The new year in Germany brings with it the implementation of tax reforms that have been under discussion throughout the year. For instance, the reform of the property tax, which was previously declared unconstitutional in 2018 by the Federal Constitutional Court due to discrepancies in the valuation of similar properties. The calculation of the tax is based on three factors: the value of the property, the tax rate (die Steuermesszahl) and the assessment rate (der Hebesatz). 

Up until this point, property values have been based on decades-old cadastral values (also known as standardized values). In western regions, properties are assessed according to their value in 1964, while in eastern regions the values are based on figures from 1935. The federal government sets the tax rate, and it depends on the property type. The assessment rate, on the other hand, is set by the regional government and differs from the above-mentioned tax rate in that it is not calculated on an individual basis for each property, but for the entire municipality. It is an important tool for regulating municipal tax rates. 

As a result of the reform, property values will be updated. However, in absence of an agreement between the Federal Government and Regional Governments on how the property value should be determined, some regions have adopted their own laws for the calculation of this value. In particular, the states of Saxony, Saarland, Lower Saxony, Hesse, Hamburg, Bavaria and Baden-Württemberg will adopt a different model from the federal one. 

The revaluation of properties would result in a significant tax increase if the tax rate were to remain unchanged. Therefore, it has been significantly reduced to 0.031% for all residential properties and 0.034% for non-residential properties. 

Regarding the assessment rate, most municipalities have yet to set their new rates. Nevertheless, several associations remain unconvinced of the constitutionality of this reform, on the grounds that it treats property owners unequally. 

Real estate investment has been growing in recent years. So, if you want to invest in Real Estate in Germany and/or more than 50 other countries, don’t hesitate to contact us! 

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