Real Estate Transfer Tax Reform: Attention with Share Deals - Additional Burdens when Acquiring Shares in Land Owning Companies

Real estate transfer tax is payable on the sale of land. However, it also applies to the sale of shares in companies if the company owns real property. The corresponding regulations are to be tightened at the turn of the year. Up to now, only the (direct or indirect) combination of 95% of the shares in a landowning corporation has triggered real estate transfer tax. If less than 95% of the shares are sold, no real estate transfer tax is payable. To avoid real estate transfer tax being triggered in cases in which all shares in a landowning corporation are transferred, it must be ensured that the shares are acquired by two independent purchasers at a ratio of at least 94.9% : 5.1%.

For partnerships with real property, in addition to the merging of at least 95% of the shares in the hands of one partner, a transfer of more than 95% of the shares within 5 years already triggers real estate transfer tax. This will also apply to corporations in the future. At the same time the legislator intends to generally lower the threshold from 95% to 90% and to extend the holding period to 10 years.

The transfer of shares of companies owning real property will thus trigger real estate transfer tax much more frequently than before. This applies not only to pure real estate companies, which have no business operations other than the letting/leasing of real estate, but also to all other companies with real property.

Together with the various increases in real estate transfer tax in recent years depending on the federal state and the insufficient exemption rules for group internal restructuring measures, real estate transfer tax is thus increasingly becoming an obstacle to necessary restructuring and succession planning. Companies and investors should in any case review existing company structures and planned transactions. If it becomes apparent that the new regulations will lead to relevant deteriorations, the measures should still be implemented in 2019.