New regulation of real estate transfer tax in share deals in view of the law on tax-related crimes

After a long discussion about a possible reform in the handling of share deals for real estate transfer tax purposes, the law was implemented to amend the Real Estate Transfer Tax Act. This threatens to create a significant additional burden for share deal real estate transactions in Germany.

So-called share deal transactions are a form of real estate transaction in which it is not the property itself that is purchased, but shares in the property-owning company. It is possible to save on real estate transfer tax by means of a share deal.

So far, so-called RETT-blocker structures have been used for this. If an investor purchased less than 95 percent of the shares in a property-owning corporation, no real estate transfer tax had to be paid. The remaining shares were acquired by a co-investor (as a RETT blocker). These acquisition structures have become more unattractive due to the new regulation. 

With the new regulation, real estate transfer tax is due once 90 percent of shares have been acquired. In addition, the holding period has been extended from five to ten or fifteen years.

There are indications of a significant additional burden for share deal transactions involving real estate in Germany. Under certain conditions, share deals remain tax-exempt only if their share in the partnership remains below 90 percent, and the remaining share is held by the co-investor for at least ten years. The buyer is thus denied the unrestricted right of disposal over a long period of time.

The same now also applies to property-owning corporations, since the special regulation on property-owning partnerships has been extended to property-owning corporations.

All property-owning companies planning a change of shareholders and investors who are considering acquiring real estate through share deal transactions should review the new regulation and weigh the additional burden.

Even with publicly traded companies, there could be significant effects, even if stock movements are generally not expected to trigger real estate transfer tax within the group due to the introduced stock exchange clause. The stock exchange clause leaves it open, for example, whether those transfers of shares that take place indirectly, i.e. that are not processed directly via the stock exchange, are also exempt from the tax. Furthermore, the scope of application of the stock exchange clause is limited to the EU/EEA region and to individual, specially privileged third countries.

Due to the expansion of real estate transfer tax regulations on property-owning corporations, companies must now monitor their shareholder changes for more than ten years in order to avoid unpleasant surprises during tax audits or annual audits. Real estate transfer tax thus plays a larger role when managing tax compliance. Before deciding on a share deal, companies should review and factor in the additional real estate transfer tax burden.

In any event, the following applies: Structuring options should now be identified quickly, as experience has shown that their implementation takes some time.

Our KPMG International Transaction Tax team will help your company organise transactional processes, avoid pitfalls and identify opportunities.

Take advantage of our experience and reach out to us.