Real Estate Transfer Tax Act
16.08.2019 - Draft Law for amendment to the Real Estate Transfer Tax Act
On 31 July 2019, the German Federal Government passed a draft law amending the Real Estate Transfer Tax Act (GrEStG) and submitted it to the Bundesrat on 9 August. This is set to be debated in a session taking place on 20 September 2019. Due to the complexity of its provisions and its significance for the real estate industry, the reform act has a dedicated legislative procedure and was therefore separated from the Annual Tax Act 2019.
Originally, the efforts to reform this law were more or less well hidden in the Federal Ministry of Finance’s draft bill for the Annual Tax Act 2019 and were to be passed as a package with other legislative changes within the scope of this Annual Tax Act.
In terms of content, the Federal Government’s draft law has adopted the provisions contained within the draft bill from the Federal Ministry of Finance dated 8 May 2019 virtually unchanged (we reported on this in our client information “Tightening of real estate transfer tax: draft legislation of the BMF published” from 21 May 2019).
The main features retained are the reduction of the shareholding threshold from 95% to 90%, the extension of holding periods from the previous five to ten or fifteen years, and the creation of an additional clause in Article 1 Para. 2b GrEStG for the change of partners in corporations.
Unlike in the draft bill, a different point in time is specified for the non-applicability of the new regulations for the transitional arrangements for the new clause under Article 1 Para. 2b GrEStG for the changing of partners in corporations, for the shareholding limits (90% instead of 95% and existing shareholders only after ten years instead of five as before) and for the change of partners in partnerships (Article 1 Para 2a GrEStG). It is not to be applied to transfers of shares to a corporation (or purchase transactions in partnerships) that are based on a signing concluded prior to the day on which the draft was forwarded to the Bundesrat; however, this only applies if the signing was concluded less than a year prior to this date and was fulfilled no more than a year after this date (through the cession of shares, known as a disposition, often the closing). The draft bill regarded the submission of the draft to the Bundestag as the effective date.
As a result of this amendment, it will no longer be possible to use the transitional arrangements within the scope of practical implementation. After all, the Federal Government’s draft was submitted to the Bundesrat for an initial statement on 9 August 2019 according to Article 76 Para. 2 Sentence 1 of the German Basic Law. In response to a telephone enquiry, the Bundesrat confirmed that the government draft will serve as the basis for the debate during a session on 20 September 2019. Only after this will the Bundestag examine the draft.
It is to be assumed that the previous statutory provisions (transfer of all shares in corporations, distribution of 94/6%) are only applicable if signing and closing are completed during 2019.
Should you have any questions regarding the planned legislative change, we will be happy to help.
Whether capital market oriented international group, owner managed business or high net worth individual; whether domestic or international activities – tax issues are a decisive factor for all business transactions. Therefore it is our ambition to develop optimized tax strategies in order to achieve a long-term and sustainable reduction of your tax burden.