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07 09 2017
Real Estate Transfer Tax: German States Look Forward to Record-Level Revenues

The Germany states have reason to rejoice over record-breaking revenues from the real estate transfer tax, a state-level tax. This is the upshot of a forecast compiled by the IW German Economic Institute in Cologne, as the daily DIE WELT reported in its 27 August issue.[1] According to the report, revenues from the real estate transfer tax could add up to 13.94 billion euros nationwide by year-end – which would be a one-year increase by 9.1 percent. The researchers arrived at the sum total by projecting the revenues of the first six months of 2017 for the year as a whole. This comes in the wake of an already very handsome prior-year total: Between 2015 and 2016, real estate transfer tax revenues had gone up by 10.2 percent.

According to DIE WELT, the real estate transfer tax has become the most significant source of revenue for the states. Their share in the states’ total income is now at 46 percent. The fact is, on the one hand, explained by the real estate boom of recent years. The more real estate is traded, the tidier the sums flushed into the state coffers. On the other hand, the high income prompted the states to keep raising the real estate transfer tax rate in order to boost their revenues even further. 

Hampering Homeownership

The German states were granted the right to set their own RETT rate only in 2006. Before that, a uniform tax rate of 3.5 percent applied nationwide. Today, the only states that have retained the original tax rate are Bavaria and Saxony, whereas all other states raised theirs, some of them several times over. Five states now levy 6.5 percent.

While this is a great way for the states to generate tax revenues, it creates a formidable obstacle for home buyers. In many parts of Germany, the real estate transfer tax is now so high that it seriously hampers the acquisition of a home for many private households. It is not least for this reason that the homeownership rate in Germany has flat-lined at 45 percent for years, the lowest ratio of any country in the European Union.

The Christian Democrat bloc and the Liberals have therefore raised the demand in their ongoing general election campaign to waive the real estate transfer tax for home buyers. However, the Christian Democrats and Liberals already promises as much during the state election campaign in North Rhine-Westphalia last May. But having carried the vote and formed a coalition government in North Rhine-Westphalia, they left the real estate transfer tax rate in the state at 6.5 percent.[2] The explanation offered was that cutting the tax would benefit returning or multiple buyers as well, not just normal home buyers. Accordingly, the Christian-Democrat/Liberal state government would prefer to introduce a nationwide allowance of 250,000 euros via the Bundesrat, the upper house of state representatives on the federal level. A draft bill to that effect is to be introduced in the Bundesrat before the end of September.[3]