It has recently been announced that, following a ruling from the Federal Constitutional Court, a new system of property taxes is to be introduced.
Although full details are not yet available, it seems that the argument has been over whether market value or an area-based system should be used as the basis for a new system. It is reported that the Federal government and the Länder have now agreed a compromise and, in future, both the age of buildings and the average rent for the evaluation of the basic values are to be used.
At present, annual property taxes in Germany are among the lowest among the OECD countries. An outline of the present system is shown below.
Every property owner has to pay property taxes in Germany. This means, he is liable to pay real property taxes (“Grundsteuer”). Moreover the tax rate depends on the type of property he owns. In other words the taxes are sorted into two distinct categories.
- Real property tax “A”: Real property used for agriculture and forestry.
- Real property tax “B”: Constructible real property or real property with buildings.
The real property tax burden in Germany is currently calculated by multiplying
- the assessed value of the real property
- the real property tax rate
- the municipal multiplier
The assessed real property tax value is determined by the tax authorities according to the German Assessment Code (Bewertungsgesetz). With this in mind, the German Assessment Code refers to historical property values which are usually significantly lower than the current market value. Some date from 1964; others date from 1935!
The real property tax rate depends on the type of real property. As an example the tax rate is 2.6‰ (0.26 percent) for property used for (semi-) detached houses with a value of up to EUR 60,000. Further for all remaining houses the tax is 3.5 ‰ (0.35 percent); including commercially used real property.
Similar to the municipal multiplier in the trade tax case, the municipal multiplier to real property tax is stipulated by each municipality separately. Consequently municipalities determine a multiplier for both real property tax “A” and real property tax “B”. Usually the rate for “B” being much higher as you can see in our list.
Determining Burden of Property Taxes in Germany
To clarify the real property tax burden for a commercial building in a municipality with an average real property tax “B” collection rate of 350 percent:
Assessed Value EUR 1,000,000 (e.g.) x Basic property tax rate
x 0.35 percent x Muncipal multiplier “B”
x 350 percent = Property tax burden
= EUR 12,250
It is not yet known what calculations under the new property tax system will look like, but it is assumed that the values will be more in line with current market values in Germany. This may come as a shock to many taxpayers!