effort and rarely without a tax charge. That is why this question belongs before the notary appointment, not after it.
What is calculated each year
A tax result is determined annually for each property. Income is the rent and, where applicable, sale proceeds. Deducted from it are, among others:
- operating costs
- administration costs
- maintenance
- depreciation
- interest expense
Interest expense
This is where the greatest room for structuring lies. Properly arranged, interest is deductible whether the loan comes from a bank or from a private individual. Where the lender is not resident in Germany, the interest can be deductible here while the corresponding interest income is not subject to German tax. The conditions are set out in detail — and are regularly missed, because the loan agreement does not match what would be usual between unrelated parties.
Depreciation
The acquisition cost of the building — not of the land — is spread over its useful life and reduces taxable profit every year without any cash leaving your account. Which rate applies depends on the age of the building:
| Building | Rate per year | Useful life |
|---|---|---|
| Residential, completed from 2023 onwards | 3% | 33 years |
| Residential, built 1925 or later | 2% | 50 years |
| Residential, built before 1925 | 2.5% | 40 years |
| New build, declining balance (§ 7 (5a) EStG) | 5% of the residual value | construction started 10/2023 to 09/2029 |
The split of the purchase price between building and land is therefore one of the most effective levers there is: only the building portion can be depreciated. It should be properly reflected in the purchase contract and capable of being substantiated — otherwise the tax office recalculates the split itself, and rarely in your favour.
Losses
Under certain conditions losses can be carried back to the previous year or forward into future years. In the early phase of a property in particular — high interest, refurbishment, letting not yet complete — that creates room.
VAT on letting
Letting residential and commercial property is generally exempt from VAT (§ 4 no. 12 UStG). For commercial property it can be worth opting voluntarily into VAT: the 19% on incoming invoices — from construction firms, for example — then becomes deductible. On a refurbishment that quickly runs into six figures.
The condition is that the tenant uses the premises for supplies that do not exclude input VAT deduction — a doctor or an insurer as tenant rules the option out. And it binds: if the use changes within ten years, the input VAT is clawed back pro rata (§ 15a UStG). It should be calculated through before it is exercised.
What we take on
- Advice on the legal form before acquisition
- Tax support during purchase and sale
- Review of the purchase price allocation
- Structuring the financing from a tax perspective
- Ongoing bookkeeping and tax returns for the property
- Advice on the VAT option for commercial property
- Inheritance and gift tax on transfers
For acquisition, financing and notarisation we work with a network of lawyers, notaries, bankers and estate agents — from a single apartment to a larger project.
Frequently asked questions
Can a foreign national buy property in Germany?
Yes. There is no restriction on acquiring real estate in Germany based on nationality or residence. For tax purposes you are subject to limited tax liability in Germany on the income from the property.
Is the sale of a property tax-free?
Held privately, yes — if more than 10 years lie between acquisition and sale (§ 23 EStG). If you lived in it yourself, that shortens considerably: the sale is exempt once the property was used as your own home in the year of sale and in the two preceding years — so after a good two calendar years.
Held as business assets, the gain is always taxable, whatever the holding period. That is one reason the question of legal form belongs before the purchase.
What taxes arise on the purchase itself?
Real estate transfer tax, at a rate each federal state sets for itself. Bavaria charges 3.5% — the lowest in Germany; elsewhere it goes up to 6.5%. On top come notary and land registry costs of around one and a half per cent together, plus the agent's commission where one is involved.
On an ongoing basis there is property tax. Since the reform it is levied on new values; Bavaria uses a pure area-based model that ignores the value of the property altogether.
Do I have to file a German tax return for the rental income?
Yes. Income from letting property located in Germany is taxed in Germany — even if you neither live here nor hold German citizenship. The double taxation treaty with your country of residence governs how the income is treated there.
Before the purchase is the right moment
Tell us about the property and about who intends to invest. We will set out the structuring options.