The typical sale: “asset deal”

The difference: In an asset deal in the real estate context, specific assets such as land and buildings are sold individually, whereas in a share deal the shares in the company that owns the real estate are transferred.

Simply put:

• Asset deal = property is sold
• Share deal = Immobilien GmbH is sold

A share deal means that the buyer does not acquire the property itself, but the – in this case – Immobilien GmbH. Here is a short infographic. Then back to the direct sale of the apartment building, after which I will explain more about holding companies and taxes on the sale.

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Typically, as a private individual, you usually sell the apartment building directly. These are relevant for you:

1. Speculation tax
2. Three-object rule

Taxes on sale

A very quick look at taxes when selling an apartment building in Berlin:

1. Speculation tax: sell tax-free
2. 3 objects rule in Berlin
3. Asset & share deals: only 1.54% tax

Speculation tax: sell tax-free

The speculation period explained more quickly:

• Owner-occupied = 3 years
• Rented = 10 years

If you sell within the speculation period, you must – simply put – pay tax on the profits as normal, just like income from work, regardless of whether you are employed or self-employed. After the period has expired, the sale is tax-free. If you want to do a quick calculation, use my free speculation period calculator.

Tax calculation: Example

If you sell within the speculation period, you must – simply put – pay tax on the profits as normal, just like income from work, regardless of whether you are employed or self-employed. As a single person, this would typically mean a top tax rate of 42%.

Sale within the speculation period (< 10 years) as a private individual:

• Purchase 2024 = 2,100,000 euros
• Sale in 2033 = 4,100,000 euros
• Taxable profit = 2,000,000 euros
• At 42% (single person) = 840,000 euros

Sale within the speculation period (< 10 years) as a company:

• Purchase 2024 = 2,100,000 euros
• Sale in 2033 = 4,100,000 euros
• Taxable profit Berlin approx. 19.1 % (trade tax 4.1 %, corporation tax 15 %) = EUR 2,000,000
• At 19.1 % = 382,000 euros

Sale within the speculation period (> 10 years):

• Purchase 2024 = 2,100,000 euros
• Sale in 2034 = 4,100,000 euros
• Taxable profit = 2,000,000 euros
• Tax free

But you can’t buy 10 properties now, wait 3 years and take the profits from property appreciation, because:

3 objects rule in Berlin

There is also the 3-property rule. If you sell more than 3 properties in 5 years, it is commercial real estate trading.

When selling real estate, the “3-object rule” refers to the fact that private individuals in Germany can sell up to three properties within a five-year period tax-free. If a person sells more than three properties within this period, this is considered commercial real estate trading and is subject to income tax – even if they are not rented out but are owner-occupied.

After 10 years of holding, however, the sale is always tax-free.

Why does this rule exist?

Just like the speculation tax, the rule is intended to curb speculation on the real estate market and encourage the sale of real estate for residential purposes.

So how do the “big players” save on taxes?

Share deals: selling a company “instead of” real estate

One option for a tax-optimized sale is the share deal. In this case, however, the property must already have been purchased by a company (such as Immobilien GmbH) (not as an individual).

Only 1.54% tax on sale

A share deal is possible if you have the company in a holding structure. This means you only pay 1.54% tax due to the intercompany privilege(Section 8b KStG).

• Asset deal = property is sold
• Share deal = company is sold (with real estate ownership)

Let us now calculate our example again, starting with the direct sale of a property:

Sale of a property as a company (asset deal):

• Purchase 2024 = 2,100,000 euros
• Sale in 2028 = 4,100,000 euros
• Taxable profit Berlin approx. 19.1 % (trade tax 4.1 %, corporation tax 15 %) = EUR 2,000,000
• At 19.1 % = 382,000 euros

Sale of a real estate GmbH as a company (share deal):

• Purchase 2024 = 2,100,000 euros
• Sale in 2028 = 3,100,000 euros
• Taxable profit = 1,000,000 euros
• For GmbH 1.54 % = 1,540 euros

You can see how huge the difference is.

No real estate transfer tax on purchase

Let’s delve a little deeper into the subject of real estate and tax optimization!

Again, simply put:

• Sale of Immobilien GmbH below 89% = no real estate transfer tax

Why is this the case? In Germany, the sale of shares in a GmbH that owns real estate is not normally subject to real estate transfer tax as long as the shares are below a certain percentage(§ 5 GrEStG).

What are the advantages? Real estate as a capital investment must bring a profit, usually calculated by the rental yield. The land transfer tax increases the purchase price by up to 6.5%, depending on the federal state. For 1 million euros, this is a cost of 65,000 euros. This directly increases the yield by a few percent.

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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