Law & Numbers - News Tax

Germany - New Inheritance Tax Law / Important Changes also for Foreign Individuals with Assets in Germany

11.12.2007 (Germany)

On December 11, 2007 the proposal of the new German Inheritance Tax Law was accepted by the Government.

According to a ruling of the federal institutional court the present specific methods for the valuation of real estate as a basis for inheritance and gift taxation are unconstitutional. Therefore, the legislator is obliged to implement a new method for the valuation of real estate until December 31, 2008 at the latest. In general, the present specific tax valuation method for property does only represent approximately 30-60% of the fair market value of real estate.

At present, the cabinet has resolved to lay its draft version of an Inheritance and Gift Tax Reform Bill before parliament with the intention of enactment in spring 2008. The Federal Government has agreed upon this draft by a resolution dated December 11, 2007. This draft is scheduled to come into force in the second quarter of 2008. Taxpayers, that expect a lower tax charge, may retroactively apply the taxation under the new law in case of devolution by death starting January 1, 2007. According to the draft significant changes must be expected:

1. In general, all transaction will be valued at market prices. This means, that the taxation basis will increase significantly for real estate and businesses.

2. In the light of higher taxation values also the personal standard deductions will increase, i.e. for spouses to EUR 500,000 and children to EUR 400,000.

3. In order to preserve jobs 85 % of the value of a business (also partnerships and corporations may qualify in general) will be exempt under certain prerequisites. The job level must be kept for 10 (!) years at least at 70 % of job level at the time when the business was transferred.

For small businesses a standard deduction (EUR 150,000) may be granted.

Also, the qualified business (also shares, partnership participation) will be tainted for 15 (!) years.

4. Real estate that is mainly leased to private persons is valued at 90 %.

We expect, that some of the above rules are subject to change. In general, however, we recommend to carefully review the possibility to transfer assets (i.e. real estate and businesses) before the new law will be in force.

Please note, that no specific transaction should be done based on the above general information.

For further details contact your tax consultant or: B.C.Gerow@EGSZ.de







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