In times of high construction costs and lengthy procedures, investments in real estate abroad are becoming more interesting again. In addition to private investors, this also applies to institutional investors. However, if a property is located abroad, while the owner is subject to unlimited income tax in Germany, some special features apply. They result on the one hand from existing double taxation agreements (DTAs) and on the other hand from national legislation.

In this article we focus on taxation in private assets, which also includes asset management partnerships such as landlord GbRs. However, many principles apply to corporations accordingly.

Principle 1: Taxation of real estate at home and abroad

Who rents real estate, hereby earns income from renting and leasing (§ 21 EStG). This applies equally to private individuals and partnerships if no commercial income is available (for example by a commercial imprint according to § 15 (3) no. 2 EStG). If a property is in the business assets, the professional or commercial income displaces those from renting and leasing (§ 21 (3) EStG).

Both for real estate abroad and for those in Germany, the principles of so-called surplus income apply. They are not determined by accounting or EÜR but by deducting advertising costs from revenue. Revenues are regulated in § 8, advertising costs in § 9 EStG.

While the revenue includes in particular the rents including the incidental costs and, where applicable, the sales tax, the advertising costs are