Every property in Germany is subject to property tax. After decades of using the so-called assessed values as the basis for assessment, the German Federal Constitutional Court declared the assessment of the tax according to these assessed values to be unconstitutional in 2018.

 

Consequently, Germany is now faced with the task of revaluating every plot of land or property. The valuation will take place as of January 1, 2022, the tax authorities will publicly request the filing of corresponding tax declarations. It is currently assumed that the declarations will have to be submitted from July 1, 2022 until October 31, 2022 at the latest.

 

With the Baker Tilly Self Assessment Tool for Property Tax Reform  you can get an initial overview of which information is relevant to you. The tool you will find in the German area of this page even in English language.

Go to the Self Assesement Tools

 

 

Lars Lesser

Lars Lesser

Partner

Certified Tax Advisor

Andreas Griesbach

Andreas Griesbach

Partner, Head of Real Estate

Attorney-at-Law (Rechtsanwalt), Certified Tax Advisor

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Our answers to your questions about the property tax reform

Property tax is a capital-based tax on the ownership of a property; the revenue from property tax flows to the municipalities and represents a significant source of income for them.

To date, a distinction has been made between property tax A for agricultural and forestry businesses and property tax B for all other properties as defined by the Valuation Act. In addition to the land, this also includes buildings. The properties are valued according to economic units, for example, a rental housing property (apartment building) at A-Street 12. However, legally independent units such as condominiums also qualify as property pursuant to the German Valuation Tax Act and must therefore be valued separately as an economic unit.

The tax office determines the assessment basis, i.e., until now, the respective assessed value, and issues the so-called base assessment notice for property tax by applying a tax assessment factor. The respective municipality sets the respective property tax on this value by applying a rate of assessment.
 

To date, property tax has been calculated on the basis of assessed values. Originally, these values were to be recalculated every five years (so-called main assessment dates). In fact, the only main assessment was made as of January 1, 1964, which explains why the value ratios of 1964 are still used as a basis for newly constructed buildings to this day and the assessed values are far from actual market values. In the new federal states, the assessed values are based on January 1, 1935, as there was no revaluation as of January 1, 1964.

In 2018, the Federal Constitutional Court declared the assessment of property tax on a basis that no longer corresponds to actual values to be unconstitutional. The legislator was requested to adopt a new statutory regulation by the end of 2019 and to implement it with effect from January 1, 2025 at the latest. From this date, the assessed values must no longer be used as a basis for calculating the property tax.
 

Due to the unconstitutionality of the previous assessment basis, the federal and state governments agreed on the Property Tax Reform Act in November 2019, creating the so-called federal model. At the same time, however, the federal states were given the opportunity to deviate from the federal model in terms of how properties are to be valued for property tax purposes. The states of Baden-Württemberg, Bavaria, Hamburg, Hesse and Lower Saxony have made use of this option for property tax B. The states of Saarland and Saxony generally apply the federal model but use different tax assessment factors. The reform means that, for the first time, there is no longer a uniform valuation of properties in Germany.

Another new feature is that the federal states have been given the option of introducing property tax C. This means that undeveloped land that is ready for construction can be subject to higher property tax in order to create an incentive for rapid development.
The first new date for the valuation was set for January 1, 2022. According to estimates, around 36 million properties will have to be revalued as of such date.
 

Every property owner is obliged to submit a declaration for the determination of the property tax value to the tax authorities electronically. This involves declaring property-related data, which differs depending on the type of use of the property. In addition, the country-specific particularities must be observed. The tax authorities have issued a public request to submit the declarations. The original deadline of October 31, 2022 for submitting the declaration has since been extended to January 31, 2023. A further general extension of the deadline beyond this date was only granted in Bavaria (until April 30, 2023). According to the prevailing opinion, all other federal states should initially refrain from imposing sanctions and send reminders to submit the declaration. However, as things stand at present, there are no generally applicable instructions in this regard, meaning that it is still necessary to submit the declarations promptly.

The previous procedure for calculating property tax will generally remain unchanged. Consequently, the property tax is calculated as follows:

Property tax value x tax assessment factor x rate for assessment = property tax

  • Property tax value: determined by the tax office on the basis of an assessment declaration
  • Tax assessment factor: determined by law
  • Rate of assessment: determined by the city or municipality

What are the different valuation models?

In the federal model, which most federal states follow, the type of valuation depends on the type of property. While detached and semi-detached houses, apartment buildings and condominiums are valued using the income capitalization approach on the basis of rental values determined by the federal states, commercial properties, mixed-use properties and other developed properties are valued using the asset value method. As in the case of undeveloped properties, the value of the land must be taken into account in both the income capitalization approach and the asset value method on the basis of the standard land values determined by the expert committees as of January 1, 2022. 

In the income capitalization approach, the property tax value is calculated from the sum of the capitalized net income and the discounted land value.

In the asset value method, the land value and the value of the building are determined separately. This building value is determined by multiplying the so-called normal construction costs by the gross floor area.

For property tax B, the so-called “modified land value model” is applied. Contrary to the regulations of the federal model, this valuation method does not take into account any buildings on the property, as the property tax value is determined solely by multiplying the land area by the standard land value. Furthermore, the state property tax law of Baden-Württemberg stipulates that properties primarily used for residential purposes as well as social housing and cultural monuments are eligible for preferential treatment. For this purpose, the legally prescribed tax assessment factor is reduced by 30% in the aforementioned cases.

The formula for calculating property tax is therefore basically as follows:

Property tax = property tax value (land area x standard land value) x tax assessment factor x assessment rate

The Free State of Bavaria has opted for a value-independent valuation model, the so-called area model, for the revaluation of property within the scope of property tax B. Land and building areas are multiplied by fixed equivalent factors (land 0.04 euro/sqm and building 0.50 euro/sqm) in order to obtain the property tax value. An additional discount of 30% is granted for living space, so that in this case only EUR 0.35/sqm is applied. In addition, further reductions are provided for social housing and monuments, among others. The property tax value is the assessment basis to which the municipalities in turn apply the respective assessment rate. The assessment rate set by the municipalities is therefore the main lever for determining property tax in Bavaria.

The formula for calculating property tax is therefore basically as follows:

Property tax = property tax value (sqm of land and sqm of building each multiplied by a fixed equivalence factors) x tax assessment factor x assessment rate
 

The federal states of Hamburg, Hesse and Lower Saxony generally follow the value-independent valuation model of the Free State of Bavaria. These states also use fixed equivalent factors (land 0.04 euros/sqm and buildings 0.50 euros/sqm) for the valuation of land and buildings. The only difference is these states also distinguish between the locations of the respective economic units. A so-called location factor is intended to ensure that properties in better locations are taxed at a higher rate than those in poorer locations. The 30% discount for living space applicable in Bavaria and the reductions for residential constructions and monuments also apply in the aforementioned federal states.

The formula for calculating property tax is therefore basically as follows:

Property tax = property tax value (sqm of land and sqm of building each multiplied by a fixed equivalence factor) x tax assessment factor (if applicable, adjusted on the basis of the location factor) x assessment rate
 

The Baker Tilly Self Assessment Tool for property tax reform