The share deal with real estate has long been a preferred design model of larger corporations whose core business is the rental of real estate. This is about taking shares in real estate companies instead of real estate. Basically, a classic share deal. The reason for acquiring real estate through a share deal is that acquiring company shares does not constitute a transfer of land. Because only the latter transaction triggered earlier a corresponding taxation under the real estate transfer tax law. Therefore, the share deal with real estate has been used as a design model to avoid the real estate acquisition tax. However, since the real estate transfer tax revenues of the federal states to which these taxes are due decreased significantly, the legislature saw a need for action. He introduced restrictions to deprive the share deal with real estate of its attractiveness. However, it was also relatively easy to bypass them. This was followed by tightening in 2021, which still applies today.

1st Share Deal with Real Estate – Introduction

Between 2018 and 2020, more than 150,000 properties changed owners in Germany without real estate transfer tax being incurred. All federal states generally provide for such a levy when selling real estate. So how to explain the enormous number of tax-free real estate sales?

With Share Deals. A share deal with real estate is an elegant way to avoid the prerequisites of a property acquisition tax and thus avoid the tax. Because instead of selling a property, which is a real estate transfer tax process, you sell shares in the company in which the property is located. Although there is also tax, namely income tax on the profit from the sale, in principle no additional real estate acquisition tax.

What basically sounds quite banal and is certainly legally compliant, is a big disadvantage for the affected federal states, which are entitled to the real estate transfer tax, to say the least. Since more and more real estate sales are carried out by share deal with real estate, the tax revenues of the federal states are decreasing. Logically, that had to have consequences. Therefore, the legislature introduced changes to limit the attractiveness of the share deal with real estate. Here we look at these consequences and describe how the share deal with property is today.

Share Deal with Real Estate – the Beginnings

It is clear that real estate has been transferred to new owners together with a GmbH for a long time. But when exactly the first share deal with real estate was used as an independent design model is sunk in the fog of history. It certainly existed about 30 years ago and probably a long time before that. But this design model at that time was at best a niche phenomenon. It was a kind of secret weapon against the land acquisition tax and thus remained an insider tip – for now. In any case, for many years, none of the federal states cared that these superficial corporate transactions actually focused on the real estate transfer tax-free sale of real estate. But perhaps early on financial officials wondered about the increase in such transactions. But even if this tax structure had been recognized, the avoidance of the real estate transfer tax remained completely legal. The loophole remained open for many years and decades.

First measures against the share deal with real estate

Over time, however, the initial insider tip became a tax design model known in wide circles of the real estate industry. In particular, the large real estate companies now regularly used the share deal when buying and selling their properties. To the same extent, however, the tax revenues of the countries began to shrink significantly. Even if the real estate transfer tax is only between 3,5 % and 6,5 % depending on the federal state, so that it is rather a small levy for the buyers of the real estate, it is still a question of overall considerable amounts of tax. Especially with real estate companies, which usually trade with larger land areas and buildings, the lost taxes quickly go into the millions.

Therefore, under pressure from the federal states, the legislator has taken legal measures to stop this tax structure. In 1997, for example, a paragraph 2a in § 1 of the GrEStG was introduced, which made it possible to take over less than 95 % of the shares in a real estate company tax-free. Only if 95 % or more of the shares were acquired was a real estate transfer tax mandatory.

4th Share Deal with Real Estate: Rescue RETT-Blocker

These restrictions were initially a significant cut, especially for companies whose core business is real estate. After all, this meant that you had to abandon the previous design model. But this was so attractive in the past that they quickly looked for ways to revive it in another way. So the joy of politics, about the introduction of the restrictions, which should lead to increasing revenues in the real estate transfer tax, was short-lived. Because the new legal situation still left gaps open, which were now exploited.

The design concept even got its own name, namely RETT-Blocker. The acronym RETT stands for Real Estate Transfer Tax. The name component “Blocker”, on the other hand, explains itself from the objective of the design model. The following solution was chosen to circumvent the real estate transfer tax: They founded a partnership with their own Immobilien-GmbH, usually a GmbH & Co. KG. Immobilien-GmbH (other corporations are also possible) now bought 94.9% of the shares in another real estate company in whose real estate one was actually interested. The remaining shares were bought by the subsidiary GmbH & Co. KG. Both share deals remained within the framework of the legal requirements, so that no real estate acquisition tax was incurred. Later, after a five-year statutory blocking period, the parent company and its subsidiary could be merged. In this way, 100% of the shares had been taken over again and thus the share deal with real estate property acquisition tax free closed.

5. tightening of conditions for the share deal with real estate

So while it was obvious that the restrictions were virtually ineffective, especially for large real estate companies, it took years for legislators to decide to make new changes. It was probably not so much their own initiative that led to this, but rather a large number of factors. On the one hand, this was due to the increasing shortage of affordable housing for the general public, especially in conurbations. This in turn called on critics in the ranks of the opposition. Among other things, politicians of the Bundestag parliamentary group The Greens submitted a request to the Federal Government in 2017. They wanted to know what proportion of the share deal with real estate between 1999 and 2016 had in real estate trading overall. The answer confirmed the previous lament of the federal states: 71% of the transferred companies with a portfolio of at least 800 apartments were made via a share deal. Therefore, the Federal Finance Minister and his colleagues at state level only one way out: the revision of the previous rules.

On the other hand, one can probably assume that the lobby of the real estate industry also made its voice heard. So it happened that in the end only a moderate tightening of the participation limit was decided. The limit was reduced from 95% to 90%. In addition, the blocking period was increased from five years to ten years. In addition, RETT blocker designs were already blocked in 2012 by also subjecting the purchase share through its own subsidiary to real estate transfer tax. This has also been exacerbated. Thus, according to the new legal situation, the acquirer of the 89,9 % of the company shares has to pay real estate transfer tax even after the expiration of the ten-year blocking period if he acquires the remaining shares directly or indirectly. In essence, however, the concept remained – until today.

Share deal with real estate: Vonovia takes over Deutsche Wohnen

The fact that these tightenings remained without major impact on the really large real estate transactions was already experienced shortly after their introduction in 2021. At that time, the largest real estate group in Europe, Vonovia AG, wanted to take over its immediate competitor, Deutsche Wohnen SE. Of course, such a process is a share deal. However, we now know that you can only take over the shares of a real estate company by share deal up to a certain shareholding of 89.9%, without real estate transfer tax being incurred. This is exactly what Vonovia implemented. And since a large part of the real estate of Deutsche Wohnen is available in Berlin, the city is said to have missed about EUR 1 billion in real estate acquisition tax.

7th Share Deal with Real Estate – Conclusion

Now, looking back, one can draw some lessons. On the one hand, despite all previous efforts to ease the tax design model, the share deal with real estate remains very attractive, especially for large real estate groups. The example of the takeover of Deutsche Wohnen by Vonovia is very impressive. Even shortly after the introduction of the expected tightening, the share deal was maintained. Therefore, the share deal with real estate is also in the future a design model that will find application.

On the other hand, a certain tragedy remains. Because the real estate acquisition tax-free share deal with real estate represents a factor that most private real estate buyers perceive as a great unfairness. After all, they can by no means exempt themselves from the real estate transfer tax when buying land. This gives the impression that the property transfer tax is an unfair tax, because it seems that there are double standards: some pay the tax, others can avoid it.

But abolishing the real estate transfer tax is not an option either. After all, this is one of the main sources of income for the federal states. To give up this right of taxation is therefore excluded. Although the legislation could be further adapted, the finance ministers of the federal and state governments have already explored this path in the past. They noted that this would inevitably postpone taxation at federal level for constitutional reasons. In this case too, the countries would therefore be deprived of their tax revenue from the real estate transfer tax. Therefore, the federal states continue to prefer the two class taxation for purely financial reasons than the abolition of injustice.

But this also leaves another loophole open, namely on money laundering. Because the ownership of the real estate in the land register remains unchanged in a share deal, this is a popular means to whitewash profits from criminal activities undetected. But this is another story, namely that of Germany as a money laundering paradise.