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Germany has lowest taxation on commercial rental income

Please see our newest posting from FEBRUARY 24, 2014 as well:
Property investment optimization on corporate and taxation level.

Germany has lowest taxation on commercial rental income, and the reason is quite simple, rental income in Germany is (depending on the structure) exempted from trade tax. Therefore the average tax burden in Germany amounts to “only” 13,7% of gross annual rental income. One has to differ between real estate trader/trading and asset management companies.

Pure management of own real estate assets (“Verwaltung eigenen Vermögens”) is exempted from trade tax because its not seen as a commercial operation (“nicht gewerblich”).

Even real estate trading tax (6,2% on the sales price) is much lower than the international average (9,5%).

So if you plan to invest in an income producing property (to keep it longterm) always found a company (“GmbH” or “GmbH & Co. KG“) and put the property in the company.

If you incorporate a new company then the subject of business should be asset management (“vermögensverwaltend”), don’t forget to tell the authorities (“Gewerbeamt”) that you started a business. If you write “vermögendsverwaltend” into the application, then the authorities will testify you that you are not a commercial entity.

Tip 1: found a company for each property (assuming its not a flat but a full building like a multi-family-home.

Tip 2: don’t register the company new, especially if you are a foreigner, the banks will give you a hard time to get a company bank account and without a bank account you will not be able to legally install a fresh company. The “trick” is to buy an all ready incorporated fresh company (“Vorratsgesellschaft”) from a specialized service-provider (e.g.: VRB Vorratsgesellschaften GmbH in Berlin) .

Please find all contacts to real estate service provider that help our clients and us to structure our deals on our Berlin Real Estate Service Provider PDF. Just drop us a note.

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