Structuring real estate transactions for tax purposes

Asset deal or share deal

In an asset deal, the buyer acquires the property itself; in a share deal, the shares in the property-holding company. Both routes lead to the same economic result but are treated fundamentally differently for tax purposes: an asset deal usually triggers real estate transfer tax on the full purchase price and gives the buyer new depreciation potential. A share deal can avoid real estate transfer tax under certain conditions, but it transfers the company's tax history — including possible risks from previous assessment periods.

The decision depends on the purchase price, the structure of both parties, the planned holding period and the requirements of the financing bank. We quantify the alternatives before the decision is made.

Real estate transfer tax

In North Rhine-Westphalia, real estate transfer tax amounts to 6.5 per cent of the purchase price, making it usually the largest single item of transaction costs. For property-holding companies, changes of shareholders through which at least 90 per cent of the shares pass to new shareholders within ten years can trigger real estate transfer tax. The separate rules on the consolidation and transfer of shares must also be examined; no general ten-year holding period applies to these. (Section 1 (2a), (2b), (3) and (3a) of the German Real Estate Transfer Tax Act, GrEStG)

We examine whether and to what extent a transaction triggers real estate transfer tax and develop permissible structures to reduce the burden.

Extended trade tax deduction

Companies that exclusively manage their own real estate can claim the extended deduction under Section 9 No. 1 sentence 2 of the German Trade Tax Act (GewStG) — income from managing the property is effectively exempt from trade tax. The rule is economically attractive but prone to errors: even a minor harmful ancillary activity, such as also letting operating equipment, can cause the deduction to be lost for the entire year.

The legislator has set de minimis thresholds: income from supplying electricity from renewable sources and from operating charging stations is harmless up to 20 per cent of the income from letting the property; for income from other direct contractual relationships with tenants, the threshold is 5 per cent (Section 9 No. 1 sentence 3 GewStG). We review existing structures for eligibility and set up new companies so that the requirements remain met on a lasting basis.

Reinvestment reserve under Section 6b EStG

Gains from the sale of business land or business buildings can, under certain conditions, be transferred to a replacement asset or allocated to a reserve — taxation is deferred. The key factors are the six-year prior ownership period, the type of replacement asset and the reinvestment period of four years, or six years for newly constructed buildings. If the deadline is missed, the reserve must be released to income; in addition, a surcharge of 6 per cent of the released amount applies for each full financial year (Section 6b (7) of the German Income Tax Act, EStG).

Real estate in succession planning

In business and wealth succession, real estate is the asset with the greatest potential for conflict: difficult to divide, highly valued, and inheritance tax falls due without any cash coming in. We advise on lifetime transfers, the repeated use of tax-free allowances, reserved usufruct and the question of the optimal allocation of assets — private assets or a company.

Frequently asked questions

Is a share deal always cheaper than an asset deal?

No. A share deal can save real estate transfer tax, but it forgoes new depreciation potential and passes the company's tax risks on to the buyer. With a long remaining useful life and a low purchase price, an asset deal is often more advantageous. The decision requires a case-by-case calculation.

When should tax advice be involved?

Before the purchase agreement is signed, ideally before the letter of intent. After notarisation, the key tax decisions have been made and can rarely be corrected.

What jeopardises the extended trade tax deduction?

Any activity that goes beyond managing and using one's own real estate — typically also letting operating equipment, holding an interest in a commercial partnership and certain ancillary services to tenants. The statutory de minimis thresholds of 20 per cent (electricity from renewable sources, charging stations) and 5 per cent (other services to tenants) are interpreted narrowly.

Is tax payable on the sale of a privately held property?

For privately held real estate, a capital gain is taxable if no more than ten years pass between acquisition and sale; exceptions apply to owner-occupied property. For real estate held as business assets, the gain is taxable regardless of the holding period.