Anyone who wants to move their residence abroad and owns property in Germany often hears one suggestion: the property should be transferred into a GmbH (German limited liability company) before leaving, in order to structure it more favourably for tax purposes. In fact, this is a technically demanding arrangement with several interlocking holding periods and with an effect that is easily overlooked: the transfer can create an exit taxation (in German) risk that would not have existed at all if the property had simply been held as private assets. The decisive factors are the deadlines, which can lead to subsequent taxation if planning goes wrong. The legal position is as at September 2026.
Why Transfer the Property into a GmbH before Emigrating at All?
Anyone who owns a let or owner-occupied property and is planning to emigrate initially has two obvious options: sell the property before leaving, or keep it as private assets and continue to let it from abroad. Which option is more favourable for tax purposes depends (as described in detail in our article on selling German property before emigrating) above all on the ten-year period under Section 23 of the German Income Tax Act (Einkommensteuergesetz, EStG) and on any owner-occupation.
If the ten-year period has not yet expired and there is no privileged owner-occupation, a sale before emigrating would be taxable. In this situation, the idea often arises of transferring the property into a GmbH instead of selling it, in the hope of avoiding real estate transfer tax and income tax while at the same time creating a structure that is more favourable for preserving assets across borders. Whether this route works depends on which form of transfer is chosen and on whether several independent deadlines are observed.
The Direct Route into the GmbH Usually Fails Because of Real Estate Transfer Tax
The obvious idea of transferring the property directly from private assets into a newly founded or existing GmbH does not, as a rule, achieve the desired result for real estate transfer tax purposes. The exemptions in Sections 5 and 6 of the German Real Estate Transfer Tax Act (Grunderwerbsteuergesetz, GrEStG) are tied to a joint ownership entity (Gesamthand): Section 5 GrEStG exempts the transfer of a property from a sole or co-owner to a partnership proportionately to the extent of the continuing interest, and Section 6 GrEStG governs the reverse route. As a corporation, a GmbH is not a Gesamthand but an independent legal entity. Neither provision therefore applies to a direct transfer into a GmbH.
The group clause in Section 6a GrEStG does not help in the typical starting situation either. It requires that only a controlling company and companies dependent on it are involved, in which it holds at least 95 % without interruption for five years before and five years after the transaction. A private individual who transfers their property into a newly founded GmbH generally does not meet these requirements.
As a result, a transfer as a contribution in kind in return for shares in the company generally triggers the full real estate transfer tax, between 3.5 % and 6.5 % depending on the federal state. Under Section 8 (2) sentence 1 no. 2 GrEStG, the tax base is not the value of the shares granted but the property value within the meaning of Section 151 (1) sentence 1 no. 1 in conjunction with Section 157 (1) to (3) of the German Valuation Act (Bewertungsgesetz, BewG), regardless of the value the parties themselves attribute to the transfer. Income tax comes on top: the transfer in return for shares in the company is an exchange-like transaction and can be taxable as a private sale within the ten-year period under Section 23 EStG.
Selling below Market Value to Your Own GmbH: Shifting the Problem Rather Than Solving It
It is sometimes suggested that, instead of contributing the property in kind, it should be sold to one’s own GmbH at a deliberately low purchase price, because real estate transfer tax would then be based on the purchase price. For real estate transfer tax purposes, this is initially correct: in the case of a purchase agreement, under Section 8 (1) GrEStG, the agreed consideration is generally decisive, not the property value under Section 8 (2) GrEStG, which applies, among other things, to contributions and acquisitions on the basis of the articles of association.
The problem, however, shifts to income tax. If the purchase price is significantly below market value, the tax authorities generally treat the difference as a hidden contribution by the shareholder to their GmbH. Under Section 23 (1) sentence 5 no. 2 EStG, this hidden contribution is treated as a sale, and at market value, not at the low purchase price. If the sale below value takes place within the ten-year period, income tax can therefore be payable on the entire increase in value between acquisition and market value. The saving in real estate transfer tax is thus partly or entirely eaten up.
If other persons, for example relatives, hold shares in the GmbH, the increase in the value of their shares may also be treated as a gift under Section 7 (8) of the German Inheritance and Gift Tax Act (ErbStG).
The Two-Step Route via a Partnership
For a transfer that is as gentle as possible in terms of real estate transfer tax, the specialist literature mostly describes a two-step route: first a transfer to a partnership, then a later change of legal form of this partnership into a GmbH. Whether this route also works for income tax purposes depends crucially on which type of partnership is chosen.
Step 1: Transfer to a Partnership
In the first step, the property is transferred to a partnership in which the previous owner retains an interest, often together with close relatives. Under Section 5 (1) and (2) GrEStG, real estate transfer tax is not levied to the extent that the transferor holds an interest in the partnership’s assets.
Example: Lenja transfers her property to a partnership in which she holds 95 % and her son Timo 5 %. Under Section 5 (2) GrEStG, 95 % of the transaction remains exempt from real estate transfer tax. The share attributable to Timo is generally also tax-exempt, because Lenja could transfer the property to her son tax-free under Section 3 no. 6 GrEStG. If an unrelated third party were involved instead of Timo, real estate transfer tax would be payable on that party’s share. Both exemptions are lost, however, if the partnership is converted into a GmbH within the period under Section 5 (3) GrEStG (Federal Fiscal Court, BFH, judgment of 25 September 2013, II R 2/12).
Since the Act to Modernise the Law on Partnerships (Personengesellschaftsrechtsmodernisierungsgesetz) came into force, civil law no longer recognises joint ownership assets (Gesamthandsvermögen). Section 24 GrEStG, however, provides that partnerships with legal capacity continue to be treated as a Gesamthand for real estate transfer tax purposes, so that Section 5 GrEStG remains applicable.
The exemption is subject to a subsequent holding period: under Section 5 (3) GrEStG, it is lost retroactively to the extent that the transferor’s interest in the partnership’s assets is reduced within ten years after the transfer. For acquisitions after 30 June 2021, the ten-year period applies (Section 23 (18) GrEStG); previously, it was five years. If the percentage of the interest changes within the period, for example through later transfers of shares, real estate transfer tax on the originally exempt share is assessed retrospectively.
For income tax purposes, the choice of legal form is decisive. A later tax-neutral change of legal form under Sections 25 and 20 of the German Reorganisation Tax Act (Umwandlungssteuergesetz, UmwStG) requires a partnership that is commercially active or has commercial character by virtue of its structure (gewerblich geprägt), typically a GmbH & Co. KG within the meaning of Section 15 (3) no. 2 EStG. A purely asset-managing civil law partnership (GbR) or limited partnership (KG) is not sufficient for this.
Even the transfer to such a partnership with commercial character is not neutral for income tax purposes. If it takes place in return for partnership rights, the tax authorities treat it as an exchange-like transaction that can be taxable within the ten-year period under Section 23 EStG. In the case of a pure contribution, under Section 23 (1) sentence 5 no. 1 EStG, a later sale from business assets within ten years of acquisition remains taxable. In addition, the property becomes business assets: the tax exemption for a sale after ten years, which would be possible for private assets, is thus lost.
Step 2: Change of Legal Form of the Partnership into a GmbH
In the second step, the partnership is converted into a GmbH by way of a change of legal form under the German Reorganisation Act (Umwandlungsgesetz, UmwG). For real estate transfer tax purposes, a change of legal form is not a change of legal owner: the company continues to exist unchanged, only its legal form changes. The change of legal form as such therefore does not in principle trigger real estate transfer tax.
The timing is decisive. If the partnership is converted into a corporation within the ten-year period from step 1, this is generally regarded by the courts and the tax authorities as a reduction of the interest within the meaning of Section 5 (3) GrEStG. The real estate transfer tax initially not levied is then assessed retrospectively. At least ten years should therefore elapse between the transfer to the partnership and the change of legal form. The arrangement is therefore not suitable for an imminent emigration, only for long-term planning. The situation is different if the property was acquired through a partnership from the outset.
For income tax purposes, under Section 25 UmwStG, the change of legal form of a commercially active partnership or one with commercial character is treated like a contribution of co-entrepreneurial interests (Mitunternehmeranteile) to a corporation under Section 20 UmwStG. On application under Section 20 (2) sentence 2 UmwStG, the business assets contributed can be recognised at book value or an intermediate value instead of fair market value (gemeiner Wert), so that the hidden reserves in the property do not have to be disclosed immediately. However, only the contribution of a business, part of a business or co-entrepreneurial interest qualifies. In the case of a purely asset-managing partnership, Sections 25 and 20 UmwStG do not apply; the change of legal form is then treated like a sale of the property for income tax purposes and is taxable within the ten-year period under Section 23 EStG.
← Tabelle nach links wischen, um weitere Spalten zu sehen
| Option | Real estate transfer tax | Income tax |
|---|---|---|
| Contribution in kind directly into the GmbH | Full, tax base under Section 8 (2) sentence 1 no. 2 GrEStG | Exchange-like transaction, taxable within ten years under Section 23 EStG |
| Sale below market value to the GmbH | Based on the agreed purchase price (Section 8 (1) GrEStG) | Hidden contribution treated as a sale at market value (Section 23 (1) sentence 5 no. 2 EStG) |
| Asset-managing partnership, then change of legal form | Section 5 GrEStG, change of legal form only after ten years | Change of legal form treated like a sale, Sections 25, 20 UmwStG not applicable |
| GmbH & Co. KG with commercial character, then change of legal form | Section 5 GrEStG, change of legal form only after ten years | Transfer to the KG can be taxable under Section 23 EStG; change of legal form at book value on application (Sections 25, 20 UmwStG), then holding period under Section 22 UmwStG |
The Second Holding Period: Section 22 UmwStG and Contribution Gain I
The arrangement is not complete with the change of legal form, because recognition at book value under Section 20 UmwStG is subject to its own holding period, independent of the real estate transfer tax period. Under Section 22 (1) sentence 1 UmwStG, a sale of the GmbH shares received on the change of legal form within seven years of the date of contribution leads to retroactive taxation of the so-called contribution gain I (Einbringungsgewinn I) in the year of contribution. The parties are then treated as if the business assets had been contributed at fair market value. The amount to be taxed is reduced by one seventh for each full year that has elapsed since the contribution.
Of particular importance for emigrants: under Section 22 (1) sentence 6 no. 6 UmwStG, contribution gain I is also taxed retroactively if the transferor no longer meets the requirements of Section 1 (4) UmwStG. This can already be the case with a move to a country outside the EU and the EEA if Germany thereby loses the right to tax the shares received in whole or in part. It is therefore not only a sale of the shares that is harmful, but in some circumstances the emigration itself.
The two periods are legally independent. Even if the ten-year real estate transfer tax period has expired and the change of legal form has been carried out without real estate transfer tax, a new seven-year holding period for the GmbH shares begins with the change of legal form. Anyone who wants to use such a structure should realistically expect a planning horizon of well over ten years.
Interaction with Exit Taxation: A Self-Created Risk
A frequently overlooked effect of the arrangement concerns exit taxation under Section 6 of the German Foreign Tax Act (Außensteuergesetz, AStG). In the case of a property held directly as private assets, emigration does not trigger a tax liability of its own: there is no deemed sale as long as the property remains owned by the person leaving.
If the same property is first transferred into a GmbH, the situation changes fundamentally. The person leaving then no longer holds a property, but a shareholding in a corporation. If they have held at least 1 % within the last five years (Section 17 (1) EStG) and were subject to unlimited tax liability for at least seven years within the last twelve years (Section 6 (2) AStG), the emigration is treated as a sale of the shares at fair market value under Section 6 (1) sentence 1 no. 1 AStG. The hidden reserves in the shareholding, which reflect the value of the property, can thus be taxed immediately, even though no sale takes place.
The former unlimited, interest-free deferral on a move to an EU or EEA state was abolished with the reform implementing the ATAD Directive. Under Section 6 (4) AStG, payment in seven interest-free annual instalments may be possible, which is generally only granted against the provision of security. This eases the liquidity problem but does not eliminate it, because no sale proceeds have been received from the property. In the case of only temporary absence, Section 6 (3) AStG can help: if the person returns within seven years and becomes subject to unlimited tax liability again, the tax claim lapses subject to further conditions; on application, the period can be extended by no more than five years. Details are covered in our article on exit tax for GmbH shareholdings.
If the shareholder-managing director moves abroad personally, it must also be clarified where the GmbH will be managed in future: if the place of management (Section 10 of the German Fiscal Code, AO) moves abroad, the company may face tax consequences of its own.
Transferring a property into a GmbH before a planned emigration can therefore create a tax risk that would not have existed with direct ownership. This effect belongs in every overall calculation.
Ongoing Taxation after Emigration: GmbH and Direct Ownership Compared
Ongoing taxation also differs considerably depending on whether the property is held through a GmbH or directly.
Ongoing rental income. If the GmbH holds the property, the rental income is subject to corporate income tax of 15 % plus solidarity surcharge (in effect 15.825 %). Trade tax is also payable in principle, which may not apply to a GmbH that exclusively manages real estate thanks to the extended deduction under Section 9 no. 1 sentence 2 of the German Trade Tax Act (Gewerbesteuergesetz, GewStG), provided that the company actually only manages and uses its own real estate; even minor ancillary commercial activities can jeopardise the deduction. With direct ownership, the person who has emigrated is subject to limited income tax liability on rental income after moving abroad under Section 49 (1) no. 6 EStG at their personal, progressive tax rate, which, depending on the level of income, may be lower but also significantly higher than the corporate income tax rate.
Distributions to the shareholder resident abroad. If the GmbH distributes profits, withholding tax on investment income (Kapitalertragsteuer) of generally 25 % plus solidarity surcharge is also payable, which may be reduced under the double taxation treaty with the new country of residence. This second level of taxation does not exist with direct ownership of the property. How the new country of residence taxes the distribution must be examined by an adviser in the respective country.
Later sale. The most significant difference arises on a sale. Capital gains of the GmbH are generally subject to corporate income tax and, where applicable, trade tax, regardless of how long the property was held, because the ten-year period under Section 23 EStG applies only to private sales and not to a corporation. If, on the other hand, the property is held directly as private assets, a capital gain remains tax-exempt after the ten-year period has expired, even under limited tax liability (Section 49 (1) no. 8 EStG). Transferring the property into a GmbH therefore closes precisely the route that can lead to tax exemption after the period has expired in the case of direct ownership.
For Whom Can a GmbH Structure Nevertheless Make Sense?
These disadvantages do not mean that a GmbH is generally unsuitable for property owners. However, it is typically not suitable as a short-term measure immediately before emigrating, but only as a long-term structure which, realistically, begins well over a decade before emigration. It can be considered in the following scenarios:
- Larger property portfolio: Anyone holding several properties can bundle liability risks in the company and retain rental income for further investment in the company instead of subjecting it to their personal tax rate.
- Reinvestment instead of withdrawal: If most of the income is reinvested, the corporate income tax burden can be more favourable than the personal marginal tax rate, as long as no distribution is made.
- Preparing succession: Shares in a company can be transferred in partial amounts to several relatives more easily than fractional ownership of a single property, which can play a role in succession planning spanning generations; for inheritance tax planning approaches, see Avoiding inheritance tax legally (in German).
In all cases, an individual calculation is required that covers the entire holding period (from the transfer to the planned sale or succession) and takes into account the real estate transfer tax, income tax and reorganisation tax deadlines as well as the interaction with exit taxation.
Unclear legal position: obtain a binding ruling. Where the tax assessment in Germany is not certain or is foreseeably subject to change, an application to the tax office for a binding ruling (verbindliche Auskunft, Section 89 (2) AO) belongs before implementation. It binds the tax office to the assessment given for a precisely defined set of facts that has not yet been realised, and it is subject to a fee. In our view, a tax adviser who does not recommend this in such a situation is acting irresponsibly: the client risks having to litigate over the outcome years later, and that costs time and money.
Conclusion
Transferring a property into a GmbH before emigrating is not an arrangement that can be implemented at short notice. The direct route generally triggers full real estate transfer tax and can be subject to income tax within the ten-year period under Section 23 EStG; a sale below value shifts the problem to income tax via the hidden contribution. The two-step route only works for income tax purposes via a commercially active partnership or one with commercial character and is subject to two independent holding periods: ten years under Section 5 (3) GrEStG and seven years under Section 22 (1) UmwStG, whereby even a move outside the EU and the EEA can be harmful. In addition, the GmbH shareholding can itself give rise to exit taxation under Section 6 AStG. Whether the structure makes sense in the individual case can only be assessed after a review tailored to the specific planning horizon.
Frequently Asked Questions
Is real estate transfer tax payable if I transfer my property directly into my GmbH?
As a rule, yes. The exemptions in Sections 5 and 6 GrEStG apply only to partnerships, and the group clause in Section 6a GrEStG generally does not fit a private individual. In the case of a contribution in kind, the tax base is the property value under Section 8 (2) sentence 1 no. 2 GrEStG.
Does a sale below value to my own GmbH help?
Only with real estate transfer tax, which is then based on the purchase price (Section 8 (1) GrEStG). The difference from market value is generally a hidden contribution, which is treated as a sale at market value under Section 23 (1) sentence 5 no. 2 EStG. Within the ten-year period, income tax may therefore be payable on the entire increase in value.
Which deadlines apply to the route via a partnership?
For real estate transfer tax, a subsequent holding period of ten years applies under Section 5 (3) GrEStG; a change of legal form into the GmbH before it expires is generally regarded as harmful. After the change of legal form, the seven-year holding period under Section 22 (1) UmwStG runs for the shares received. In addition, the transfer to the partnership itself can be subject to income tax within the ten-year period under Section 23 EStG.
Can the transfer trigger exit tax?
Yes. Anyone who has held at least 1 % in the GmbH within the last five years and was subject to unlimited tax liability for at least seven years within the last twelve years is treated on emigration under Section 6 AStG as if they had sold the shares at fair market value. Payment in seven annual instalments under Section 6 (4) AStG is possible and, on a return within seven years, the tax claim can lapse under Section 6 (3) AStG.
Does a later sale after ten years remain tax-exempt?
For a property held directly as private assets, yes, even under limited tax liability after emigration. If the property belongs to a GmbH or to the business assets of a partnership with commercial character, the ten-year period does not apply; capital gains are generally taxable regardless of the holding period.
Attorney Dr. Johannes Fiala and the firm have published extensively on exit taxation and the structuring of real estate assets and advise on whether and how a German property should be structured before emigrating, including planning the real estate transfer tax and reorganisation tax deadlines. Please get in touch with the firm without obligation to discuss your plans in an initial consultation.
