- April 1, 2016: Vol. 10, Number 04

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A high-tax country: Good-to-know facts on tax-optimised real estate investment structures in Germany

by Tobias Klass and Verena Stoecker

Profitable real estate investments become unattractive all of a sudden if the total tax burden substantially decreases the return on investment. While tax is rarely a driving factor behind a real estate investment, it can certainly be a deal breaker, as real estate investments are typically very tax-sensitive.

Germany is still often considered a high-tax country and a choppy place for structuring investments. Meanwhile, however, through tax cuts in Germany and changes in many other countries, the German tax regime ranges midfield among OECD countries, advantageous in certain respects and disadvantageous in others. In fact, if structured properly, the effective tax rate for German real estate investments can be reasonably low for two reasons: real estate transfer tax is not necessarily triggered in every investment scenario, and German income taxation may effectively be cut in half by avoiding trade tax on rental income and capital gains completely.

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