Berlin Real Estate Investments Need Investors to Know About Taxes and Laws
If investors looking to cash in on the present and future potential of Berlin real estate market, the hottest in entire Europe, then simply rushing in could result in low returns or none at all were he to go simply by margins. There are several factors to consider. Not the least important is tax incidence and legal fees and related costs involved in acquisition of real estate. Individuals, partnerships and corporate bodies are liable to pay tax according to income category. The applicable income tax on real estate derived income depends on whether properties form business assets or whether they are considered as private assets. In the former case profits and capital gains attract tax with deductions allowed for expenses. Income of corporations is treated as business income and is taxed accordingly. In such cases only income is taxable regardless of whether property appreciates or depreciates in value. Business assets are eligible for depreciation rate of 3% whereas for private assets the rate is only 2% for older buildings and 4% for new buildings. If an individual goes in for Berlin real estate investments and holds property as private assets then income from such property is considered as rental and leasing income. Another thing investors must be aware of is that of resident and nonresident individuals. A resident need not be a citizen of Germany, one reason why expert Berlin realtors always advise clients to form a corporate entity for acquisition of properties in Berlin. In
such cases only income from properties in Germany are subject to tax whereas, if he were a nonresident, he would have to declare his entire income—both within his country of residence and income from Berlin real estate investment. An advantage of forming a shareholding corporation is that tax is applicable only on 50% of the dividends distributed to shareholders.
Investors also need to consider local business tax that applies to residents and non-residents. Then there is the matter of real estate transfer tax applicable at a rate of 5%. Investors buying property in Berlin must know that it is the custom here for the buyer to hear the real estate transfer tax based on the transfer value of the property. Once he purchases property he is also liable to pay real estate tax annually. A foreign investor forming a corporation and paying out dividends is subject to withholding tax at 25% plus 5.5% solidarity tax on base tax.
A broker may palm off property on an unsuspecting investor who then finds that he has tenants to deal with, hugely expensive renovation or repairs and other costs he had not anticipated, all of which would only serve to reduce his returns to an insignificant amount or even result in a loss. Investors can avoid these pitfalls by having a Berlin realtor with experience and expertise in Berlin markets develop the perfect strategy and to make the right choices in property purchases.
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