Buildings built on foreign land are regularly transferred to the property owner. At the same time, the construction costs were borne by another person, such as the entrepreneur’s spouse. This opens up tax design possibilities, because the building is depreciable like business assets via an expense allocation item, at the same time it can be sold tax-free after 10 years. We give an overview of the optimal procedure for buildings on foreign land!

Principle 1: Civil ownership of real estate and land

In practice, it happens again and again that buildings are built on foreign land. A special case is only the so-called inheritance building law, because here the special regulations of the inheritance building law (ErbbauRG) apply to the “connection” of land and real estate.

However, if the owner of the property and the client differ from each other without an inheritance building right, §§ 93, 94 and 946 BGB apply. The building is considered to be an integral part of the land on which it was built. Although the costs were borne, for example, by an outside third party, the building is now the civil property of the property owner (§ 39 (1) AO).

Other exceptions apply to basic easements and usufructs. If a person builds his property in the exercise of such a right in rem, it is also civilly imputable to him. The building on foreign land is then not an essential, but only a so-called pseudo-component of the property itself.

2. peculiarities in recording buildings on foreign land

Buildings on foreign land have some special tax features. Because under civil law the case is clear – the building is attributed to the property owner – but in tax law the so-called cost-carrying principle applies. An entrepreneur who builds his business property on foreign land could not claim depreciation through the civil and economic ownership of the property owner.

Let’s take a look at the aspects that the Bundesfinanzhof (BFH) has developed to circumvent this problem: