The issue under the previous rules

In a share deal involving at least 90% of the shares in a real-estate-owning company, RETT could arise twice under the previous rules where the conclusion of the contract (signing) and the transfer of legal title to the shares (closing) fell at different points in time. This resulted from an overlap between two RETT provisions: signing was caught by section 1 para. 3/para. 3a of the German Real Estate Transfer Tax Act (RETTA) (so called unification rules), whereas closing was caught by section 1 para. 2a/para. 2b RETTA (so called transfer rules). In the view of the tax authorities, each of the two events triggered a separate taxable event. Double taxation could only be avoided if both events were duly and completely reported to the tax office within the applicable filing deadline, which, in purely domestic cases, was previously two weeks. In two preliminary proceedings, the Federal Fiscal Court had already expressed serious doubts regarding this administrative practice.

Changes now being implemented

The legislator has now reversed the previous hierarchy of the RETT provisions: going forward, signing (i.e. the unification rules) takes precedence over closing (i.e. the transfer rules). Under the new section 1 para. 3b RETTA, the subsequent legal transfer of shares no longer triggers an additional taxable event where RETT has already been triggered under sections 1 para. 3 or section 1 para. 3a RETTA (i.e. the unification rules), provided the shares are transferred in fulfillment of that underlying legal transaction. As a result, a single notification at signing will generally suffice, and the transaction will be taxed conclusively at that stage.

In addition, the notification period for all parties (including in purely domestic cases) is extended uniformly to one month (section 19 para. 3 RETTA). Furthermore, under the revised section 13 nos. 5 and 8 RETTA, the property-owning company itself becomes liable for the RETT charge and jointly and severally liable alongside the purchaser. Another welcome development is that the joint-ownership fiction for partnerships (section 24 RETTA), which would otherwise have expired on December 31, 2026 and that is relevant for RETT-exempt transfers of real estate to, from, or between partnerships, is made permanent.

Application rules

The new rules enter into force one day after promulgation, i.e., on July 3, 2026. Pursuant to section 23 para. 28 RETTA, the amended provisions—in particular section 1 para. 3b RETTA—therefore apply to all acquisition events completed after July 2, 2026. No retroactive application is foreseen to legacy cases already closed.

For transitional cases where signing occurred before, and closing after the effective date of the new rules, section 23 para. 29 RETTA provides for a one-off, definitive taxation exclusively under section 1 para. 3/para. 3a RETTA in its new version. The application of section 16 para. 4a RETTA (i.e. potential double RETT charge) is excluded in these cases.

Practical implications

For the general transactional practice, the reform significantly reduces the risk of double RETT exposure and eliminates a substantial part of the controversial administrative interpretation that emerged following the introduction of section 1 para. 2b RETTA (i.e. the transfer rule for real estate owning corporations) in 2021.

Given that the property-owning company now also becomes a RETT owing entity, parties should expressly address the economic bearing of RETT in the SPA, including in light of any potential deductibility of RETT as a business expense. For ongoing transactions, careful consideration should be given to whether the new rules or the more restrictive prior regime apply. In light of the most recent amendments to the transitional provisions, a complete avoidance of RETT in historic transactions does not appear feasible.

However, section 1 para. 2a and section 1 para. 2b RETTA remain relevant in the future. Where there are multiple acquirers and therefore no unification of shares in one hand occurs as required for section 1 para. 3 RETTA, the transfer rules under section 1 para. 2a and section 1 para. 2b RETTA continue to apply. This raises questions regarding the interaction between the transfer rules under section 1 para. 2a and section 1 para. 2b RETTA and the unification rules that have not yet been addressed.

The priority of the transfer rules under section 1 para. 2a and section 1 para. 2b RETTA may also remain relevant where an additional property is acquired by the property-owning company after signing where the property-owning company already owned another property. Since the new section 1 para. 3b RETTA refers to “shares [transferred] in performance of a transaction”, the transfer rules under section 1 para. 2a and section 1 para. 2b RETTA should continue to apply with respect to the subsequently acquired property.

The amendments are also practically significant where intermediate entities are included into the holding structure, for example in the context of (re-)financings. If a 100% interest in a real estate holding corporation is contributed to a newly established partnership as part of a refinancing, the transaction could previously only be structured under the general group exemption clause of section 6a RETTA (provided the relevant requirements were met), as the application of the transfer rule under section 1 para. 2b RETTA prevented the use of section 5 RETTA that otherwise exempts a transfer of real estate to partnerships from RETT.

Under the new regime, the transfer rule under section 1 para. 2b RETTA no longer applies. Instead, only the unification rule under section 1 para. 3 no. 2 RETTA is triggered. Whether or not the RETT exemption under section 5 para. 2 RETTA is available, then depends on whether the property is attributable to the newly established partnership. In our view, this should, however, be the case so that the benefits of the section 5 RETTA exemption should generally be available again in these refinancing structures.