The preparation of the reform of the property tax in Germany starting in 2025 is already "underway." Approximately 36 million properties must be revalued for the purpose of levying property tax.
Both individuals and companies are already obligated this year, i.e. in 2022, to collect a fair amount of data regarding their assets and then submit an assessment return.
Property tax is a recurring tax levied in Germany, usually annually, on domestic real property holdings. These include for example
- developed and undeveloped land,
- multi-family housing,
- industrial buildings as well as
- agricultural and forestry operations.
As a rule, owners bear the tax burden. However, the obligation to pay is also often passed on to tenants. The tax is levied by the municipalities, which, at the same time, also benefit for the most part from the revenue. This tax source is used by municipalities and cities, for example, to expand existing infrastructure or to finance schools or daycare centers.
Up to now, the property tax to be levied has depended on the standard value. This value serves as the basis for calculating tax liability. The problem here being: The assessed standard value is based on the status of the year 1964 or, in some cases, even from the year 1935 and is thus very outdated.
As a result, this leads to an unfair, partly arbitrary taxation, so that, under the current legal situation, a different amount of property tax is assessed for comparable properties in similar locations. This grievance was also recognized by the Federal Constitutional Court (Bundesverfassungsgericht, BVerfG) in 2018, which declared the existing regulation for calculating property tax unconstitutional.
As a result, a new, up-to-date calculation of the property tax in Germany will be executed in the future, starting in 2025. The standard value, which has served as the basis for calculation to date, will be abolished as part of the reform. Until 2025, however, property taxes will continue to be levied on the basis of outdated standard values.
Preparations for the complex and lengthy tax reform are already in full swing. Thus, the tax administration is already implementing duties requiring action with respect to property owners this year. They are namely required to submit an assessment return (property tax declaration) to the tax office from July 01, 2022 until October 31, 2022 at the latest.
For the new method of calculating property tax, the tax authorities require certain data from the owners. To calculate property tax as of 2025, new property tax values shall therefore to be determined on the basis of the data collected, replacing the outdated standard values. In order to collect the data, it is necessary to submit an assessment return to the tax office.
Property owners may be obligated to specify, for example,
- the land register data,
- the type of use,
- the ground value,
- the file number of the standard value and
- the living or usable area.
However, the specific data that must be provided as part of the assessment return essentially depends on the respective federal state in which the real property is located.
While a large number of German states levy the property tax uniformly according to the federal model, other states (e.g. Hesse, Baden-Wuerttemberg, Bavaria) have, on the other hand, opted to follow their own property tax model. As a result, there may be regional differences in the data to be submitted in the context of the assessment return.
The status of the values must always refer to January 01, 2022 as the key date. Subsequent changes to buildings will not be considered under the new property tax for the time being. The established property tax values are then to be applied for the property tax as of the calendar year 2025.
Depending on the federal state, the scope of the data to be provided varies. Owners are well advised to deal with the preparation of the assessment return in good time so that a timely submission of the return will be successful. An experienced property tax advisor can help with that. In particular, individuals or companies with, for example, multiple properties in different states face the challenge of determining the sometimes inconsistently required data for each individual property in a timely and complete manner.
How is the property tax calculated? Regardless of which tax model is applied by a federal state, the calculation of the property tax is always based on the same principle:
Property tax value x tax rate x assessment rate = property tax
While the tax office determines the property tax value by means of the assessment return, the tax rate is prescribed by law. The assessment rate is set by the city or municipality.
Based on the information provided, the tax office issues a property tax value notice which contains the property tax value. In addition, the tax office calculates the property tax assessment amount (property tax value x tax rate) on the basis of the tax rate and also sends a notice to the owner for this purpose. These notices do not constitute a demand for payment on the part of the tax office. They only serve as the basis for calculating the reassessed property tax starting in 2025.
The tax office then makes this data available to the municipality or city, which multiplies the property tax assessment amount determined by the tax offices by the assessment rate for the year 2025. The result is the assessed property tax payable in the future as of the calendar year 2025.
Obligated parties should not take property tax returns lightly. If they are late in fulfilling their obligation to provide the data to the tax office or fail to do so at all, they will be subject to late payment fines. In individual cases, these can amount to up to EUR 25,000.
Having an experienced property tax advisor or property tax lawyer ensures your assessment return will be correct and delivered in time, without taking the risk of a fine. The tax advisor will offer the safest and most profitable solution for you.
Do you have questions about the upcoming property tax reform? Do you need assistance with your assessment returns? Do you not know what type of data the authorities will require? We will gladly handle all communication with the tax office and help you compile the necessary data.
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