Box privilege: save taxes when selling real estate

Nesting privilege: a term worth knowing!

Although I have been using the holding model in the real estate industry for years, I only recently came across the term “nesting privilege”. The bottom line? Only 1.54% tax on real estate sales! If you’re wondering, let me introduce you to the world of real estate holding in this short article.

The taxation of a real estate GmbH

A GmbH is subject to corporation tax, the solidarity surcharge and trade tax, which results in an effective tax rate of approximately 30%.

However, if you set up your GmbH in the context of real estate projects, you can benefit from the extended reduction in trade tax.

In this case, you only pay 15.83% tax on rental income and lease fees.

The same low tax rate also applies to the sale of real estate. However, care must be taken here to avoid falling into the category of commercial property trading. You may sell a maximum of three properties within five years, otherwise the tax rate rises to 30%.

The share deal offers an even more tax-efficient option for real estate sales.

Real estate holding company: Reduce the tax burden to 1.54%

By cleverly structuring your GmbH, you can reduce the tax burden on the sale of real estate to just 1.54%. A little more striking:

1.54% Taxes on sale

This concept, known as a share deal, benefits from a holding structure and the nesting privilege. Your business structure consists of two limited liability companies. One of the companies acquires the real estate, while the second limited company acts as the parent holding company. If you now want to sell your property, the holding company transfers the shares in your real estate GmbH to the buyer.

The nesting privilege comes into play here

If a corporation sells shares in another corporation, 95% of the profits remain tax-free.

This means that your effective tax rate on the profit from the sale of the property is only 1.54%.

More about GmbH & asset-managing GmbH

Learn more about the GmbH here

• GmbH: Simply explained
• Asset-managing limited liability company

Planning for the long term: strategy for asset accumulation

Long-term wealth accumulation does not start when assets are needed in a timely manner. That means, for example, shortly before retirement or shortly before a decision when money “must” be spent. For example at the end of the year or if it concerns larger investments, also before elections, for example the federal election (up-to-date with donation / WEG establishment). But – we want to stay at the very beginning.

Wealth accumulation at 20, 30, 40, 50 years?

When should you start building wealth? When you start building up assets does not depend on your age. What is important is that you start “as early as possible” to deal with the matter of capital accumulation. Every euro you have available for investment can generate new profits. The profits can in turn be reinvested and so the added value, the return factor of a single euro, is already significantly greater. The longer your money can “work”, the better. As can be seen in the calculation example (later),

every euro doubles, every 10 years, with a return of only 10% p.a. (per anno = per year)

This way your assets grow, more and more equity can be used for investment.

Whether 20 years, 30, 40, 50 … the important thing is: start!

Comparison: Wealth accumulation by age

In this comparison, we assume an investment of 50,000 euros. Here you can see the return up to the age of 60, at 10% p.a.:

• 20 years > 1,870,217 Euro at age 60
• 30 years > 721,049 Euro at age 60
• 40 years > 277,995 euros at age 60
• 50 years > 107,179 Euro with 60 years

You see, the sooner you start, the better.

Time is money!

Investment forms and age – Age is also irrelevant when it comes to choosing the right investment form. Whether quick investments, as with shares or long-term investments, as with real estate as an investment. An overview of investment forms can be found here, for example, list: Capital investments (external, magazine). The basis is the amount of your equity and the question, which investment can I afford?

How does building wealth work?

First of all, there is one golden rule that you have to live with:

Much helps much, who has something, much or even very much capital, is in the advantage

Why? Wealthy investors, for example, can afford tax advisors who also take care of tax avoidance. So while you’re paying capital gains tax, they’re using loopholes in the law to avoid tax. Which is perfectly legal. If you know how to save taxes, you should use your knowledge – more on that later, too. So we hold:

Money helps a lot: equity / return comparison

Your goal is:

Wealth creation

Why “more money is good”, you can see here. Capital only multiplies slowly. Let’s calculate a small, real return that you earn annually with your investment.

Example 100,000 Euro equity – Let’s say you generate a return of 10% per year, whether with real estate (equity min. ~ 20,000 Euro, why you will learn in a moment [leverage effect]) or an ETF fund of various stocks (equity from 100 Euro, example solar industry), then you increase your capital from:

• Invested: 100.000 Euro
• Return on investment: 10,000 euros
• Equity capital (new): 110,000 Euro

Example 10,000 euros equity – If you approach wealth accumulation on a smaller scale, for example, through a portfolio of cryptocurrency, stocks or ETF, with 10,000 euros, you make accordingly 1,000 euros plus.

• Invested: 10.000 Euro
• Yield: 1,000 euros
• Equity capital (new): 11,000 Euro

Make money “just” work

So if you “only” let money work, you need a lot of money so that you can live on it, so to speak without working, as passive income through “interest”. With “only” 10,000 euros, you would need 40 years to come to 50,000 euros of equity. With a stable 10% annual return.

Example table:

And … then come the taxes

Profits and taxation – Another disadvantage for those who have little equity: Taxes. Not even considered, the capital gains tax, each at 25% on the capital gains. Accordingly, the return on 10% real, only 7.5%, so after tax.

Large investors have a decisive advantage, they can afford tax advisors who know how to avoid taxes through company constructions (such as family trusts) and other refinements, e.g. gifts within families.

So you see:

Wealth accumulation needs equity capital, ideally 100,000 euros and more, so that it is “fun”; but it is also important: If you have less available, see this sum of 100,000 euros equity capital as the first goal and incentive!

Why? If you want to invest in real estate at some point – which all large investors do – you need capital, for example for the purchase, but also for renovations that are pending.

Now you know the starting situation, let’s move on to the tools (knowledge) you need.

Leverage effect and debt capital

That’s why it’s so important to learn a few initial mechanics and levers. First:

Borrowed capital (loans) is part of the business

Leveraged finance, real estate and similar transactions are the means of choice when equity (through debt) is to be increased.

Through this leverage, you could buy a condo worth 1 million, rent it out afterwards, and only have to put up 100,000 to 200,000 euros of equity to buy the property.

As a rule, you need (10 to) 20% equity for the first property.

It is no different with shares and stock market transactions, a certain proportion must always be presented as collateral when you trade with leverage. The broker lends you money for your investment. The bank lends you money for your real estate investment. As I said, leverage (loans) is part of the deal.

Your return basis (e.g. from renting) is now 1,000,000 euros, instead of “only” 100,000 euros.

Here, large investors have another advantage, once there are enough asset shares, the financing game turns around. Suddenly you no longer have to go to the bank and ask for financing, banks approach you to realize project with them. It just comes down to creditworthiness and your assets.

Conversely, for all beginners, be patient and focus on a long-term strategy to build wealth!

Formula: Excursus from business administration

Of course, there is no exact formula for safely building up your assets. For the sake of completeness, however, it should be mentioned that there is a formula for return on equity from classical business studies, which you can use to compare different periods (month, quarter or year), for example.

After the formula come the tips!

Tips: Save, invest smart, diversify

1. Saving: Earning” money without working
2. Invest (in yourself) instead of spending money
3. Spreading investments: minimising loss risk

Saving: Earning” money without working

So the key is, what have you already read out at the beginning, think long term! It starts very simple. Quick times to Starbucks, luxury hotel on vacation, always, immediately the latest smartphone model.

The ultimate, first tip, especially for beginners: saving makes for more wealth, always.

Whether it’s Starbucks coffee for those with almost no equity or the “superfluous” boat (with subsequent costs) for those who are already wealthy. Saving is essential when building wealth.

In order to increase your equity, cut out unnecessary costs, saving is the order of the day! A quick example: for entrepreneurs who, for example, do not have to adhere to fixed working hours, should take advantage of the off-season when booking travel, already the holiday costs 15% – 30% less. But also think about taxes, don’t avoid the issue! Tax allowances are cash money that you get back at the end of the year.

On a small scale in the case of conversion costs that can be deducted in the tax return, on a large scale, for example, 500,000 euros in tax-free allowances when setting up a family foundation (saving gift tax).

From saving money to taxes, there’s a lot you can do here, without any new hassle.

So don’t leave your finances to chance, plan actively, for your own future and as retirement savings.

Invest (in yourself) instead of spending money

Always invest in yourself! Simply put, an expensive car as prestige, perhaps “good” for the personal ego, depending on how you look at it, but bad for the balance sheet when it comes to building wealth. On the other hand, if you spend your money on further education, whether it’s mechatronics or auto industry design, then it’s money well spent. Because it will multiply as your performance increases.

Education is important as a progression, as in the example of a web designer furthering his education in auto industry design, to the topic of taxes, as mentioned above.

Spreading investments: minimising loss risk

Another important insight, do not invest in a single “channel”. The more diversified your investments, the lower the risk of failure of individual stocks. For example, let’s say you bet everything on the stock of an electric car manufacturer. Suddenly there are multiple, unforeseen incidents, perhaps even fatalities on the road, negative press. The stock price may now go on a long-term slide that may take months or years to recover.

Should you need to access your reserves within this period (price low), this would only be possible if you accept a high price loss.

That’s why you diversify your investments:

• Equities, better ETF (bundled equity securities); possibly a small share of crypto
• Precious metals like gold
• Real estate as an investment

That was a first, small insight. Now let’s go deeper into practice and start with saving:

Invest money and build assets

1. Wealth through savings: Without and with equity capital
2. Wealth accumulation on the stock market: Alternative
3. Shares and ETFs
4. Cryptocurrency

Wealth through savings: Without and with equity capital

Those who are still at the very beginning in terms of wealth accumulation have little or no equity capital available. Accordingly, we come back to one of the most important rules, reduce costs. The less money you have to spend, the more remains in your pocket to reinvest the money.

Our free guide offers a very detailed basis. From everyday household, to shopping, to saving on travel. Taxes, water, electricity and much more!

Read numerous tips on how to save money here:

• Save (XXL)

Wealth accumulation on the stock market: Alternative

For many, the easiest way to get started is the stock market. Today, through apps like eToro, you can participate in stock market trading within minutes, whether stocks, currencies, ETF or cryptocurrency. Every investment is always associated with risks, accordingly, we want to give you an overview of the matter.

• Stock exchange opening hours

Shares and ETFs

Comparatively little risk, in relation to investments such as cryptocurrencies but also currencies, offer shares and even less risk, bundled share packages, so-called ETF. But even within individual stocks or sectors, the risks differ. If you look at the largest real estate stocks, for example, you can see the steady growth over the past years and decades, and thus also the dividends for investors, as well as their returns when selling the shares.

• Shares
• Real Estate Share

Cryptocurrency

Cryptocurrencies may sound like a classic currency (FIAT currency) at first, but in principle it behaves more like the stock market, only without the equivalent value of the company. This is because in currency trading, as you will learn in a moment, you are speculating in the form of currency pairs, or the news and information behind the economic/political systems that make up the currency in question.

Cryptocurrencies are more of a mass phenomenon. The more who believe in the increase in value or even the stability of value, the more will invest. The fewer believe in it, the fewer will invest. Behind the product is no company, accordingly, the price can fall far overnight, even without negative news.

Where there is high risk, there are also high potential profits. Accordingly, the trade with cryptocurrencies attracts a lot, especially because you can already invest with a few euros or dollars. So even small investors can get started with 10, 100 or 1000 euros or dollars.

• Trade cryptocurrency
• Crypto ETF

FIAT currency (euro, dollar, etc.) – digression

Here’s a little digression, if you’re interested in currency trading, here’s another informative article that summarizes all the material on Forex.

• Currency trading

Wealth accumulation with real estate

Less risk, long-term thinking – buying real estate is the name of the game when it comes to solid, sustainable forms of investment.

Advantages, requirements and location

Building wealth through real estate begins in advance, with the considerations and planning for the purchase of real estate.

With real estate, you have various advantages, for example, tenants and the state take over a large part of the monthly costs. You only have to make sure that you always have sufficient capital available, for example for renovation, refurbishment and vacancy (more common in C-locations).

Real estate, whether condominium, house or apartment building, in A-location and B-location, are a safe bank. So the very first step is always, the first property. Learn more about the topic here:

• Buy property
• Just like buying a house
• Buy a condominium

Residential, commercial, owner-occupied or rental

But it is not done with the purchase, now comes the question of owner-occupation or renting? Here quite clearly renting! With the question residential property or commercial property, quite clearly residential property. In many inner cities commercial properties are empty. The new renting is therefore clearly more difficult.

Let’s continue with the topic of taxes. What taxes do you face when you buy a condo or a house? The topic of taxes can go on and on. A tax consultant can provide the right impulses. As a rule, however, taxes are a matter for the boss and are therefore subject to your personal planning, in consultation with the tax advisor.

Example: Speculation tax on resale

One easy-to-remember type of tax, for example, is the speculation tax. It states that real estate can be sold on tax-free after 10 years. So if you hold your property for ten years and then sell it, you are exempt from speculation tax. If you only own a condominium and don’t know about it, sell the condominium after nine years, you will learn about speculation tax for the first time. Accordingly, again the reverse: you are the best organizer for your wealth accumulation!

Accordingly, wealth accumulation with real estate is only possible if you gradually expand your portfolio. Wealth accumulation with the peculiarities, is not enough to build a solid foundation for old age. Ideally, you buy a property and rent it out.

So that you already have a little insight into how taxes can be avoided, for example through certain legal forms / constructs, here are two examples. Whenever it is no longer just about individual properties, but perhaps even about 50, 100, 500 or even 5,000 residential units, you need other constructs than the typical, individual GmbH. If you want to look a little deeper into real estate, investments and taxes, here are two more good examples of what is possible when you eventually get to the point that you have “made it”.

Typically for families, especially to pass on wealth to the next generation, but also to be able to pass on profits, in part, tax free, many become the family foundation.

Family foundation – example

In very simple terms: If you own a lot of real estate, you can set up a family foundation. The advantage: With a family foundation you pay only 15% corporate income tax on the rental of real estate and capital gains are tax-free (after the speculation period). It gets even better, for example at incorporation. When transferring assets upon formation, up to 500,000 euros can be transferred to the beneficiary of the foundation tax-free (free of gift tax) (tax-free amount).

• Family Foundations

It gets even bigger later, much, much later in asset management.

Asset management – example

Wealth management is also called the investment of the rich. The fact is that investing with asset managers is only profitable above a certain amount and is not a sensible option for small investors. How exactly do asset managers work and when does it make sense to let someone else manage your money? The topic of asset management is very multi-faceted and is only worthwhile for certain people. Especially for institutional investors, such as insurance companies, the investment is worthwhile.

• Asset Management

Location, property type and development: Investment property

When it comes to the type of investment, the first thing you have to choose from is different types of apartments and houses. However, even more important, as all real estate investors know, is the location of the property. So if you are flexible in your property search and are looking for a good, profitable capital investment in Germany, regardless of the region, then you will find our guide here.

Tip! All cities, one guide: Real estate in Germany

In the guide you will find the most important German cities in focus, with the individual districts, advantages and disadvantages. We also give you an overview of the property prices in the individual districts, which we present here.

In this first guide you will find the complete overview of Germany. Here you will also get further information for each individual city, from the federal capital Berlin to the world-famous Bavarian capital Munich.

Guidebook contains:

• Property types (house and apartment)
• Facts and figures for all major cities in Germany
• Further links to the important districts
• District information with pros / cons
• Real estate prices
• Real estate statistics and development
• Company formation in Germany
• Legal forms (reference to real estate)
• Large real estate companies in Germany (stock exchange)

Which property is the best?

When deciding on the type of investment, you need to consider not only your own preferences, but also the target group. If you are not buying your property for your own use, but for rental, the wishes of the potential new tenants will also play a role.

The more typical, the easier to rent (60-120 sqm, 2-5 rooms)

Of course, the easiest apartments to rent in Germany are those that have a “typical” cut. Here we are talking about a typical apartment, between 60 and 120 square meters, with two, three, four to five rooms. This type of apartment, or even in the format of houses, rents out the easiest. Such apartments can use both single people, as well as couples and families.

If you want to invest your money in the luxury segment, the standard is of course quite different. A 260 m² penthouse in Berlin, with 1.5 rooms, is something rather fancy and only something for single people, maximum for couples. The rent is high, the rooms are not shared.

So the typical cut is easier to rent, much easier. For special types of apartments, types of houses, they first have to find the right tenant or the right tenant. The more special, the more difficult. Tip. Read this interview on “Classic or exotic investments”: Which properties should I invest in?

Property search and selection:

• Own preferences (region, property type)
• Own use or renting
• Preferences of the future target groups (tenants)
• Typical, ideal cut: 60-120sqm, 2-5 rooms apartment / house

House types: Terraced house, detached house, villa

Detached house, terraced house, semi-detached house or even designer villa, the possibilities in architecture and construction are so diverse that we have written here a separate guide on the subject of the different forms of houses. Especially when buying the first property very important, because each type of house brings its own individual advantages and disadvantages.

Advantages, disadvantages and differences at a glance:

• House types

Apartment types: Attic, Old building, Penthouse

Just as there are numerous types of houses, there are also different types of apartments. Top floor apartment, granny flat, maisonette or even penthouse and loft. Learn about the different types of apartments you can invest in here. When choosing an apartment, pay attention to the tips from above so that your apartment is not “too special” for the German market.

Comparison of apartment types:

• Apartment types

Depending on which target group you want to address as a real estate investor, you should therefore pay attention to the “marketability” of your apartment and houses in Germany in advance when buying (also when building) them. This is how you keep the vacancy rate of your real estate low.

But sometimes scarcity creates the right demand! Accordingly, we come back to the situation.

Germany: Cities, Facts and Figures

Now let’s move on to the German “Big 4”, the 4 largest cities in Germany: Berlin, Hamburg, Munich and Cologne. Tip! Further, interesting regions such as Frankfurt am Main, for your capital investment can be found here:

• Real estate in Germany

Berlin: Capital in East Germany

Berlin, as the capital, is the center of Germany when it comes to culture, business and politics. Berlin is also a cultural, economic and political heavyweight in Europe, alongside Paris and London.

Since reunification in 1989, Berlin has experienced a real estate boom like never before. Since then, the Berlin real estate prices rise, year after year. Meanwhile, it even goes so far that the city’s politicians introduced their own laws to take the “pressure” out of the real estate market, as well as the “Mietpreisbremse”.

Good times for both sides: Buyers and sellers of real estate. Buyers can achieve a good sales price, sellers in turn, can expect good returns now and in the future. But which districts in Berlin are interesting for your own investment? Here is a look at the German capital, real estate prices in Berlin and its districts:

• Berlin

Berlin (map), location in East Germany:

Hamburg: Port city and metropolis in the north

Hamburg is especially for the German celebrities the destination. Here you live relatively withdrawn from the hustle and bustle of Berlin. Fresh sea air, just two hours to the capital, with a fast drive, plus the most beautiful villas in Germany.

Through its history alone, Hamburg is a very special place. A city that has always been characterised by internationality due to its port. This is reflected in the cityscape and also in the real estate industry. Because Hamburg is not only interesting for German investors, also international investors invest money here in the north of Germany. But which districts are worthwhile for investors who are not from Hamburg and do not know the city?

Here’s a look at the city, its neighborhoods, real estate prices, advantages and disadvantages:

• Hamburg

Hamburg (map), location in North Germany:

Munich: The “typical German” in the south

Munich is pretty much the most “typical” German city if you ask foreign investors. Bavarian products like beer, events like the Oktoberfest, Lederhosen or even a big, international car brand with 3 letters: BMW. Munich is known worldwide and especially sought after by American and Asian investors.

Munich’s city centre is very different, e.g. compared to Berlin or Cologne, here it is very tidy, clean and accurate. Security and law is very important in Bavaria. The real estate prices in Munich are among the highest in Germany.

Therefore, here is a closer look at the city, districts and real estate prices in Munich:

• Munich

Munich (map), location in South Germany:

Cologne: Media City in West Germany

Cologne was and is an important media city. Through one of the largest German private broadcasters (RTL), but also through modern influences, e.g. through influencers (well-known people) in social networks, such as YouTube and Instagram.

If you compare the city with others, e.g. Berlin, Hamburg or Munich, you know that you won’t find great architecture in Cologne. The city was built up relatively quickly, as it suffered a lot during the Second World War. The fast buildings from the 60s, 70s and 80s dominate the cityscape.

Under certain circumstances the ideal leverage for your investment, because here the property prices will still develop. Cologne is located in NRW, the largest economic area in the whole of Europe, with over 20 million people in the catchment area throughout North Rhine-Westphalia and nearby cities such as Düsseldorf, Bonn and also Frankfurt am Main.

Here’s a look at the city, its neighborhoods, advantages and disadvantages:

• Cologne

Cologne (map), location in West Germany:

Düsseldorf: Immediate neighbour of Cologne

When looking at Cologne, here of course also briefly a look at Düsseldorf. The city is only 20, 30 minutes away from Cologne and is also part of NRW, the largest economic zone within the European Union. Advantages for the return of the property and the value development, also in the long term.

• Düsseldorf

From the “micro perspective” (cities and districts), back to the “macro perspective” on the German real estate market.

Tip! Investment in nursing care real estate and nursing care apartments

There are currently 4.1 million people in need of nursing care in Germany. 731,000 people are cared for in full inpatient nursing facilities. Germany has the most expensive healthcare system in the world. The biggest return factor when investing in nursing care real estate is, of course, the development of demographics, but also the economic capacity of a country, which ultimately supports the nursing care system and its financing. Like many rich or wealthy countries, Germany’s population is getting older and older.

Buying nursing care real estate as an investment?

Few people who want to invest in real estate, come in the first thought to care real estate, or apartments. But it is worth taking a look at this type of investment. Nursing homes are springing up all over Germany, not just in conurbations, as the population is getting older and older. There are properties and facilities for senior citizens in every district. They offer themselves thus investment object for regional investors, as capital investment in the proximity, in addition, for supraregional investors. How is the market for nursing care real estate developing in Germany? Which type / which location is interesting for investment as a yield property?

We have identified 5 factors in the first look at this form of investment.

• Capital investment nursing apartments

Numbers: Statistics, shares and companies

Last but not least, after the location and the appropriate property type comes the development of the region. In the individual articles, you have already learned a lot about the individual cities and also the individual districts. Here we would like to give you a more detailed look at the available real estate statistics in Germany.

Development in the real estate market

Let us first come to the most important question, the long-term perspective, in retrospect and with a view to the future:

How will the real estate market in Germany develop over the next few years?

Germany is the number 1 in Europe when it comes to the real estate industry. No matter if it is the construction sector, administration or even trade with real estate. If you look at the statistics of the last decades, there is only one way, upwards.

If you will, Germany’s real estate market is not fully developed to this day. Just remember the 70s, 80s buildings from Cologne. Of course, historical factors are part of the real estate stock. For example, the reunification of East and West Germany.

In eastern Germany in particular, there are whole swathes of land where real estate was extremely cheap just a few years ago and even today real estate prices are still not comparable with the cities of the old Federal Republic, especially the real estate prices in Hamburg and Munich. At the same time, the old Federal Republic is still marked by the effects of the Second World War. Meaning: While in other cities like London, Paris there are imposing buildings and architecture in every street, here, e.g. in Berlin, there are still whole districts with old buildings, which gradually, new, modern and more complex building concepts break.

If you are looking for an impressive skyline in Germany, you have only one choice, Frankfurt am Main. Due to various factors, the European building regulations, but also regulations of the cities themselves, there is no city in Germany with a high-rise skyline, except in Frankfurt. Comparing the German cities, you can quickly see how different the regions are here.

Statistics and charts say more than 1,000 words, here you will find a detailed, large collection on the latest and older statistics, for comparison. All surveys, analyses and evaluations are official and come from the Federal Statistical Office in Germany:

• Real Estate Statistics

Real estate on the German stock exchange

The stock market also provides an insight into how the German real estate industry is developing. This is where you find the big companies, the stock corporations and REITs. They build the large high-rise buildings in Frankfurt am Main, are landlords for millions of people in Germany, stable for decades. Among the best known representatives are e.g. Vonovia, Deutsche Wohnen and Patrizia Immobilien. Read more about the German stock market, especially the real estate sector:

• Real Estate Stocks

Establish a real estate company in Germany

Last but not least, let’s take a look at company forms you can choose in Germany. The following legal forms are interesting for foreign investors who want to establish a company in Germany, but also for those who are local and want to become real estate investors themselves. Because, in Germany, as everywhere, there are different legal forms, depending on the number of shareholders, the goal of the company, share capital and much more.

You can invest in real estate, rent out a house, privately, e.g. for retirement. But if you own several properties and want to buy several investment properties, you will not get around the formation of companies. Yes, exactly, the formation of companies, in the majority. That is why it is important to get to know the forms such as the limited liability company, more specifically the real estate limited liability company, but also a family foundation.

Do not worry – However, everything begins with the first company. Which one is the best? Where are the differences and what are the advantages and disadvantages of the individual forms of business? Here you will find a great overview of the possible legal forms in Germany:

• Legal forms

If you’re actually starting your very first company, here’s another very basic guide to the startup process.

• Form a company

Conclusion: Capital investment in Germany

Let’s sum it all up in one question:

Investing in Germany: A good idea?

Advantage: Strength of the real estate market – As you can read above, Germany is the strongest real estate market in Europe. The real estate statistics show that the growth has existed for decades and is well above any monetary devaluation (inflation). Accordingly, the yields for the different types of houses and apartments are stable and very attractive compared to the other European countries.

Advantage: Legal certainty – Many investors appreciate the legal certainty in Germany. In Germany, everything is very meticulous, but there are clear laws, structures and procedures. That is why many investors from all over the world come to Germany. Security is a big aspect, especially for wealthy buyers and sellers.

Germany is an excellent location for real estate and investors.

Are you looking for good investments in Germany? Get in touch with us.

• Contact

More knowledge, Less Tax Burden

Basically, the more knowledge you acquire in terms of finances, taxes and individual tax situations, the better you can design your taxes. As I already mentioned in the article “Billion-dollar gift for Springer boss: Shares are tax-free?”, financial optimization is all about understanding and knowledge: Knowing that your tax advisor does not have and will never have. If he or she did, then he or she would be an investor himself.

Operationalization of the Tax Saving Elements

The second step is the operationalization, i.e. the practical application, specifically adapted to the particularities of your company. The industry does not matter, real estate investor, financial intermediary, lawyer or even tax advisor itself. If you know the legal methods and ways of tax optimization, you can instruct your tax consultant to do the right things. The tax consultant should then take care of the operational work. Everything strategic, methodical, you should master.

Tax model: Individual Methodology from Tax Tools

The ultimate goal is an optimal tax model that fits exactly to your individual constellation. Just like the US President. According to research of the New York Times he pays only $750 income tax. Many factors play a role here. In the area of real estate, companies, inventory and also private aspects such as family ties play a major role. As a young real estate investor it is still easy to add a second city to your portfolio, for example Hamburg and Berlin. As soon as the family is there, at the latest children, one’s own sphere of activity is naturally limited.

Factors for tax models, which your tax advisor will never be able to fully grasp with increasing complexity, are manifold. These would be just examples, which can also change depending on how your own portfolio is spread.

Tax model factors that influence the choice of methodology:

1. Company and industry(ies)
2. Real estate portfolio
3. Income from capital and investment portfolio
4. Strategic business planning
5. Private factors (partner, children, etc.)

Control Optimization: Process and Knowledge Build-Up

In this small, exaggerated infographics you can see how effective your knowledge, your tax burden will be gradually reduced.
Of course it is not as “extreme” as in this graphic in all areas. But in many it is possible. Just take a look at the example of the almost tax-free share donation.

Finance Basics: From Founder to Millionaire Entrepreneur

Here are my basic tips if you want to go from a solid foundation to a strong millionaire entrepreneur.

1. Submit tax return (mentioned for completeness)
2. Tax consultant (list with recommendations is also included)
3. Tax Coachings (only from professionals with best practice)
4. Experience of other CEOs, CFOs, senior executives, etc.

Tip 1: Submit your own Tax Return

The tip sounds simple, but is the absolute foundation. Not everyone who reads this guide is familiar with taxes, entrepreneurship and financing. Many are at the beginning of their career, perhaps even in the start-up phase. For you, too, I want to give you first, valuable tips on tax optimization.

In general, everyone who submits a tax return saves money. As a small motivation for your first tax saving, on average every citizen who submits a tax return gets a refund of 1,007 Euros.

I have done my tax declaration myself for many years, so I always knew about every item, about allowances, about duties and taxes. Today, this small-scale knowledge helps me to decipher complex processes in detail.

Or in short and simple terms: Nobody can fool you. Or only very, very, very few who have even more knowledge about legal tax models.

Tip 2 for Everyone: Tax Consultant

Work together with a tax consultant. This will allow you to take advantage of all the benefits that are regularly available or simple. This includes for example tax allowances.

A tax consultant is perfect to “seal the deal” with your accounting. But from experience you will never get proactive, really efficient tax tips. Tax consultants have many clients.
Nevertheless, you need a good tax consultant or a good tax office.

Tip 3 for Business Owners: Tax Coachings

So at some point you come to the point where you have to turn directly to experts. For this, there are either YouTube channels or books or tax coaching. Of course, I have tested all of them, but in the end, tax coaching is the most effective way.

The advantage of tax coaching as an online course: You combine different learning factors. You watch videos, perceive contents audiovisually, have checklists for in-depth application.

• Free courses are free of charge because they do not offer assets (content)
• Paid online courses offer know-how that not everyone should know
• PS: Please buy such courses only from tax experts with references
• Multimedia learning
• Contents repeatable

Tip 4 for Tax Savers: Experiences of Other CFOs, …

Experience of other CEOs, CFOs, senior executives, etc. with reputation and successful, lasting business At the latest after step 3 and your own, first years, you know immediately what that means.

In fact, I have also traveled a lot. Because especially from friends, i.e. “entrepreneur friends”, you learn the most. The big question is then always:

How do you do that?

No matter if it is about buying ETF packages in the savings plan (2.5% tax saved) or buying real estate without equity (yes, you only need to be able to hold equity if you do it skillfully).

You notice, I could tell you a lot about the tax return. Also to the tax consultant. But as soon as it comes to tax optimization, the matter becomes very dense. Knowledge cannot be put into a few words. Therefore, repeated briefly, take all tips to heart. If your assets grow, always remember to follow tip 3 & 4. The factor “tax” is getting bigger and bigger and the knowledge of how to deal with it, or rather how to structure it, transforms taxes into private assets.

Tax is like being an “entrepreneur”, a constant journey. The good thing is that every new destination is worth the adventure!

Reading Tips: Asset Building & Co.

Here I have some reading tips for you:

1. “Billion-dollar gift: shares largely tax-free”
2. Taxes & Assets: learning from investor experiences

“Billion-Euro Gift: Shares Largely Tax-Free”

“Billion dollar gift for Döpfner – largely tax-free?” – this headline is not from me, but from the morning mail. In fact, Matthias Döpfner has turned the publishing house upside down as boss. While owner Friede Springer stands confidently behind his decisions. Print shares were sold, new online media such as Business Insider, Idealo, Immowelt and StepStone were acquired. Already in 2012 Döpfner has received a big share package for more than 70 million Euro, now a “billion-dollar gift” for the Axel Springer boss is going to go, according to Manager Magazin. The 57-year-old media manager is increasing his previous stake in Axel Springer SE from just under three percent to a total of around 22 percent.

Tip! How does it work that you can get a block of shares almost tax-free? A little further down in the article I explain the methodology, or rather the law behind it.

• Give away shares: largely tax-free?

The President of the USA only Pays 750 Euro Income Tax: How does it work?

According to the New York Times, Donald Trump paid only 750 Euro income tax. It gets even better, according to the New York Times, Trump paid no income tax in 10 of 15 years starting in 2000. Are these questionable tax saving strategies or simply tax optimization? All the methods he uses are legitimate and legal. How does he do this?

• US President pays 750 Euro income tax

Almost no Income Tax: New York Times

I myself have been dealing with finances for a long time. Why? Finances are a matter for the boss. Your tax advisor is often only “consultant”, not “designer”, I know that from my own experience. Then the New York Times had a headline yesterday:

Story: 750$ Income Tax

“Donald J. Trump paid $750 in income taxes (or federal income taxes in the United States) in the year he won the presidency. He paid another $750 in his first year in the White House. In 10 of the previous 15 years, he had paid no income taxes at all-mainly because he reported losing much more money than he earned.”

While the president is leading a re-election campaign, which according to polls is in danger of losing, his finances are under stress, he has suffered losses and hundreds of millions of dollars in debt, which he has personally guaranteed, are coming due. He is also under pressure from a decade-long dispute with the Internal Revenue Service over the legality of a $72.9 million tax refund that he demanded and received after declaring large losses. A negative ruling could cost him more than $100 million. – Extract New York Times.

At a briefing at the White House on Sunday, Trump denied the New York Times story and claimed that he pays “a lot” in federal income taxes.

“I pay a lot, and I pay a lot of federal income taxes” – Donald Trump

Trump added that he is willing to release his tax returns as soon as he is no longer audited by the Internal Revenue Service, which, he said, “treats me badly.”

Must a US president disclose his tax return?

Importantly, the President is not required to keep his tax returns during the audit, despite his repeated assertions to the contrary. Trump also refused to answer in the briefing how much he paid in federal taxes.

Tax Avoidance: How does he do that? 4 examples

The Times article describes a number of corporate and transactional tax claims that could raise significant audit issues for the president and his business organizations. It also points out ways in which the tax laws provide for entrepreneurs to reduce their taxes.

Note, for further details see the full article on Investopedia. Here are 4 examples from the article:

Casino ‘Waiver’ Loss

The Times’ research puts certain tax reduction strategies on Trump’s tax returns in the spotlight.

The $70.1 million refund received for 2005-2007 appears to be due to the recovery of approximately $700 million in business losses claimed for 2009. These losses were probably based on the allegation that Trump Atlantic City’s casino business was completely “abandoned” (Source: IRS. “Publication 544 (2019), Sales and Other Dispositions of Assets. Accessed Oct. 1, 2020).

They would be permissible provided Trump received nothing in return for giving up its interest in the business. However, records of the bankruptcy proceedings show that Trump received 5% of the shares of the successor company, which would have disqualified any loss from the abandonment and limited its deduction to a loss of $3,000 for the year (source: IRS. “Part I, Section 165. Losses.” Accessed Oct. 1, 2020)

Consulting Fees vs. Employee Compensation vs. Gift

Unspecified “consultancy fees”, which can be seen in tax returns, may indicate a common strategy for reducing corporate income and taxes. The $747,622 in consulting fees paid to Ivanka Trump raises several questions. As an employee of the Trump organization, Ivanka should not be paid as a consultant, that is, as an independent contractor.

Unlike employee compensation, consultant fees avoid withholding taxes that are payable by the payer. But in order to be deductible, they must be reasonable, marketable amounts. Although a consultant is subject to reporting and taxation, Ivanka may be able to avoid any tax liability. As a real estate professional, Ivanka may have enough real estate losses to offset the payment. This fee deduction may cause the IRS to raise another issue. Officials may question that the fee – which far exceeds the annual gift tax exemption of $15,000 for 2020 – is in fact a transfer of assets to a family member on which the transferor owes gift tax (source: IRS. “Publication 950.” Accessed Oct. 1, 2020).

Business vs. Personal Expenses

Although not all Trump’s business expenses are explained, the article lists items that may be non-deductible personal expenses (source: IRS. “Publication 529.” Accessed Oct. 1, 2020)

It is noted that on this basis, the IRS may not allow deductions for aircraft used for personal travel and television entertainment expenses. Since the deductions for attorneys’ fees are stated as a lump sum, The Times wonders if the total amount includes fees paid to attorneys representing Donald Trump, Jr. in investigations and the President’s personal legal agreements to obtain confidentiality agreements from the plaintiffs.

Residence or Investment?

The Trump Seven Springs housing estate in Bedford, N.Y., asks additional questions. Although Forbes reported that Eric Trump described the property as a personal residence, Donald Trump called it an investment and deducted the $2.2 million property tax as a business expense. Wealth tax deductions for personal residences are subject to a $10,000 cap on state and local tax deductions (IRS. “Topic No. 503 Deductible Taxes.” Accessed Oct. 1, 2020).

Reading tips: Asset Accumulation & Co.

Here I have some reading tips for you:

1. “Billion-dollar gift: shares largely tax-free”
2. Taxes & Assets: learning from investor experiences

“Billion-euro Gift: Ahares Largely Tax-Free”

“Billion dollar gift for Döpfner – largely tax-free?” – this headline is not from me, but from the morning mail. In fact, Matthias Döpfner has turned the publishing house upside down as boss. While owner Friede Springer stands confidently behind his decisions. Print shares were sold, new online media such as Business Insider, Idealo, Immowelt and StepStone were acquired. Already in 2012 Döpfner has received a big share package for more than 70 million Euro, now a “billion-dollar gift” for the Axel Springer boss is going to go, according to Manager Magazin. The 57-year-old media manager is increasing his previous stake in Axel Springer SE from just under three percent to a total of around 22 percent.

Tip! How does it work that you can get a block of shares almost tax-free? A little further down in the article I explain the methodology, or rather the law behind it.

• • Give away shares: largely tax-free?

Understand and Convert Taxes & Build up Assets

Tax optimization, tax-free, the most popular buzzwords when it comes to wealth accumulation. But how do you actually convert private wealth into taxes? My tip, as before, is to learn from professionals who have all been through it.

Always remember: taxes are a matter for the boss.

• Convert taxes into private assets