What is Property Tax?
Property tax is levied on real property. This includes land, including buildings, as well as agricultural and forestry operations. As a rule, it is paid by the owners. In the case of rental, the property tax can be passed on to the tenants via the operating costs.
Do I need to file a Tax Return?
Owners of real estate in Germany must file a tax return. The declaration establishing the value of real property tax must be submitted by October 31, 2022.
Property tax after the property tax reform
The Federal Constitutional Court declared the previous system of valuing real estate to be unconstitutional. As a result, the land tax reform was launched.
Basic Tax Calculation with the Federal Property Tax Model
Property tax is a state level tax. However, the new federal property tax law defines a property tax calculation. The individual states can adopt this federal model or define their own regulations. From January 1, 2025, property tax will be determined according to the following formula:
Value of the property x tax assessment figure x levy rate.
Compared to the formula still in force, the assessed value has been replaced by the “value of the property” factor.
The main factors influencing the value of the real estate are the standard land value and the net cold rent, which in turn depends on the rent level of the respective municipality. In addition, the area of the land, the type of property and the age of the building play a role.
The basic tax assessment figure is set at 0.034%.
The levy rates can be adjusted by the municipalities to avoid an increase in property tax on the occasion of the new regulation. In addition, municipalities are allowed to set a higher levy rates for undeveloped land if there is no construction on it. It is intended to make speculation on increases in value more expensive. It is an incentive for the creation of residential buildings on land that is ready for construction.
Basically, owners of real estate in large cities in particular must expect an increase in property tax, while owners of real estate in structurally weak areas may have to pay less property tax.
State Level Property Tax
The individual states have either adopted the federal law or they created their own property tax law:
Baden-Württemberg
The basis for the recalculation of the land tax is the standard land value and the land area. This is referred to as a modified land value model.
Bavaria
Bavaria follows an area model. The amount of the property tax is calculated on the basis of the area of the land and building, the assessment rate and the use. The value of the land or property is not taken into account.
Berlin
The state follows the federal government’s model with the value-based component.
Brandenburg
The state follows the federal model with the value-dependent component.
Bremen
The state follows the federal model with the value-based component.
Hamburg
Hamburg follows a residential location model. This means that for the recalculation of the property tax, the residential location is to be taken into account in addition to the land area and the used area of the buildings.
Hesse
This federal state has announced an area-factor model. In addition to the living area and property size, the location and use are to be included in the recalculation.
Mecklenburg-Western Pomerania
This state follows the federal government’s model with the value-based component.
Lower Saxony
The Lower Saxony state parliament has passed its own property tax law. At its core is an area-location model. Property tax is to be based on area, supplemented by value-based, intra-municipal factors.
North Rhine-Westphalia
The state follows the federal government’s model with the value-based component.
Rhineland-Palatinate
The state follows the federal model with the value-based component.
Saarland
Those responsible in Saarland want to differentiate according to property type in the area of tax measurement figures.
Saxony
Saxony has introduced its own reform law. According to this, a distinction is to be made between the types of use commercial, residential and undeveloped. A tax rate of 0.72 per mille is to apply to commercial properties and 0.36 per mille to residential and undeveloped properties.
Saxony-Anhalt
The state follows the federal government’s model with the value-based component.
Thuringia
The state follows the federal model with the value-based component.
Schleswig-Holstein
The state follows the federal model with the value-based component.
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