Changes in German real estate tax laws?
The German government is considering a new land tax law
According to the new law, the land taxes (Grundsteuer) that is being paid in Germany every quarter will be calculated based on a combination of the following parameters: artificial rental income, value of the land based on data from the municipality, and the age of the building. The proposal of this method caused mixed reactions throughout Germany.
It is a problematic issue, partly due to the fact that municipalities benefit from income from land taxes, but it is the government at the federal level that determines the binding laws.
Both the owners and the tenants pay land tax on real estate in Germany, and both groups will be affected by it: the owners pay directly to the municipality, while the tenants pay the amount as part of the additional payments to the basic rent, the Nebenkosten.
On the one hand, the proposed method of calculation of Grundsteuer is logical because all the data are related and dependent on each other. On the other hand, there are a number of problems with it.
First, the value of land in East Germany is based on data from 1935, and on data from 1964 in the West. In addition, the importance of several areas in Germany has changed in terms of real estate, such as the Bavarian region.
Secondly, the new process will involve a huge and full-time labor force. The mayor of Düsseldorf in Nord Rhine Westphalia objects to the move and says the land tax should be based on the value of the land alone, and the proposed method is a plot to create jobs for employees in the tax system. It is estimated that at least 2,500 new full-time employees will be required to renew the tax value, and from the moment the law is passed, it might take longer than two years until new prices are implemented.
Many in real estate in Germany is almost certain that the law will pass by the summer, even though the arguments on the issue will not cease to exist. But if the law does not pass, there is a danger that the land tax will stop to exist, which will seriously damage the municipalities in Germany. The move will require a lot of effort and time, but it is likely that it will lay the foundation on which the land tax in Germany will now be calculated.