Property Tax
All You Need To Know About Property Taxes In Germany
Disclaimer
The following article is solely informative and should not be considered legal advice. If you need assistance filing your taxes, please contact a licensed tax advisor.
Property tax is a mandatory levy paid by real estate owners â and one of the most important sources of income for cities and municipalities. As of January 1, 2025, the tax is being calculated under new rules and updated municipal rates.
Why was a reform necessary? The system was overhauled mainly because it relied on outdated property valuations that no longer reflected current market conditions. Youâll find all the key details below. On the go and prefer listening instead? Check out our podcast episode recorded as the new property tax rules took effect. đ§
- Definition
- Implementation
- Payment Schedule
- Calculation
- Exceptions
- Outlook
- FAQ
What Is Property Tax â And Do I Have to Pay It?
Property tax is a tax you pay on real estate ownership. This includes land, buildings, and agricultural or forestry properties. The person who owns the property â whether itâs a plot of land, a house, or an apartment building â is the one who must pay the tax.
The payment goes to your local city or municipality, since they are the ones who collect it. Across Germany, property tax generates almost 15 billion euros every year, making it one of the most important sources of income for local governments.
Reasons For The Property Tax Reform
The property tax reform was necessary because the way the tax had been collected was ruled unconstitutional. In 2018, the Federal Constitutional Court decided that the previous system violated the German constitution. The reason was simple: until 2025, property tax was still based on outdated property values â and âoutdatedâ is putting it mildly.
In western Germany, property values were taken from 1964, while in the east, they were based on data from 1935. Even without being a real estate expert, you can imagine how much the market has changed since then. These old figures had nothing to do with current property values. The result: similar properties were taxed differently, which violated the constitutional principle of equality.
So, the reform was long overdue.
By the way, the property tax reform also aims to tackle another issue in the housing market: speculation with building land. In many cases, plots are bought and held for years just to be resold later at a profit â often without any intention to build.
Thatâs where the new âProperty Tax Câ comes in. It allows municipalities to apply a higher local tax rate to ready-to-build but undeveloped plots. The goal is to encourage landowners, especially in urban areas, to actually develop new housing instead of letting valuable land sit idle.
Implementation of the Property Tax Reform
After the 2018 ruling, the German Bundestag passed the draft legislation proposed by the federal government in June 2021. The draft incorporated the requirements set out by the Federal Constitutional Court and was enacted as a package of three separate laws. But what exactly does each law cover?
Law on the Reform of Property Tax and Valuation Rules
This law addressed the main criticism raised by the Federal Constitutional Court and regulates the revaluation of real estate throughout Germany. All properties were to be assessed based on their status as of January 1, 2022. The valuations were submitted in the form of an electronic property tax declaration.
Law Amending the Property Tax Act to Encourage the Development of Buildable Land
This law tackled the speculation problem mentioned earlier â the practice of holding undeveloped land purely for profit. It granted cities and municipalities the right to apply higher local tax rates to undeveloped but ready-to-build plots.
Law Amending the Property Tax Act
This law simply clarified that the federal government has the authority to establish the property tax law, but that individual states are permitted to introduce their own regulations that deviate from the federal standard.
The legislature introduced a federal model for revaluating real estate but, at the same time, gave the states the option of deviating from it. The five federal states of Bavaria, Baden-WĂŒrttemberg, Hamburg, Hesse, and Lower Saxony used this option. All other states used the federal model.
When Is Property Tax Due?
As a rule, property tax is paid once a year to your local tax office â but the exact payment schedule depends on how much you owe.
If your annual property tax is under 15 euros, itâs due once a year, on August 15. If it amounts to between 15 and 30 euros, you pay twice a year â on February 15 and August 15. If the total is more than 30 euros per year, the tax is paid quarterly, meaning every three months. In this case, one quarter of the total amount is due on February 15, May 15, August 15, and November 15.
The last option is the most common for property owners.
Calculation of Property Tax Under the Property Tax Reform
Under the property tax reform, the tax is calculated using the formula:
Property Value Ă Assessment Rate Ă Municipal Multiplier (Hebesatz)
So, while the reform didnât change the basic calculation method, it did replace the old standard value (Einheitswert) with a new property value (Grundsteuerwert).
The process took place in three main steps:
Determining the Property Value: Based on the data provided in the 2022 property tax declaration, the tax office determined the new property value (Grundsteuerwert) by 2023.
Applying the Assessment Rate: The tax office then applied the assessment rate (Grundsteuermesszahl).
In most federal states, this rate is 0.034% for non-residential properties and 0.031% for residential properties. Exceptions apply in Hamburg, Lower Saxony, Saarland, and Saxony. Multiplying this rate by the property value resulted in the assessment amount (Grundsteuermessbetrag), which property owners at the time were notified of in 2023.Calculating the Final Tax Amount: Finally, the assessment amount was multiplied by the municipal multiplier (Hebesatz) set by your city or municipality. The result is your property tax amount, which has applied since January 1, 2025.
Who Is Exempt From Paying Property Tax?
It is possible under certain circumstances. You do not have to pay property tax if your property is used for sovereign, non-profit, charitable, or church purposes. Hospitals, student dormitories, retirement homes, or youth hostels are also exempt from paying property tax. However, this is rarely the case for real estate purchased as an investment.
If your apartment was temporarily vacant, a partial waiver of the property tax is possible. However, you must apply for this retroactively for the previous year by March 31. You are entitled to a 25% reduction if you received less than half of the regular annual rent. If you have had no rental income in a year, you only have to pay half of the property tax. However, you mustn't be responsible for the loss of rent. In addition, the rents you charge must be in line with the market.
Entitlement to a property tax waiver:
Your tenant is insolvent.
You could not rent out the apartment despite an advertisement or a broker's order.
Apartment not rentable due to fire, water damage, or other catastrophes
You own a listed house and have to bear exceptionally high costs for its preservation or conversion. In this case, a complete tax waiver may even be possible.
If you lost rent due to typical conversion or renovation measures, you are not entitled to a property tax waiver. Having a property gifted to you also doesnât exempt you from paying property taxes. And if youâve ever been curious about this: Even people who win a house in a lottery need to pay property taxes.
Will the Property Tax Rise In the Future?
Whether you will have to pay more or less in the future cannot yet be answered. The property tax is set to be reevaluated every seven years. What is clear is that there will be cases in which tenants or owners will have to pay more. But there will also be cases of lower costs.
Wait a minute: tenants? What do they have to do with anything? As an owner, you can pass on the costs to your tenants under certain circumstances. But beware: You should always adjust the rent judiciously. In addition, you must, of course, adhere to certain general conditions. You can find out how to do this here. đ
Not even the cities and municipalities can increase the property tax willy-nilly. After all, the total revenue from property tax shouldn't increase. The municipalities must regulate it with the proper assessment rates.
All this to say: The property tax is an important cost factor that should not be ignored when checking how to finance your investment. If you take it into account, you can build a solid basis for retirement provision with a property.
Would you rather sell a property? We can also help you with that.
