Property Tax Reform and Tax-Exempt Real Estate

The property tax reform imposes new requirements on property owners. Approximately 35 million properties are to be revalued in 2022. Owners are required to file a declaration of assessment with the relevant tax office between July 1 and October 31, 2022. Legal entities in the public, non-profit, church, or other public-interest sectors are also affected. Although these institutions are eligible for corresponding tax exemptions, the declaration of assessment must still be submitted. Your tax advisor in Düsseldorf and Oberhausen has summarized what you need to keep in mind.

Basic Guidelines

Non-profit organizations are eligible for property tax exemption. They must simply meet certain subjective and objective requirements. Among the subjective requirements is that the owner, as the legal entity holding the property, must be recognized as a non-profit and/or charitable organization. The objective requirement is linked to the subjective requirement and concerns the non-profit status. The property can only be exempt from tax if it is used for non-profit purposes or for a special-purpose operation. This excludes the use of the property for commercial business operations or asset management.

Mixed-use properties

In the event that real estate is used for both charitable and commercial purposes, the property owner must divide the property into portions that are exempt from property tax and those that are subject to property tax. The exemption is applied on a pro-rata basis if it is possible to physically demarcate the portion of the property used for public benefit from the remainder of the property.

The situation is different if a property is used for both charitable and non-charitable purposes at the same location. In this case, the charitable use must predominate, i.e., account for more than 50%. In this instance, the property tax exemption may be claimed.

Transfer of Property

Nonprofit organizations may transfer their real estate to other parties, either for consideration or free of charge. In this case, property tax exemption is excluded, as the transaction is classified as asset management. However, it may happen that the property is transferred to a party that itself meets the subjective and objective requirements for a property tax exemption. In this case, the property tax exemption may be claimed if the property is used for charitable purposes. However, it is not sufficient if the property is transferred for charitable use to an owner who is not a beneficiary.

Valuation of the Property

The valuation procedure varies depending on the property’s location. Different information is required depending on whether the property is located in a state with or without a state-specific model. In states with their own model, for example, parameters such as standard land values, property size, living or usable area, and the residential location are taken into account.

In states without their own state model, a different approach is taken. It is best to consult your tax advisor to determine which valuation principles apply to your property.

Bavaria

In Bavaria, not everyone is required to file a property tax return or a declaration of assessment. Property owners who are legal entities under public law, religious societies, or equivalent Jewish religious communities, as well as transportation companies that are wholly owned by local authorities, are not required to file the declaration. If the property was already fully exempt from property tax prior to January 1, 2022, the essential requirement is met—provided no changes have occurred that would partially or completely revoke the tax exemption. The tax office reserves the right to review cases of doubt.

Lower Saxony

The state of Lower Saxony also exempts its taxable property owners from filing the declaration of assessment. This applies if the real estate remains fully subject to the tax exemption for real estate owned by certain legal entities under § 3 GrStG or § 4 GrStG. Here, too, the tax office may send a request to file a declaration in individual cases.

North Rhine-Westphalia

A further simplification rule applies in the state of North Rhine-Westphalia. It takes effect if the economic unit is located entirely within North Rhine-Westphalia. Furthermore, it must be fully tax-exempt under Sections 3 through 7 of the GrStG. In this case, it is sufficient to submit a list of these entities to the competent tax office by October 31, 2022. The documents must clearly state the reason for the full tax exemption. A sample form is available for download online.

Tax Advisors in Düsseldorf and Oberhausen

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