Frequently Asked Questions
Why invest in the German residential property market?
Home ownership is about 43% with most families living in rented accommodation under a tenancy agreement with a relatively short term. The German government offer tax concessions to encourage ownership of homes and apartments; however the demand for rented accommodation remains high, especially for single people in the larger cities.
What services does a property manager provide?
The property manager usually assumes the owners obligations on their behalf, ensuring that all payments are effected when due and that the building is properly maintained. The property will report to their clients on a monthly/bi-monthly basis and account for all income and expenditure. The management agreement usually empowers the property manager to conclude tenancy agreements as well as carrying out repairs (within agreed spend limits) and to act in other important matters. The owner will sign a limited Power of Attorney so as to allow the property manager fulfil his role.
Property management costs?
The fee for management of a property depends on the terms of the management contract and the scope of the services provided. One can typically calculate 5%-6% of the gross rental income, plus VAT (currently 19%) for a full management service.
Is there a double taxation agreement between Ireland and Germany?
A double taxation agreement was signed between Ireland and Germany in 1962 with respect to taxes on income and capital.
What is the general treatment of Irish/German Income Tax?
In general terms, the Double Taxation Agreement allows that tax paid in Germany on the rental profit can be set against the Irish income tax liability. In effect this means that tax is paid at the higher of the German or Irish rates. In practice it is more likely that the Irish liability will be the higher.
What is tax on disposal of property?
Currently there is no German tax liability where the building is disposed off after ten years. If sold within this ten year period, the gain is subject to income tax. The gain is also assessed to Irish CGT with partial credit for any German tax paid.
What is the Stamp Duty?
German Stamp Duty which is called Grunderwerbssteuer (Property Acquisition Tax) is payable before the completion of any property transaction. A single rate of 3.5% is payable regardless of purchase price throughout Germany with the exception of Berlin where the property acquisition tax is 4.5%.
Is there VAT on property purchase?
Generally, the sale of property is tax exempt but the seller may opt for VAT under certain conditions in which case a German VAT charge of 19% would apply. In such circumstances this brings a right to recovery of VAT on acquisition costs and ongoing maintenance, management costs etc.
Will German financial institutions consider lending to Irish investors?
Although the German mortgage market is fairly non-competitive and restrictive, a number of institutions will consider lending to EU investors. Potential lenders include: Mortgage Banks (Hypothekenbank), Savings Banks (Sparkassen), Credit Co-operatives (Kreditgenossenschaften), Commercial Banks (Geschäftsbanken) and Building Societies (Bausparkassen), as well as insurance companies.
What will be my costs of acquisition?
Total acquisition costs are similar to Ireland and will vary according to the transaction size. For purchases under €1m the total costs will be in the region of 12% of the purchase price and slightly less for larger acquisitions. This will typically cover Stamp Duty as well as legal and professional fees including estate agent’s commission.
In addition there may be translation costs, bank fees, and loan commitment/arrangement fees depending on the financial institution involved.
