Contacts:OÜ Shenon Invest
(+372) 58 141168
The process of purchasing a real estate asset is strictly regulated and requires a notarial act. The notary is responsible for verifying all ownership and financial issues related to the building. The signature of the pre-contract is binding but does not require any deposit. The payment usually takes place after 2-3 months from the signature of the pre-contract, and the ownership of the building is transferred at the same time the payment is executed. Notarial fees and registration costs normally amount to 1,5% of the purchasing price. Title to the property does not pass when the agreement is made; title will pass only when the purchaser is entered as owner on the land register for the property. Registration is obtained through a further procedure that occurs after the purchase agreement has been made. In the five East German Länder, this notarial agreement in certain cases still requires a special permission from the public authorities, even after notarisation, because properties there may be subject to unresolved restitution matters. In general the procedure following the agreement is handled by the notary. The purchase price falls due only after certain preconditions agreed by the parties in the purchase contract have been met. Usually, the minimum requirements for the maturity of payment are that a priority notice of conveyance(„Auflassungsvormerkung“) has been entered in the land register, that any necessary official permits have been obtained, and that documents required for the cancellation of the encumbrances not to be taken over by the Purchaser have been submitted.
Rights and duties of building owners.
Generally speaking, German tenants have strong rights, although not as strong as their Swedish counterparts. Rental contracts are normally for an indefinite period of time and rental levels are set in accordance to the “Mietespiegel”, a table published each year by the city council which states how much a landlord can legally charge per m2 for an apartment of certain conditions in a certain area.
Rent paid by the tenants consists of two separate parts: the “Miete” (rent) and the “Nebenkosten” (costs), which the owner charges proportionally to all tenants and that represent the cost for the shared utilities used by all households in the building. This fact protects the owner from any increase in the costs of the utilities (such as water, heating, etc.). In addition, tenants normally pay a deposit, equivalent to 3 months of rent, which can be seized by the landlord if the tenant fails to pay the rent in time.
Taxation of German real estate assets.
Holding German real property leads to (limited) tax liability of the building owner in Germany with regard to the rental income and, as the case may be, capital gains. Provided that a foreign entrepreneur does not maintain a permanent establishment in Germany the tax base for tax for rental income is the excess of the gross rental income received over expenses and costs attributable to that income (e.g. interest payments) at a tax rate of 15.8% (including solidarity surcharge („Solidaritätszuschlag“) – a surcharge on the income tax to finance the German reunification). Capital gains are subject to the same tax rate whereas the tax base is the difference between the purchase price and the sales price, taking into consideration the costs of disposal. The depreciation deducted during the investment reduces the purchase costs and
thus increases the taxable capital gain. Furthermore, real property tax (“Grundsteuer”) must be paid. Real property tax is a local tax levied on a specific tax value which is in general markedly below the open market value of the real property. The actual tax burden depends on where the municipality in which the real property is located is. Real property tax is deductible as a business expense from the income derived from the real property.
Furthermore, a real estate transfer tax of 3,5% of the purchasing price (4,5% in Berlin) is applied to each real estate transaction and paid by the purchaser.