Recently there has been relief for extended land shortening. Until now, it was the case that an asset management company could benefit from the extended land shortage, because as a special “tax exemption” this represents a relief. Thus, such a company was able to save around 15 % business tax. One condition for this was that the asset management company did not engage in any commercial activity. This also included the fact that it did not rent any operating equipment. However, since the construction of charging devices for electric cars and photovoltaic systems for new buildings now meets legal requirements, while at the same time income from the operation of these operating devices is a reason for exclusion in the extended land shortage, the legislature has amended the Trade Tax Act. Retroactively as of 01.01.2021, the generation of income from the use or rental of operating devices in the granting of the extended land reduction to a certain extent is now harmless. For example, an asset management real estate GmbH benefits from these easements for extended land shortening because it can repay loans faster.

Vermögensververwaltungtende Immobilien-GmbH – facilitation in the extended land shortening

1. facilitation of extended land shortening – Introduction

The extended land cut is a legal requirement that provides tax relief to asset managers. More specifically, when calculating business tax, it allows an asset management company to reduce its profits in line with the income from its property management activities. On the other hand, profits from other asset management activities, such as interest income, are subject to trade tax. Indirectly, such companies can thus at least exempt themselves from part of the business tax normally incurred.

One reason for this is that the municipalities that collect the business tax also receive the property tax on the real estate. In a way, the trade tax for such companies therefore constitutes double taxation. A second reason is that an asset management company, which otherwise does not engage in commercial activities, is basically considered to be a business only because of its legal form. In this respect, the rules on extended land cuts sought to provide a way out for such companies to live up to their true entrepreneurial nature.

In order to obtain the tax relief from the extended land shortage, an asset management company must become active itself. More specifically, this is done at the request of the tax office. However, in order to be able to take advantage of the extended land reduction, certain conditions must be met. For example, the undertaking should be exclusively asset-management. If, on the other hand, commercial income is also available, the extended land reduction is excluded in principle. Therefore, the extended land reduction is of great interest, for example, for a property management GmbH, while it offers no advantages to a commercial GmbH.

2. facilitation of extended land shortening: old legal situation

Now the previous legal situation was such that the rental of operating equipment or other facilities, which must be considered separately from the property, excluded the extended land shortening. These devices include, for example, elevators, escalators, illuminated signs, alarm systems and much, much more. Also, the demand from many sides for a small threshold for such commercial ancillary income has so far remained unresonant. Accordingly, the tax courts also ruled restrictively in this regard. After all, the rental of operating equipment and similar assets can quite clearly be regarded as a commercial activity. Therefore, this led to the exclusion of the indirect tax exemption of on average 15 % business tax. Of course, the exact amount of the otherwise saved trade tax depends on the lifting rate of the municipality in which the property is located.

But now the government is heading in a different direction in terms of promoting renewable energy. The demand of the legislator that at least new buildings in certain cases should have a photovoltaic system and a charging station for electric vehicles, resulted in a rethinking with regard to the regulations on the extended land shortage. This led to the relief in the extended land shortening, which we would like to present below.

So the legislator now decided that the extended land reduction should be granted even if a company managing assets also leases operating equipment together with the real estate. This means that in addition to photovoltaic systems or charging stations for electric vehicles, all other operating devices in a building also benefit from this exemption. Nevertheless, there are some differences and conditions that must be considered in order to be able to use the relief for extended land shortening. For this purpose, we now look at which amendments § 9 No. 1 GewStG contains in this respect.

On the one hand, the annual revenues from the sale of the electricity produced or otherwise supplied must not exceed 10 % of the remaining revenues from asset management. Only the own tenants of an asset management company may be considered as customers. If, on the other hand, the company also makes other services available to its own tenants for a fee, then the income may not exceed 5 % in order to still be able to receive the extended land reduction.

Fortunately, a general, albeit relatively small, threshold of at least 5% now applies. As long as an asset manager complies with these limits, commercial income does not affect the granting of the extended land reduction. In this respect, it has met the long-standing demand for a minor limit.

Also pleasing is the fact that the legislature introduced the relief for the extended land reduction retroactively on 01.01.2021. So it can already be used in full for the current year.

The new easements for the extended land cut result in a tax saving of about 15 %. At first glance, this may be only a small advantage, but it can be skillfully potentiated. For example, if a property management GmbH & Co. KG takes out a loan to finance a property or to purchase a photovoltaic system or a charging station, then you can use the saved trade tax to accelerate the repayment of the loan. In this way, the interest and compound interest effect is used to reduce the liability faster and thus build up new assets. Because this also brings the financing of new real estate objects significantly closer. And that this option is worthwhile is also noted by the fact that the 15% saved on trade tax is a much higher percentage than the current market interest rate for loans and the inflation rate combined.