German Tax Law Now Covers Sales of Foreign Real Estate Company Shares
A 2018 German tax law amendment expands taxation to include the sale of shares in foreign companies holding German real estate.
German Tax Law Expands to Cover Foreign Real Estate Company Share Sales
Germany's tax laws were amended in December 2018 to include capital gains from the sale of shares in foreign companies that hold German real estate. This change applies to sales transactions completed after December 31, 2018.
The new provision, § 49 Abs. 1 Nr. 2 Buchst. e) EStG, aims to close a loophole. It applies when the value of shares in a foreign corporation is derived from German immovable property by more than 50% at any point during the 365 days preceding the sale. Additionally, the seller must have held at least a 1% stake in the company at some point within the five years prior to the sale.
BDO AG, a German auditing and advisory firm, highlighted the implications of this change. The firm noted that the new rule primarily targets individuals and certain financial and insurance companies that cannot utilize German tax code § 8b KStG, which exempts foreign corporations from taxation. While intended to increase tax revenue, BDO suggests the practical impact may be limited.
Challenges may arise for foreign shareholders who may lack the necessary information to determine the extent of their company's German property holdings. Furthermore, existing double taxation treaties could influence the scope of taxation, depending on specific clauses related to real estate assets within those agreements.