Property tax reform
What the property tax reform means for property owners
What is property tax?
In Germany, a tax is levied on real estate (land, buildings, agricultural and forestry businesses), known as property tax. This is usually borne by the owners, although it can and usually is passed on to the tenants. Property tax is a so-called municipal tax and is levied by the municipalities. With annual revenues of almost EUR 15 billion, it is one of the most important sources of income for cities and municipalities.
Why was there a property tax reform?
The property tax reform is based on a decision by the Federal Constitutional Court on April 10, 2018. The Federal Constitutional Court had declared the provisions of the Valuation Act on the standard valuation of real estate to be unconstitutional. In the press release issued by the Federal Constitutional Court, the decision is justified in particular by the legislator’s adherence to the main assessment period of 1964. The legislator was therefore requested to adopt a new regulation by December 31, 2019 at the latest. The legislator has complied with this with the federal model adopted at the end of 2019. As no consensus could be reached in the talks between the federal government and the federal states regarding the reorganization of the Property Tax Act, the federal states were given the option of adopting a rule that deviates from the federal model (so-called opening clause). These federal states have introduced their own state models:
- Baden-Wuerttemberg
- Bavaria
- Hamburg
- Hesse
- Lower Saxony
- Saxony
- Saarland
There is therefore a patchwork of different valuation models for determining property tax throughout Germany.
Notification obligations in the event of changed circumstances
Property tax will remain the focus of property owners in the future. This is because all structural or other changes to the property (e.g. extension, demolition, new construction, etc.) must be reported to the tax office within one month of the end of the year in which the circumstances have changed, without being asked. A brief example: On the main assessment date, January 01, 2022, the property was e.g. still in the development phase and was declared as undeveloped land according to the circumstances of the property. This was then completed in 2023 and now meets the requirements of a developed property. In the event of this change in the actual circumstances, the notification obligation applies with a deadline for notification of January 31, 2024. Of course, this also applies to structural changes in 2022, which must be reported by January 31, 2023. If the notification is not made, the tax authorities are free to respond with stricter sanction mechanisms. It is therefore essential to ensure that such changes are declared to the tax office by January 31 of the following year. These changes should be notified in good time and at short notice, not least to ensure that property tax is assessed promptly and possibly passed on to tenants. You should therefore speak to your Ecovis advisor at an early stage about potential disclosure obligations.
What happens if the declaration is not submitted or not submitted on time
If the deadline for submitting the property tax return is missed, there is a risk of severe fines of up to €25,000 and late payment penalties. The tax authorities also reserve the right to estimate the missing property tax values if the missing declarations are not received promptly.
Possible unconstitutionality of the valuation procedures
On November 23, 2023, the 4th Senate of the Rhineland-Palatinate Fiscal Court (Finanzgericht Rheinland-Pfalz, FG) ruled in two proceedings for interim legal protection (Ref. 4 V 1295/23 and 4 V 1429/23) on the valuation rules of the new property tax and valuation law that the enforcement of the property tax value assessments challenged there must be suspended due to serious doubts as to their legality. The responsible tax office has already lodged an appeal against the decisions, meaning that the Federal Fiscal Court must now decide on their legality.
