Frequently Asked Questions (FAQ)

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What are some reasons to invest in Berlin?

Corporate Appeal: Berlin has become a magnet for major corporations relocating their headquarters since the UK's withdrawal from the EU.
Foreign Investor Friendly: Berlin stands out by welcoming foreign investors without imposing any restrictions, fostering an open and globally attractive investment environment.
Low-Interest Mortgages: Investors can take advantage of highly favorable conditions with very low-interest rates on mortgages, making property investments in Berlin financially advantageous.
Rising Property Values: The surging demand for properties in Berlin has translated into a substantial increase in their value and rental returns, positioning the city as a thriving real estate market.
Taxation Incentives: Berlin offers attractive tax benefits for both individuals and companies, providing an additional incentive for prospective investors.
Buyer Protection: Buyers in new buildings in Berlin benefit from robust warranty rights, ensuring a secure and reliable investment in the real estate market.
Quality of Life: Berlin combines a more affordable cost of living with a higher quality of life compared to many other European cities, making it an appealing destination for residents.
Education Opportunities: Berlin extends its appeal by not requiring local or international students to pay university fees, making it an attractive hub for educational investments.

Are there any restrictions for foreign investors?

Unlike certain countries such as Denmark and Switzerland, Germany does not impose any restrictions on foreigners looking to invest in real estate. The current trend sees a growing number of foreign investors acquiring properties, particularly in major German cities. If you're considering purchasing a house or an apartment in Germany, we invite you to reach out for initial guidance on the necessary steps.

It's crucial to note that all property purchase contracts must be signed at a German notary. At Bonema GmbH, we communicate fluently in English and provide comprehensive support throughout the entire process, ensuring a seamless experience for our clients.

Are there any warranty rights for buyers?

It's crucial to note that when dealing with used properties, sellers typically offer minimal warranties. However, in the case of newly built properties, such as condominiums, buyers enjoy extensive warranty rights. It's especially important to exercise caution when acquiring properties currently under lease. German tenancy laws afford tenants a high level of protection. Nevertheless, upon property acquisition, the new owner may choose to evict the tenant if they or a close relative intend to use the property.

Buyers are usually safeguarded by a "priority notice," shielding them from unforeseen sales activities, such as the property being sold to another buyer at a higher price. This notice ensures a level of protection and stability throughout the purchasing process.

How is payment handled in a real estate transaction, and is an escrow account necessary?

The purchase price is typically either directly paid to the seller or placed in an escrow account managed by the acting notary. However, opting for the latter incurs additional costs and is usually unnecessary for safeguarding the purchaser's interests.

Even without an escrow account, the buyer's interests are sufficiently protected. The purchase price becomes due only when a priority notice appears in the public land register. In simplified terms, from that moment onward, the seller cannot impede the purchaser's acquisition of good title.

What taxes and fees are involved in the process of purchasing real estate in Germany?

When acquiring real estate in Germany, buyers encounter a real estate transfer tax, which varies between 3.5% and 6.5% across different federal states. The registration process as the legal owner, taking 3 to 4 months, is only completed upon the payment of this tax.

Ancillary costs include notary fees (approx. 1.5%), land register fees (approx. 0.5%), and broker fees (approx. 3.57%, including VAT).

To illustrate, for a EUR 500,000 condominium purchase in Berlin, these fees would amount to approximately

30,000 € in real estate transfer tax
7,500 € in notary fees
2,500 € in land register fees
17,850 € in broker fees.

Additionally, considering multiple property acquisitions, utilizing a property holding company (PropCo) can offer tax advantages, potentially entirely avoiding real estate transfer tax (RETT-blocker). Bonema GmbH provides comprehensive advice, including hands-on guidance throughout the purchase process and access to partner law firms for specialized tax advice if required.

What is the purpose of the land register in the real estate acquisition process?

The land register plays a crucial role in real estate transactions, as legal ownership is established upon registration in this public registry, operated by the local court. Each property has a dedicated land register folio containing information such as the owner's identity, property size and location, and any restrictions or encumbrances. Although accessible to the general public, access is typically granted to those with a legitimate interest, such as potential property purchasers. It is recommended that buyers review up-to-date extracts from the land register before acquiring a property. Additionally, when dealing with real estate on former industrial sites, consulting the register for polluted areas (Altlastenregister) and the register for public charges (Baulastenverzeichnis) is advisable.

Can you outline the steps involved in the property purchase process in Germany?

The property purchase process in Germany involves several key steps:

Notarized Contract: Property purchase contracts must be formalized before a German notary. Parties may appoint a representative through a written power of attorney, certified by a German notary, consular officer, or a foreign notary (with an attached apostille).
Notary's Role: The notary acts as an impartial party, facilitating communication with public authorities like the land register and tax office. A notarial escrow account may be used to balance parties' risks.
Contract Provisions: Property purchase contracts typically include obligations to sell and purchase, seller's declaration of title conveyance, conditions for the purchase price maturity, payment conditions, transfer of benefits and burdens, details on encumbrances, liability for defects, and a power of attorney for property encumbrance to secure mortgage financing.
Land Registry Application: Upon application for the transfer of title, the land registry reviews formal requirements, including a certificate of non-objection from the tax office, confirming the payment of real estate transfer tax.
Transfer of Title Registration: The registration of the transfer of title can take several months. To address uncertainty, sellers often grant a priority notice in favor of the purchaser. This notice, registered immediately after the notary's appointment, protects the purchaser, preventing third parties from acquiring good title to the property while the notice is active.

How does taxation for individuals work in Germany, particularly concerning real estate income and capital gains?

Individuals domiciled or residing in Germany are subject to German income tax, which includes the taxation of real estate income, covering rental income and capital gains from real estate disposal. Double taxation treaties generally stipulate that real estate income is taxed in the jurisdiction where the property is located. Consequently, individuals not domiciled or residing in Germany but earning income from German real estate are subject to German income tax.

Income tax rates range from 14% to 42%, with income exceeding EUR 52,882 taxed at 42% and income surpassing EUR 250,731 taxed at 45%. Additionally, a solidarity surcharge of 5.5% of the income tax liability is levied.

Capital gains from real estate sales are tax-exempt if the property was held for over 10 years and does not qualify as a business asset. A property is considered a business asset if the taxpayer is classified as a real estate trader, typically selling more than three properties within a five-year period.

For dividends distributed to individuals, a withholding tax (Abgeltungssteuer) of 25%, plus a 5.5% solidarity surcharge, totaling 26.375%, is applied. Foreign shareholders may benefit from a lower withholding tax rate based on the applicable double taxation agreement.

Proceeds from the sale of a property deemed a business asset or from the sale of shares in a property-owning company may enjoy a 40% tax exemption (partial-income rule) under specific conditions.

What is the taxation framework for companies in Germany, especially in relation to corporate tax and dividends?

German companies are subject to corporate tax (Körperschaftssteuer) at a rate of 15%, along with a 5.5% solidarity surcharge on the corporate tax liability, resulting in a total of 15.825%. This tax is applicable regardless of whether profits are distributed. Foreign companies with their seat of management in Germany are also subject to German corporate tax, even if profits are not distributed. Additionally, foreign companies without their seat of management in Germany are subject to German corporate tax if they generate income from German real estate.

Dividends from a German company or a foreign corporation with its seat of management in Germany are subject to a 25% withholding tax. However, foreign corporate shareholders may benefit from a reduced withholding tax rate of 15%, a lower rate per applicable double taxation treaty, or even zero if they meet the requirements of the respective EU directive.

Shareholding companies can enjoy a 95% exemption (effective corporation tax rate of 0.8%) if they hold a minimum shareholding of 10% in the subsidiary.

A tax-efficient exit strategy involves purchasing a German real estate holding company through a corporate vehicle, allowing for a 95% exemption from capital gains tax.

What is real estate tax in Germany, and how is it assessed?

Real estate tax (Grundsteuer) in Germany is an annual assessment based on a property's value as of January 1st. The tax rate varies across different cities and ranges from 0.8% to 2.8% of the property's tax base, depending on its location. The average effective tax rate nationwide is approximately 1.5%. Importantly, real estate tax is tax-deductible for income, corporation, and trade tax purposes, providing a potential avenue for tax optimization.

What is Germany's international credit rating?

As reported by the three major credit rating agencies - Standard & Poor's, Fitch, and Moody's - Germany has an AAA credit rating with a stable outlook. This represents the highest possible rating a country can achieve.

What is Berlin's political and legal system?

Berlin is part of Germany, which operates as a democratic, federal parliamentary republic. Federal legislative power is vested in the Bundestag (the parliament of Germany) and the Bundesrat (the representative body of the Länder, Germany's regional states).

The country follows a multi-party system, with the Christian Democratic Union (CDU) and the Social Democratic Party of Germany (SPD) historically dominating since 1949. The judiciary in Germany is independent of the executive and legislative branches, although it's common for leading members of the executive to also be members of the legislature.

Germany's political system is outlined in the 1949 constitution, the Grundgesetz (Basic Law), which remained effective with minor amendments after German reunification in 1990. The constitution emphasizes the protection of individual liberty through an extensive catalog of human and civil rights. It divides powers between federal and state levels and among the legislative, executive, and judicial branches.

Germany has been a member of the European Community since 1958 (which became the EU in 1993), part of the Schengen Area, and a member of the eurozone since 1999. It holds memberships in international organizations such as the United Nations, NATO, the G8, the G20, and the OECD.

In 2017, The Economist Intelligence Unit rated Germany as a "full democracy."

What are other reasons for investing in Germany?

Central Location in Europe: Germany's central geographic location within Europe provides investors with strategic access to the entire European Union market and the markets of Central and Eastern Europe.
Europe's Most Important Market: Boasting the highest Gross National Product (GNP) and the largest population in the European Union, Germany holds a pivotal position as Europe's most significant market.
Leader in Growth Industries: Germany is a frontrunner in modern information and communications technologies, featuring an infrastructure that is unparalleled in the European Union.
Investor Services: The country provides efficient and uncomplicated support for investors looking to establish new locations. Organizations dedicated to economic development assistance offer robust support, assisting with location searches, personnel recruitment, and securing funding.
Advantages of Doing Business: Germany is increasingly attractive for international business, marked by a dynamic economy and innovative spirit, particularly with the successful restructuring of the East German economy.
Center of Europe: As an economically significant EU member state, Germany represents innovation, advanced technologies, and high productivity.
Political Stability: Germany's political system ensures long-term stability, providing a conducive environment for planning and investment. The state infrastructure functions well, ensuring social order across the entire country.
Social Welfare System: Germany prioritizes individual welfare, with a social security system based on principles of solidarity and individual responsibility. The welfare state includes provisions for sickness, disability, old age, dependent children, and housing.
Associations and Interest Groups: Berlin, as the capital and a political-economic hub, hosts the headquarters of many large German associations. This concentration of influential groups enhances Berlin's role as a political and economic center.
Federal and State Taxes: Germany's tax policies, both at the federal and state levels, aim to promote the public good by supporting social welfare, education, infrastructure, and healthcare. These measures contribute to fostering investment and enhancing Germany's competitiveness in the global economy.

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