I am 24 year old software developer living in Germany. I am an expat here and I am about to receive my permanent residence (Niederlassungserlaubnis) in a year. I am very interested in investments mainly in real-estate. I was wondering whether there are any tax laws in Germany that are similar to like-kind exchange laws in the US irrespective of whether they are targeted at the individuals or Corporate holdings. Thank you.

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    If you intend to make money by flipping houses, then you should be aware of the Grunderwerbssteuer (real estate purchase tax) you need to pay whenever you buy real estate in Germany. It's between 3.5% and 6.5% of the sale price, depending on location. This tax greatly limits the profit margin of house flippers. – Philipp Mar 11 '20 at 12:39
  • But how does one define a house flipper ? is that based on holding period of the asset ? – Sai Raghava Mar 11 '20 at 12:46
  • "house flipper" is not a legal term. It's a term for someone who (attempts to) make money by buying real estate just to sell it again later at a higher price. The Grunderwerbssteuer needs to be paid whenever someone pays money to acquire a property (unless it's from a close family member). There is no minimum time for it. It doesn't matter if you owned a property for 10 days or for 10 years. – Philipp Mar 11 '20 at 12:51
  • ah , so if i got it right, no matter who is acquiring the property, the acquirer has to buy a grunderwerbssteuer to the government. Is it something like mehrwertsteuer that is generally added when someone buys something ? is grunderwerbssteuer a realestate version of mehrwertsteuer ? – Sai Raghava Mar 11 '20 at 12:53
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    Real estate deals are exempt from Mehrwertsteuer (sales tax). But the profits from real estate trading are sometimes applicable for Einkommenssteuer (Income tax). See the answer by amon for details. – Philipp Mar 11 '20 at 13:04

Yes, under limited circumstances. Per §6b EstG you don't have to tax the profits from the sale (Veräußerung) of a business asset, if:

  • the sold asset is land or a building or certain other assets
  • you held the sold asset for the last 6 years
  • you acquire an asset of the same type within 4–6 years (depends on the asset type)
  • and possibly other conditions

More precisely, the replacement costs can be used as a tax exemption that you can apply in advance to the profits of a sale.

This is not useful as a tax loophole and has more to do with the concept of stille Reserven (hidden assets), which are assets that don't appear on the balance sheet. The value increase of real estate is a typical hidden asset under German accounting practices (which are quite unlike GAAP).

This stuff can get complicated, so definitely get an accountant to assist you.

  • Thanks, thats quite an useful piece of information you gave. I have also read that one does not need to pay tax on the profits of the sale of a house in which the Op has lived for more that 10 years. Not sure how correct this information is though. When you said acquiring an asset of same type within 4 to 6 years , does that mean one can withhold the tax upto next 4-6 years after the sale of an asset in hope of acquiring a new one of similar type ? – Sai Raghava Mar 11 '20 at 10:14
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    You're thinking of the Privates Veräußerungsgeschäft per §23 EstG. It applies to private assets, not to business assets – those two are logically separate under German tax laws, even if you're acting as sole proprietor (Einzelunternehmer). Sales of private real estate does not generate taxable income if (1) the asset was held >10 years or (2) you lived in there for a certain time (~3 years are sufficient). See also: immobilienscout24.de/wissen/verkaufen/… – amon Mar 11 '20 at 10:37
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    Re §6b yes you withhold the tax in advance but have to repay with interest if you don't have enough qualifying expenses. This case is explicitly discussed in the EstG. The interest rate should be specified in the Abgabenordnung (AO), IIRC it's Basiszinssatz + 1% so fairly cheap. Beyond interest there are no penalties here. – amon Mar 11 '20 at 10:39
  • Thank you, that is clear. – Sai Raghava Mar 11 '20 at 10:44

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