By Sara Seddon Kilbinger, Senior Reporter, REFIRE
Germany’s Grundsteuerreform, or property land tax reform, has been a long time in the making. Now, after years of wrangling, it is edging closer to implementation.
From next month – and until the end of October – property owners will be required to submit all the relevant information concerning residential and commercial buildings to their local tax authority.
Germany’s Grundsteuerreform is due to come into effect from the beginning of 2025, although the details vary from state to state, depending on which model has been chosen to calculate the new property tax. As a result, the country’s federal states - and property owners - are still scrambling to capture the necessary data on around 36 million buildings countrywide to determine just how to tax them. Jürgen Lindauer, a director in the tax division at KPMG, has highlighted the differences across the models being implemented across the different federal states: ‘Many are similar, but that doesn't help us,’ he said. ‘There are always differences in the details. For example, it's a question of how and whether a garage has to be valued.’
Subsequently, he and others in the industry are sceptical that all the data will be submitted and processed in time, although some tax offices have signaled that they may show leniency when it comes to delays. Nonetheless, tax authorities will need next year to process the declarations and in 2024, the various municipalities will have to discuss their assessment rates on this basis so that on 15 February 2025, the first taxes can be levied.
Last year, KPMG warned that many companies were not sufficiently prepared for the reform and that in many cases it was not quite clear whether all the necessary data would be available in case of emergency. It's not just companies that are struggling. Many homeowners are unaware that they are supposed to submit details regarding their properties by the end of October, according to the homeowners' association Haus und Grund. Subsequently, the president of the German Tax Consultants Association, Torsten Lüth, has said that he expects a "huge data chaos" as the burden of obtaining information is shifted onto taxpayers and tax consultants.
New taxes to reflect today’s prices
The Bundesrat's approval of the land tax reform was finally granted in November 2019 after several years of laborious negotiations. Under the new terms, every property will pay a yearly land tax to its local municipality, based on values that are more closely aligned with actual property prices today. It’s easy to see why the government wants to use more up-to-date figures: land tax is the government’s third largest source of income, raking in €14 billion a year.
German municipalities had until January this year to submit data underpinning their new valuation calculations. Each of Germany’s 16 federal states has had to determine how they plan to calculate the tax, whether they want to rely solely on the federal model, whether they want to tweak that model or whether they plan to introduce their own calculation, as Baden-Württemberg and Hamburg have done.
The new tax itself will be calculated using a three-step procedure, which will determine the value of the underlying property, in line with each state's adopted model. Residential and commercial properties will be taxed differently. The Grundbesitzwerte - the notional value of the land and the property - and potential rental income have to be calculated, which means that the higher the potential rent, the higher the Grundsteuer will be. One of the biggest challenges will be to bring all values up to date, given that parts of Germany have recently been making calculations based on values from the 60’s, or in the mid-30’s, in the case of eastern Germany.
Residential and commercial buildings to be taxed accordingly
Ultimately, the Grundbesitzwerte will be calculated using the asset value method for commercial properties and by using the yield value method for residential buildings. The asset value method takes into account the value of the land, property and market value, as well as construction costs. As the name suggests, the yield value methods looks at the productivity of a building and the yield it can generate, taking into account the annual rent (deducting the operating costs) and whether it is owner-occupied or leased.
