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Germany To Close Tax Loophole For Enveloped Dwellings

Thursday, August 8, 2019

The German Government has announced proposals that would curb land transfer tax avoidance involving the purchase of properties held by companies.

According to the Government's announcement, property buyers have been able to avoid transfer tax by acquiring shares in a company which owns property, rather than buying the property directly.

Under current law, such arrangements are exempt from transfer tax as long as the investors acquire no more than 95 percent of the shares in the company. However, the Government said that associated investors can buy the remaining shares which can then be combined with the majority shareholding after a five-year holding period without incurring transfer tax.

The Government said that these arrangements have been used to avoid transfer tax on high-value real estate in particular.

Under the proposed amendment to the Land Transfer Tax Act, the maximum shareholding threshold will be reduced to 90 percent, and the holding period increased to 10 years. In addition, the new rules will apply to stock corporations as well as property holding partnerships.