Reform of the tax on real estate transfers (“RETT”) likely to be implemented at short notice


Relevant thresholds to be reduced from 95% to 90%

In general, the relevant thresholds for the German RETT invoiced with regard to so-called “Share Deals”, i.e. the sale and transfer of participations in real estate holding companies or legal persons (“Propcos”), are likely to be reduced compared to currently. 95% to 90%. This is likely to apply to all provisions under which the German RETT is currently billed in relation to share transactions based on a 95% threshold.

Extension of detention periods

The current RETT regime provides for certain holding periods, at the end of which the interests in Propcos in the form of partnerships can be sold without incurring any RETT. These holding periods should be extended from five to ten years at present. In addition, certain other holding periods which apply to certain exemptions from the RETT (particularly in situations where German real estate is transferred to and from partnerships) are also liable to be extended, certain holding periods even up to 15 years.

Partnership rule to also apply to legal persons

A specific rule which currently only applies to Propcos in the form of partnerships should also apply to Propcos in the form of legal persons. Consequently, RETT would become taxable at the level of the Propco if 90% or more of the shares of this Propco are transferred to one or more new shareholders within ten years (transfers of shares before the entry into force of the new rules not being taken into account).

This is a fundamental change from the current RETT rules, and certainly the main feature of the RETT reform, as it means that the current standard structures under which sellers would have sold 94.9% of the Propco concerned in the form of a legal person to one, and approx. 5.1% to another purchaser without respecting any holding period will no longer be possible without RETT becoming payable.

Exemption for listed companies

The application of this partnership rule also to legal persons without providing for exceptions could lead to the imposition of RETT on listed companies and their subsidiaries if only the free float of their shares was large enough to authorize 90% or more actions. change hands within ten years. In order to avoid this result, the new regime provides for an exemption which applies to companies whose shares are listed and traded on stock exchanges authorized under German Securities Law (or certain equivalent stock exchanges of the EU / EEA / Third Party) when the action transfers takes place via this exchange.


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