Americans in german law - Streifler & Kollegen Berlin

1. Secure Your Financing

The first step in purchasing real estate in Germany is securing financing. German law requires that the buyer present an irrevocable acceptance of loan financing with a reputable bank before going to sign the notary contract. Keep in mind that many real estate developers have existing relationships with financing banks – you should contact your developer regarding potential financing options.

German Real Estate financing can be done either with mortgage banks or with any usual bank or financing institute (Sparkasse, Volksbank, Insurance company, Bausparkasse). Financing usually is done for about 60-70% of the buying price by mortgage loan. Anything above that up to 100% of the buying price needs to be secured either by additional securities such like insurance (remember, it needs to be actually in that exact value) or other financial securities that must be deposited at the financing bank. Additional financing can rarely be obtained based merely on the income of the purchaser.

Financing for foreigners not residing in Germany (and not earning their money in Germany) is possible under certain circumstances but cannot be expected to exceed 60% of the buying price.

Financing should be secured before any contract of purchase is signed. Sometimes one can sign a reservation or option agreement which holds good for an agreed-upon period of time, enough time to get the financing secured. However, the only binding document is the purchase deed.
If you are making a cash deposit, you must bring proof that you actually have the funds.

2. Review the Deed of Purchase

The Deed of Purchase and any accompanying papers (like the official declaration of partition “Teilungserklärung”) should be thoroughly reviewed – make sure that you understand the agreement! If you are not fluent in German it is better to have a professional translation done first or inquire a specialized solicitor.

The terms of the contract can vary. That is why a contract needs to be checked by someone experienced in German real property law. There are many legal provisions which can be to the advantage or disadvantage of the person buying – these should be reviewed carefully! In case of doubt, the foreign investor should ask for legal assistance.

3. Set an appointment with the Notary Public for signing the Deed.

You must set an appointment with the Notary Public for signing the Deed. At this meeting, the Notary Public will read the Deed aloud for both parties, with any needed translator present. Some Notaries offer a bilingual German-English version of the Deed. After making any changes or additions the Deed is signed by both parties and the Notary Public. This contract is irrevocable upon signing; unlike the usual purchase contract it cannot be revoked within the next two weeks! The contract will include the purchase terms and all conditions thereof, like the day of payment, the day of handover to the new owner, any needed repairs or other actions to be done by the seller and any other specifications as needed.

At the meeting with the Notary Public all persons buying the property to be present (e.g. if a hunsband and wife are both purchasing the property, both must be present), and show their legal papers (e.g., valid passports). If a corporation is purchasing the propery, the person(s) signing the contract need to bring their legalization papers from the company (authorization from the corporation and an excerpt from the Chamber of Commerce entries showing the authorization status) plus passport. The contract must be personally signed after the Notary Public has read it aloud. As part of the procedure the Notary Public will read the purchase contract out loud. If the buyer does not understand German language, it will then be read in English by a qualified translator. It is the task of the Notary Public to ensure that all parties understand what they sign in the end. Any questions that come up need to be answered.
It is the Notary Public who will perform the next actions needed including any and all applications in the so-called Grundbuch - the land title register.

4. Pay the real estate commissions.

At the meeting with the Notary Public, the Real Estate agent's or broker's commission must be paid. This commission typically ranges between 3.5% and abt. 7 % of the buying price plus VAT. Depending on the agreement between the parties, the commission is paid by the buyer or by the vendor.

The purchase tax on Real Estate must be paid in two to four weeks after the contract is signed. The purchase tax is 3.5% in most German federal states – however in Berlin it is 4.5 %- of the buying price stated in the contract. This tax must be paid when requested as otherwise the tax office will not issue the clearance certificate - an important paper required for transferring title from the seller to the buyer. Without that paper, the title transfer is not effective!

Within the same period of time, the fee for the notary and registration fees must be paid. These fees typically comprise about 1.0 to 1. 5 % of the purchase price.

Frequently Asked Questions:

1. Do I have to be German resident in order to buy property in Germany?

No. Anybody a valid passport and sufficient purchase funds can buy property in Germany. However, owning a property in Germany does not give one a right to immigrate to the country. If you intend to buy property in Germany in order to live here, you must make sure first to get a Visa to be a permanent resident in the country.

2. What are the costs accompanying buying property in Germany?

In Germany, the buyer has to carry the following costs and fees:

 

3. How long will it take until I own the house / the flat?

Several weeks (even months) can pass from the time of signing the notary deed until receiving the land title register confirmation. However, this has no bearing on when you can take over the house as your own. Normally, the purchase can take possession the moment the purchase price is paid in full to the seller. That date is agreed upon in the purchase deed. During this time your interests in the property are protected by a priority notice of conveyance (“Auflassungsvormerkung”).

4. What are the costs accompanying owning property in Germany?

The costs associated with owning property in Germany include:

5. Who takes care of the property when I am not in Germany?

Any house can be put into the care of a property management service. For apartments this is now mandatory when the unit is part of a partitioned apartment house. Cost for property management typically ranges about € 25,- to € 35,- per month for an apartment. Rental management is separate from general house management and can be transferred to an agency for a fee that is agreed upon by both parties.

6. In the event I want to sell the property, who would assist me in the sale?

If you decide to sell the house or apartment, you can give it to a Real Estate broker or also offer it freely on the market. There are no rules or laws saying that you must go via a broker. There are no shared listings in Germany where all brokers would offer their houses, this is a pretty individualized market! The advantage of this is that anyone has the chance to get his house on the market. Usually you list the house with local newspapers on the weekends and also offer it on related websites.

7. What are the tax implications of renting the property?

We are not tax advisors and in any single instance the tax issues should be studied and explored carefully. Certainly as a private person you have to pay tax on the rental income. The amount goes on a “sliding scale” which starts around 25% and goes up to 42%, to which the socalled "Soli" of 5.5% has to be added. Depreciation, interest and advertising or management expenses can be deducted. Depreciation is usually 2% per year, based on the pur-chase costs minus value of the ground, as this is not depreciable.

Any private person who is receiving rental income in Germany, even if not living here, must fill in and sign his annual "Steuererklärung für beschränkt Steuerpflichtige", a special tax declaration sheet for people who are not paying their normal income tax in Germany. The effects this has upon your tax duties in your home country must be checked there with a competend advisor.

However, If a foreign nonresident corporation purchases and rents out property, the tax issues can be different. In those circumstances we strongly recommend that you consult with a tax advisor.

8. Can you help me find an accountant for your annual tax declaration?

Yes, we offer this service in cooperation with an accountant office.

9. What tax do I have to pay when selling the property?

German law currently provides that if you sell rental property within ten years of the purchase date, any appreciation of value is taxed. Again, this follows the sliding scale rule. But watch out: any depreciation claimed in that period is voided or added to the sales profit. This applies only to property which was rented out. Owner-used property can typically be sold with-out tax on the profit after two years.

After the ten year holding period any gains are tax-free for private persons. However this is not true for property owned by corporations. In such circumstances we strongly recommend that you consult with a tax advisor.

There is another tax-trap that you should be aware of. There is a rule that if you sell more than three properties within five years you are considered a commercial property dealer. The consequence being that you have to pay commercial tax (Gewerbesteuer)! And your profit is not tax-free even if the ten years holding period is over. Take the example of a multiple dwelling which you purchased as one unit and want to subdivide and sell as several units after ten years. Selling off more than three units out of that house makes you a tax payer on commercial tax which is about 25%.

Contact:

Streifler & Kollegen
Oranienburger Straße 69
10117 Berlin

Tel.:  +49 (0)30-278740 30
Fax.: +49 (0)30-278740 59