So far, the share deal was considered an excellent way to buy real estate without real estate acquisition tax. But now the legislature has limited the real estate transfer tax law in this respect as of 01.07.2021. Previously, up to 94.9% of a share in a partnership with real estate could be acquired tax-free and after a period of five years only paid a correspondingly low tax for the purchase of the remaining 5.1%. And with a corporation, you could buy 94.9% of the shares tax-free, while at the same time another person acquired the remaining 5.1% tax-free. This has now been changed by lowering the maximum amount of tax-free purchaseable shares to below 90%. In addition, in the case of partnerships, the retention period before the purchase of the remaining 10.1% shares has been increased from five to ten years.

Real estate companies: Share-Deal still possible

1st Share-Deal with Real Estate – Introduction

The Real Estate Transfer Tax Act provides for exemptions from taxation for a whole series of property transfers. This also includes the fact that real estate owned by partnerships or corporations may be exempt from taxation in the case of a sale of shares (share deal). This was intended to avoid that the sale of shares in a company leads to a simultaneous real estate transfer tax just because the company has real estate assets. But it was clear that this exemption could easily lead to a avoidance of the real estate transfer tax through tax arrangements. Therefore, there are certain rules with which one sought to prevent a design abuse.

But in the past it turned out that these restrictions, which were intended to regulate the share deal for the tax-free acquisition of real estate owned by the company, were hardly important as a deliberately introduced obstacle. Since the real estate transfer tax is a tax that belongs exclusively to the federal states, it was they who demanded urgent improvement here. Over the past few years, tax revenue has declined noticeably due to this share deal design. That is why the legislative initiative for the changes to the Property Transfer Tax Act goes back to the federal states.

This opportunity was also used to close another loophole in the law. However, it is a question of excluding an unwanted taxation by real estate transfer tax, which has been ignored in the previous version. Which legal loophole is meant by this may only be a minor aspect of this article, but be curious and read on to get to the bottom of this little puzzle with us.

Share deal with real estate: legal basis

In § 1 GrEStG, the Real Estate Transfer Tax Act regulates the general taxation of real estate. This also lays down the derogations for the acquisition of holdings in a partnership or limited company holding real estate.

So far, the exception was in § 1 paragraph 2a GrEStG. With the introduction of the new regulations, this paragraph has two new paragraphs added. These are paragraphs 2b and 2c. § 1 paragraph 2b of the GrEStG refers to the acquisition of shares in a limited company, so that paragraph 2a now concerns exclusively the taxation of share transfers to partnerships. Paragraph 2c supplements the exceptions with an extended consideration when trading in listed securities of limited liability companies.

Shares in a partnership with real estate assets could previously be bought without real estate transfer tax if you only acquired 94.9% of the shares. The remaining 5.1% remained in the assets of the previous shareholders. If they were also transferred to a new shareholder in the following five years, this would have meant taxation of all share transfers made within that period under the real estate transfer tax. The only exception here was if the acquisition of the remaining shares was made by inheritance.

3.2 Share deal with real estate owned by a corporation

A similar regulation has so far also applied to the share deal of real estate via the purchase of shares in a corporation. Here, too, the acquisition of 94,9 % of the shares did not have any effect on taxation with real estate transfer tax, because the legislature regarded the transfer of company shares as a priority. However, another party was also able to acquire the remaining shares at the same time without incurring a real estate transfer tax. Only the acquisition of more than 94,9 % of the shares in the limited company by a single acquirer was, from the point of view of the legislature, primarily aimed at the acquisition of land and thus taxable under the real estate transfer tax.

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4th Share deal with real estate – new legal situation

So far, as already mentioned, § 1(2a) GrEStG alone was responsible for the exemptions for the taxation of the acquisition of real estate by share deal. The new version of § 1 GrEStG now allows for a specific distinction in the application of the exceptions between partnerships and corporations according to paragraphs. Since these are different, we also structure our further approach according to this subdivision.

4.1. Share deal with real estate owned by a partnership

In the new regulation of the Real Estate Transfer Tax Act, from 01.07.2021 onwards, when acquiring shares in a partnership with real estate holdings, the whole business is to be considered primarily as a real estate acquisition even if 90% or more is purchased. In other words, the acquisition by share deal of up to 89.9% of the shares in such a partnership remains tax-free. However, a blocking period must also be taken into account. However, the period within which the remaining 10,1 % must remain with the previously participating shareholders in order to hold the transfer without real estate transfer tax increases from five to now ten years.

4.2 Share deal with real estate owned by a corporation

There are also legal changes in the transfer of shares in a corporation that has real estate. Because now also applies to corporations that you can buy a maximum of 89.9% of the shares by share deal, without triggering a taxation by real estate acquisition tax.

4.3 New in the Real Estate Transfer Tax Act: the stock exchange clause

Now we come to the puzzle mentioned at the beginning, which we have almost already betrayed in the last sentence of the second chapter. Until now, the legislature has made no distinction when acquiring securities that are traded on stock exchanges. Because even the purchase of shares is basically a share deal. Of course, such corporations traded on the stock market also have assets in the form of real estate, so that if the previous regulations in the Real Estate Transfer Tax Act were strictly interpreted, it had to be assumed that from the sale of a certain quantity of securities of a listed company, real estate transfer tax would have to be incurred on the entire real estate portfolio every time. It is estimated that this would have led to such taxation every few months, because the frequency of trading in such securities is enormous.

But this particular case, in which the share deal plays a role, was by no means intended as a basis for taxation by real estate transfer tax, because after all, securities trading is the only priority here. Therefore, the new paragraph 2c was inserted into § 1 GrEStG. It thus determines that the share deal of company shares via a stock exchange does not mean a sale of real estate and therefore does not trigger any real estate transfer tax in the conclusion.