When buying property abroad anywhere it is a good idea to seek the advice of a tax specialist, especially if you intend to earn money from the property, to use it yourself or to live in it permanently – in other words always. Here is a brief run-down of property taxes in Germany to get your started.
EU citizens are subject to a minimum German income tax rate of 15% on the scale of 14%-42%. Non EU citizens will be subject to a minimum rate of 25% on the same scale. The German tax office (Finanzamt) estimate your liability based on the previous final liability and quarterly payments are then due in March, June, September and December. Your final liability is then calculated by the submission of an income tax return by the 31st May annually.
Property rental income is often subject to withholding tax.
If you purchase through a company then you will be liable to pay Corporate Income Tax, which is calculated @ 25% on the company profits after costs. No tax is withheld on rental payments to non-resident companies holding German property. A Solidarity tax of 1.25% approx however is also applied.
Local authorities levy a communal tax known as a local property tax which falls into two bands: band A applies to agricultural property band B to building land & buildings.
The tax is calculated using the unit value (einheitswert) as fixed by the Finance Authority (ie assessed value which is usually lower than the purchase price) and rates depend on the location (municipality) of the property. Rates in West Germany range from 2.6% - 6%. The average rate for residential property is 3.5%. A multiplier is then applied to the % calculation.
(CGT) is calculated at the same rate as income tax in Germany, but property sales are exempt from CGT if the property is held for 10 years or more. Subject to certain conditions sellers can also achieve CGT exemption if they reinvest the sale funds into an alternative property.
(IHT) and German Gift Tax is levied at rates ranging from 7% -50% depending on the type of property or gift involved, and also dependent on the relationship between giver and receiver and the value of that being inherited or given. The value of each asset is determined in accordance with the Valuation Law.
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