Real Estate Transfer Tax on Share Deals

Real estate transfer tax on share deals: the short answer

Real estate transfer tax (Grunderwerbsteuer, RETT) is not only triggered when land is sold directly.

Under the Real Estate Transfer Tax Act (GrEStG), the acquisition of shares in a property-owning company or partnership can also be taxable. Since the 2021 reform, which applies to transactions after 30 June 2021, the key threshold is 90%: RETT arises if at least 90% of the interests in a partnership or a corporation pass to new shareholders within ten years (§ 1(2a) and (2b) GrEStG), or if one acquirer or a group of related persons comes to hold at least 90% of the shares directly, indirectly or economically (§ 1(3) and (3a) GrEStG). The federal base rate is 3.5% (§ 11 GrEStG), but the federal states set their own rates, which range up to 6.5%.

Before 2021, investors could often avoid real estate transfer tax by acquiring 94.9% of a property company and leaving 5.1% with a co-investor or the seller. The reform lowered the thresholds from 95% to 90%, extended the holding periods from five to ten years and introduced a new rule for corporations. Classic 94.9/5.1 structures no longer work. Structuring share deals now requires careful analysis of all direct and indirect changes in the shareholder base over a ten-year horizon.

The four share deal rules

The GrEStG contains four separate taxable events for share deals, each with its own logic. More than one can apply to the same transaction, and the tax arises for the first event that is fulfilled.

The change-of-shareholder rules in § 1(2a) and (2b) look at the company: they count how much of the share capital or partnership interests has moved to new shareholders within ten years, regardless of who the new shareholders are. A sale of 89.9% to an investor and a later sale of the remaining 10.1% to a different investor within ten years would trigger tax at the second step. The unification rules in § 1(3) and (3a) look at the acquirer: they apply where one person or a group of related companies comes to hold at least 90%.

For corporations, § 1(2b) applies only to share transfers after 30 June 2021; earlier transfers are disregarded (§ 23(23) GrEStG). For partnerships, transitional rules continued the previous 95% threshold and five-year period for certain changes until 30 June 2026 (§ 23(20) GrEStG), so that from July 2026 only the new rules apply. Shares in listed companies traded on a regulated market or comparable markets are excluded from the change-of-shareholder rule for corporations under specified conditions.

Indirect changes and multi-tier structures

Real estate transfer tax looks through holding structures. For partnerships, indirect changes through upper-tier partnerships are counted proportionally by multiplying the percentages. An upper-tier corporation, by contrast, is counted in full as a new shareholder if at least 90% of its shares pass to new shareholders; otherwise, it is not counted at all. The same mixture of look-through and all-or-nothing rules applies to corporations under § 1(2b). For § 1(3a), economic participations are calculated by multiplying the percentages through all tiers.

These rules make it essential to map the full ownership chain of a target, including fund structures, co-investors and management holdings, and to track changes over the past ten years. A transfer of interests in a fund vehicle several tiers above a German property company can count towards the thresholds, and changes that occurred years before the current transaction may already have used up part of the 90% allowance.

Signing, closing and timing

Under § 1(3) no. 1 and no. 3 GrEStG, it is the signing of the purchase agreement that creates the obligation to transfer the shares which may trigger the tax, not the closing. If the agreement is subject to conditions precedent, such as merger control clearance, the tax generally arises when the conditions are fulfilled. The change-of-shareholder rules in § 1(2a) and (2b) look at the actual transfer of the shares, usually at closing.

In some structures, both a signing event and a closing event can be relevant, with the risk of tax arising twice for the same economic transaction; the law contains rules to avoid double taxation in certain cases, but they need to be checked carefully for each structure.

All parties involved and the property-owning company must notify the competent tax office of the taxable event. The notification deadline is one month from the time the person obliged to notify becomes aware of the event (§ 19(3) GrEStG). If a transaction is later reversed, relief under § 16 GrEStG is excluded where the original transaction was not notified in time and in full (§ 16(5) GrEStG). Timely notifications are therefore not merely an administrative formality.

Tax base, rates and liability

In share deals, the tax base is not the purchase price but the property value (Grundbesitzwert) determined under the Valuation Act for each German property owned by the company (§ 8(2) GrEStG). The valuation follows rules similar to those for inheritance tax and usually approximates market value. Where a company owns several properties in different federal states, each property is taxed at the rate of the state in which it is located.

The rate depends on the federal state. § 11 GrEStG sets 3.5%, but the states have used their constitutional power to set their own rates, which range from the federal 3.5% to 6.5% in states such as North Rhine-Westphalia. For large portfolios, the difference between states can be significant. RETT is a transaction cost for the buyer in most deals, but the property-owning company is a taxpayer in the change-of-shareholder cases and co-debtor in the unification cases, so the parties must agree in the share purchase agreement who bears the tax economically.

Structuring options after the reform

Several structuring approaches remain available, each with limitations:

• Co-investor structures: an unrelated co-investor permanently holds more than 10% for at least ten years, so that neither the 90% change-of-shareholder threshold nor the 90% unification threshold is reached. The co-investor must be genuinely independent and bear economic risk; agreements that give the main investor control of the co-investor's stake can lead to attribution.
• Seller retention: the seller retains more than 10% for ten years. This works for § 1(3) and, if no other changes occur, for § 1(2a) and (2b), but it ties the seller into the structure for a decade.
• Intra-group exemption: § 6a GrEStG exempts certain restructurings, such as mergers and contributions, between a controlling company and dependent companies if the controlling company holds at least 95% directly or indirectly for five years before and five years after the transaction.
• Listed vehicles: transfers of listed shares are excluded from § 1(2b) under specified conditions, which can be relevant for listed property companies.
• Asset deals: where the tax cannot be avoided, a direct asset deal may be simpler and allow a step-up in basis for income tax purposes.

Structures that have no purpose other than avoiding RETT are vulnerable under the general anti-abuse rule in § 42 of the Fiscal Code, and the tax authorities examine co-investor arrangements closely.

Due diligence and SPA protections

In due diligence, the buyer should identify all German real estate held by the target group, including properties held through partnerships and land leases, and map changes in the shareholder base over the past ten years. The SPA should include warranties on the absence of RETT-relevant events before signing, an allocation of RETT triggered by the transaction, covenants restricting changes in the seller's retained stake or in upper-tier ownership, and indemnities for RETT arising from pre-closing events. Where a co-investor structure is used, shareholder agreements must ensure that the co-investor's stake cannot be transferred in a way that triggers tax within the ten-year period.

Illustration: an investor acquires 89% of a property GmbH in 2022, while the seller keeps 11%. In 2026, the investor's own shareholders change, with 95% of the investor's shares passing to a new fund. Because a corporate upper-tier shareholder is treated as a new shareholder in full if at least 90% of its shares change, the 89% stake now counts as transferred to a new shareholder. Together with the original 89% transfer, more than 90% of the GmbH's shares may have passed to new shareholders within ten years, triggering tax under § 1(2b) GrEStG, depending on how the earlier step is counted.

After closing, the work continues. Because the ten-year periods run from each transfer, investors need a monitoring process that flags any planned change in the ownership chain, including fund-level transfers, management exits and refinancings involving share pledges that may be enforced. A simple register of all RETT-relevant transfers with their dates, kept by the asset manager or the group tax department, avoids inadvertent triggers years later.

Real estate transfer tax interacts with trade tax planning for property companies, which is covered in our article on trade tax basics for investors. For the wider transaction context, see our pages on real estate transactions and corporate and transaction tax.

How TRW & Co helps with real estate transfer tax

We advise investors, funds, developers and corporate groups on real estate transfer tax in share deals and asset deals: mapping ownership chains, structuring co-investor and seller-retention models, applying the intra-group exemption, and drafting SPA warranties, covenants and indemnities. We prepare notifications to the tax offices, monitor ten-year periods after closing and represent clients in tax audits and disputes with the tax authorities and finance courts. To discuss a transaction, contact us. This article provides general information and is not tax or legal advice.