Share deal and RETT: Federal Government agrees on new regulations

After a previous bill which limited exemptions from the duty to pay real estate transfer tax (RETT) in the case of share deals was stopped due to heavy criticism, the coalition has now agreed on a reform, according to media reports (Immobilienzeitung, haufe). Accordingly, the law is to be introduced for the final reading in the Lower House of German Parliament (Bundestag) at the end of April and will come into force as early as 1 July 2021.

The amendment is intended to confine share deals in real estate transactions. The constellation of share deals is to be found quite frequently: When acquiring a property, the buyer must generally pay RETT. Therefore, the property is often transferred to a company (so-called PropCo) before being sold. The buyer then does not acquire the property (directly); he purchases shares of the PropCo. According to the current legal situation, RETT does not apply in these cases if the buyer acquires not more than 94.9% of the shares, while the residual shares remain with the seller or are transferred to a third party. After five years, the purchaser can acquire the remaining 5.1% of the shares and only has to pay RETT on a pro rata basis. In the future, stricter regulations are to apply: RETT will only be waived in the event of the acquisition of up to 89.9% of the PropCo's shares. The threshold triggering RETT will thus be lowered by five percentage points. In addition, minority shareholders will have to hold their shares for ten instead of five years. Furthermore, the regulations will also apply to corporations. The new regulations won’t have any retroactive effect on real estate transactions before 1 July 2021.

According to critics, the bill will work against the creation of affordable housing in particular. This is because the reform will induce immense administrative expense and higher RETT burden, which will have an impact on purchase and rental prices.

Co-Author: Franziska Jordan