Application of the German Real Estate Tax Reform Act as of 1.1.2022 – An overview of important changes
Implementation and calculation model
The majority of the federal states are implementing the new real estate tax system in accordance with the so-called federal model, which was introduced through the Real Estate Tax Reform Act. This is particularly true of the real estate tax ‘A’ (agricultural and forestry land assets / agriculture and forestry businesses). As regards real estate tax ‘B’ (real estate assets / pieces of real estate), the federal states of Saarland and Saxony deviate from the federal model only with respect to the base rates for tax purposes. By contrast, the federal states of Baden-Württemberg, Bavaria, Hamburg, Hesse and Lower Saxony will be applying their own real estate tax models. Specifically:
- In its Real Estate Tax Act, which has only just been passed, Bavaria favours an even simpler model that is based purely on the area of the real estate. Here, a distinction has been made between land, on the one hand, as well as living space and usable space, on the other hand.
- By contrast, in Baden-Württemberg, a valuation model will be applied that is essentially based on the plot area and the indicative land value. Both of these values will then be multiplied with each other for the calculation. In a further step, the statutory base rate for tax purposes will be applied – this will be modified according to the type of use of the real estate. There will be a discount for real estate that is used mainly for residential purposes. The advantages of the model that has been chosen by Baden-Württemberg lie in preventing higher taxation of newly created living space.
- Hamburg however will be using the ‘real estate area and location model’, which has already been enshrined in law, where the plot size and building area are multiplied by an equivalence number (€0.02 for the land and €0.40 for the building). Differentiating between good and ordinary residential locations means that potential increases in market prices are left out of the calculation.
- Hesse and Lower Saxony have likewise opted for the ‘real estate area and location model’. The starting point here is the plot area and a factor will be applied to this that is supposed to take the location into account.
Implementation phase 2020 until 2024 – Statements illustrating the determination of the bases for tax assessment as of 1.7.2022
All the economic entities of real estate holdings (agriculture and forestry businesses as well as plots) have to be separately assessed, as at 1.1.2022, on the basis of the real estate tax values in accordance with the reformed real estate tax and valuation legislation. In order to carry out this initial main assessment of real estate tax values, as of 1.7.2022, taxpayers will have to submit statements illustrating the determination of the bases for tax assessment using officially prescribed sets of data and by means of remote data transmission. The local tax offices will then use the information provided in these statements to determine the real estate tax values and will then issue real estate tax assessment notices.
Thereafter, the local tax offices will use the legally specified base rate for tax purposes to calculate the real estate tax basis amount and will issue basic real estate tax assessment notices. In doing so, the real estate tax values determined as at 1.1.2022 will be used as the basis for the main assessment of the tax assessment bases as at 1.1.2025.
Current need for action
Action is needed now already in order to ensure the timely filing of your tax return. The relevant information for calculating the real estate tax has to be compiled and other documents/data (such as, for example, indicative land values or the gross floor area) should be obtained or determined. According to Section 247(2) of the German Valuation Act, the indicative land values, which may still change depending on the municipality, have to be determined and published by the respective committees of valuation experts. In principle, this information is free of charge and available online, although, there are exceptions. Not all of the indicative land values for the whole of Germany have been determined and published yet.
Please note: Up to the end of 2024, real estate tax will still be determined on the basis of the previous standardised values.
Calculation of real estate tax from 2025 onwards
The city or municipality will determine the real estate tax that has to be paid. To this end, the real estate tax basis amount will be multiplied by a tax factor specified by the city/municipality. This will result in the real estate tax that has to be paid and, normally, a real estate tax assessment notice for this amount will be sent to the owner.
The new rules will change the overall real estate tax revenue in the Federal Republic. In order to prevent tax increases some local authorities therefore want to adjust the previous tax factors. The Federal Ministry of Finance – as an appeal to the municipalities – has indeed been promoting the overall revenue neutrality of the reform. Yet, the real estate tax reform will nevertheless impact both tenants as well as landlords.
Conclusion: The reform fulfils all the requirements of the BVerfG and, in view of the severely outdated standardised valuations dating back to 1964, was long overdue. It is however questionable if, after the revaluation of their land and buildings, real estate owners will be in an even less favourable position. In particular, in big cities where the prices keep on going up it is likely that owners can expect to pay higher real estate tax. It is hoped that the individual municipalities will offset dramatic increases with appropriate changes to the tax factors.