Real Estate Transfer Tax Reform: Tighter rules for the transfer of shares in real estate holding companies

On July 1, 2021, the Act Amending the Real Estate Transfer Tax Act will come into force. This contains extensive new regulations for the acquisition of shares in real estate holding partnerships and corporations.

The key points of the amendment:

  • Whereas previously a transfer of at least 95% of the shares in the assets of a real estate partnership within 5 years triggered land transfer tax, in future a transfer of 90% within a period of 10 years will already be sufficient.
  • In addition, Sec. 1 (2b) of the German Real Estate Transfer Tax Act (GrEStG) introduces a new provision according to which a change of shareholders in real estate corporations in which more than 90% of the shares are transferred to new shareholders within 10 years also triggers real estate transfer tax. Since indirect share transfers are also to be included in this, changes at all levels of the shareholding structure must be monitored. Exceptions exist if the shares were acquired via a stock exchange.
  • In the case of share transfers and mergers, the relevant shareholding thresholds are also reduced from 95% to 90%. As a result, share transfers will be subject to real estate transfer tax as of July 1, 2021 if more than 90% of the shares in a real estate holding partnership or corporation are combined in one hand for the first time or if there is a share transfer of more than 90%.
  • The pre- and post-retention periods for tax exemptions for transfers between partners and partnerships will be extended from the current 5 years to 10 years and 15 years respectively. This will make it considerably more difficult to arrange transactions in which it was possible to reduce the real estate transfer tax burden by acquiring shares in the assets of a real estate partnership over a longer period of time.

If you have recently acquired shares or are planning to transfer shares and would like to be sure what the new regulations mean for you, our advisors will be happy to help.