Amendment of the German Real Estate Transfer Tax Act

Background

Up until now, it has been possible to effectively transfer German real estate properties free from real estate transfer tax (RETT) by way of a share deal with the aid of a so-called RETT blocker provided that certain participation thresholds and holding periods set out in the German Real Estate Transfer Tax Act (Grunderwerbsteuergesetz – GrEStG) are met. However, the German Government has now decided to make the use of the RETT blocker much more difficult in the future by amending these thresholds and holding periods.

On 21 April 2021, the German Parliament (Bundestag) passed a law amending the GrEStG with significant implications for real estate transactions structured as share deals (the GrEStG Amendment Law).

The key elements of the GrEStG Amendment Law are the reduction of the threshold for the application of the GrEStG to transfers of 90% of the shares in a corporation (from 95%) and the extension of the relevant period within which transfers are aggregated from 5 years to 10 years. However, the GrEStG Amendment Law envisages an exemption for transfers of shares in listed corporations.

The GrEStG Amendment Law contains the following significant amendments:

Reduction of threshold and extension of holding periods

Pursuant to the GrEStG, RETT is triggered, inter alia, by the transfer of at least 95% of the interests in a real estate holding partnership directly or indirectly to new partners within a five-year period (cf. Section 1 para. 2a GrEStG) or by the direct or indirect transfer of at least 95% of the shares in a real estate holding corporation (cf. Section 1 para. 3 no. 1 GrEStG).

To avoid the imposition of RETT under these rules, the transfer of shares in a real estate holding corporation has frequently been structured in the following way. The purchaser acquires 94.9% of the shares in the real estate owning corporation. The remaining 5.1% of the shares are either acquired by a co-acquirer, who, however, must not be a related party to the acquirer, or remain with the seller.

The GrEStG Amendment Law is lowering the threshold from 95% to 90%. Furthermore, the holding period in Section 1 para. 2a GrEStG is extended from 5 years to 10 years.

Changes in the shareholding of a corporation

In addition, a provision corresponding to the rule for partnerships is introduced for corporations in a new Section 1 para. 2b GrEStG. Therefore, a change in the shareholder structure of a corporation will essentially be treated similarly to a change in the participation structure of a partnership, so that transfers of at least 90% of the shares in a corporation within any ten year period will result in the imposition of RETT, regardless of whether the buyers are related or not.

However, the GrEStG Amendment Law envisages a so-called stock exchange clause, so that regular changes to the shareholders of listed corporations would not be counted towards the 90% threshold for the purposes of Sections 1 para. 2a and 2b GrEStG.

The prerequisite for the application of the stock exchange clause is that the shares in the corporation are admitted to trading on an organised market pursuant to Section 2 para. 11 of the German Securities Trading Act (Wertpapierhandelsgesetz) or an equivalent third-country trading venue, declared equivalent by the European Commission pursuant to Article 25 para. 4 lit. a) of Directive 2014/65/EU. Therefore, the exemption is available only for certain qualifying listings within the European Union or European Economic Area or within Australia, Hong Kong or the US.

Entry into force and temporal scope of application of the amendments

Pursuant to the GrEStG Amendment Law the amendments to the GrEStG are to come into force on 1 July 2021.

According to the GrEStG Amendment Law, shares transferred before 1 July 2021 are not taken into account for the amended 90% thresholds.