Advantages and Disadvantages of Acquiring Real Estate through an Investment Company in Germany

Investing in real estate in Germany remains a popular choice, especially among foreign buyers. One way to structure ownership is through an investment company (e.g., GmbH – a limited liability company). This method has several advantages and disadvantages that should be considered before making a decision.
Advantages
1. Tax Optimization
One of the main reasons for purchasing real estate through a company is the potential reduction of tax burdens. The corporate tax rate (Körperschaftsteuer) in Germany is 15%, with an additional solidarity tax (Solidaritätszuschlag) of 5.5% on the tax amount. This is more favorable compared to the individual income tax rate, which can reach up to 45%.
Companies can also utilize depreciation and expense deductions, including mortgage interest, to reduce their taxable base.
2. Limited Liability
Holding real estate through a GmbH minimizes financial risks since company owners are only liable within the limits of their invested capital. This is particularly important when dealing with commercial real estate.
3. Simplified Property Transfer
Transferring real estate through a company is easier than selling it to a private individual. Simply transferring shares in the GmbH can reduce tax burdens and legal costs.
4. Scalability
If an investor plans to expand their real estate portfolio, owning properties through a company can be more convenient. This structure is beneficial for long-term investments and professional asset management.
5. Easier Access to Financing
Banks are often more willing to lend to legal entities, especially if the company already has assets and a stable income. This makes financing new purchases more accessible.
Disadvantages
1. Registration and Administrative Complexity
Setting up a GmbH requires time and costs: the company must be registered, documents prepared, a bank account opened, and minimum share capital deposited (usually €25,000, with at least €12,500 required upon registration). Additionally, bookkeeping, tax reporting, and compliance with regulatory requirements are necessary.
2. Double Taxation
Although corporate tax rates are lower, profit distributions through dividends are subject to an additional capital gains tax (Kapitalertragsteuer) of 25%, plus potential surcharges. As a result, the overall tax burden may be higher than direct private ownership.
3. Restrictions on Personal Use
Using real estate owned by a GmbH for personal purposes may lead to tax consequences. For example, if an owner resides in such a property, tax authorities may treat this as a hidden profit distribution.
4. Higher Administrative Costs
Maintaining a company entails additional expenses for accounting services, legal support, audits, and administrative management.
5. Limited Loss Offset Options
When owning real estate as a private individual, losses can be offset against other income sources. In the case of a company, losses can only be accounted for within its business activities.
Acquiring real estate through a company in Germany is beneficial for long-term investors who want to optimize taxes and minimize risks. However, this approach requires consideration of administrative costs and tax consequences.
For private investors purchasing real estate for personal use or rental income, direct ownership may be simpler and more financially feasible.
Before making a decision, consulting with a tax advisor and legal expert is recommended to choose the best strategy.