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Germany Targets Commercial Buy-To-Let Property Investors With One Of World's Lowest Tax Rate

Germany Targets Commercial Buy-To-Let Property Investors With One Of World's Lowest Tax Rate

Research conducted by Taxand, the world's largest global organisation of tax advisors to multinational businesses, has shown that Germany is one of the cheapest countries in the world in which to invest in commercial property rental, with just 13.70% of the gross annual rental income absorbed by tax.

The tax rate is the fourth lowest of the 23 countries analysed in the research and is only a short way behind Finland, the lowest in the table, which has a rate of 8.99%. Countries which top the total tax take for commercial rental include Canada (53.85%), USA (41.17%), and Norway (36.34%).

One reason for the low German tax charge on rental income is that real estate investors carefully planning their structure benefit from an exemption from trade tax. Such well-advised investors are facing about half the income tax burden than industrial businesses.

Across the globe, tax on commercial property income has reduced by an average of 0.75% on last year. However, in six jurisdictions the overall rate increased, most notably in India where it went from 4.21% in 2009 to 24.85% in 2010, due to a decrease in the effective annual depreciation rate on commercial centres which in India fell from 10% to 5%. Elsewhere across the globe, China saw an increase from 29.04% to 32.90% and Mexico an increase from 23.98% to 25.36%. Malaysia, Poland and Portugal also recorded minor increases.

Keith O'Donnell, Global Head of Real Estate, at Taxand, also commented:

"Our second review of total tax take in the global real estate market has revealed some fascinating insights. But perhaps more interesting are the significant year-on-year changes in total tax take introduced on commercial rental in certain countries. The overall decrease has undoubtedly prevailed as a result of competition for inward investment in the wake of the global financial crisis. Whilst governments will undoubtedly have considered an increase to plug budgetary deficits, authorities are clearly more concerned about the potentially disastrous knock-on effect that could be caused by a depressed property market."

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Taxand T3 research methodology

Taxand has updated and expanded last year's T3 data.

To arrive at the figures, Taxand has taken into account VAT (or its local equivalent), corporate income tax, and property taxes. The property taxes were usually subject to various country-specific assumptions and modifications as they often differ on municipality basis or sometime just location basis. Those were reviewed by the coordinating Taxand team to assure comparability. Administrative fees, notary fees, court fees were excluded as having a relatively low impact on the overall tax take.

To ensure comparability of the results, certain data has been fixed such as size of the building, investment costs, and 100 percent non-interest bearing equity financing.

With all of that built into the model, Taxanders adopted it to the local law.

Also featured in Handelsblatt 26 June 2011, and Thomas Daily 27 June 2011

Your Taxand contact for further queries is:
Abigail Tarren, Global Operations Director
T. +44 (0)207715 5243

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