2026-10-10 10:41

Investing in German commercial property from Cyprus: interest is taxed in Cyprus, rent and exit in Germany

The 2011 double tax treaty, with its 2021 Protocol, leaves Germany the right to tax rent and sales of shares in companies that mainly own German real estate, and gives interest to Cyprus alone. A Cypriot company holding 10% or more for at least 12 months can receive dividends free of German tax under the EU directive, provided it passes Germany's anti-abuse test. Otherwise dividend tax is capped at 5% or 15%; there is no inheritance tax treaty, and Cyprus is not on the German tax-haven list (StAbwV).

Rent and exit stay with Germany, interest goes to Cyprus

Germany taxes rental income from German property (Art. 6). If a German limited-liability company (GmbH) owns the property, it pays corporate income tax (Körperschaftsteuer) of 15.825%, including the solidarity surcharge. Trade tax (Gewerbesteuer) comes on top unless the extended reduction applies (see Part 9 of the series German Prime Retail). The treaty protects residents of Cyprus, not its citizens (Arts 1 and 4). It has applied since 1 January 2012, and the Protocol of 19 February 2021 since 1 January 2022.

Gains on the sale of shares in a company deriving more than 50% of its value, directly or indirectly, from German real estate may be taxed in Germany (Art. 13(2)). Interest, by contrast, is taxed only where its beneficial owner resides (Art. 11(1)) — even on a loan secured on German real estate, which German law would otherwise tax (Part 9). An ordinary shareholder loan (Gesellschafterdarlehen) does not even need the treaty: if the four conditions in Part 9 are met, German law does not tax its interest. The loan must be unsecured, carry no share in profits and bear an arm's-length rate, and the lender must not be resident in a jurisdiction on the StAbwV list. Since 2022 treaty benefits have been denied where obtaining them was one of the principal purposes of a transaction or arrangement (Art. 27(2)).

Exhibit 1. The treaty leaves Germany rent, exit and up to 15% on dividends, and gives interest to Cyprus

Issue	Position for a resident of Cyprus	Basis
Double tax treaty	In force; applied since 1 January 2012, amendments since 1 January 2022	Federal Ministry of Finance (BMF) list as of 1 January 2026
Rental income	Taxed in Germany	Art. 6(1)
GmbH dividends	At most 15%; 5% for a company with a direct holding of 10% or more	Art. 10(2)
Dividends to a Cypriot company holding 10% or more directly for at least 12 months, under the EU directive	No German withholding tax on application, if the anti-abuse test is passed	§ 43b, § 50d(3) EStG
Interest	Only in Cyprus, including on a secured loan	Art. 11(1)
Sale of shares in a company whose value is more than 50% German real estate	May be taxed in Germany	Art. 13(2)
Principal purpose test	Benefit denied if obtaining it is one of the principal purposes	Art. 27(2)
Inheritance tax	No treaty	BMF list
German tax-haven list (StAbwV)	Cyprus is not on it	§ 2 StAbwV

A Cypriot company gets zero dividend tax only with real business activity

The exemption from withholding tax comes from the EU Parent-Subsidiary Directive (§ 43b EStG). A Cypriot company that meets its requirements and has held at least 10% of the GmbH's capital directly for at least 12 consecutive months receives dividends free of German withholding tax on application. But a foreign company obtains both this relief and the treaty rates only after Germany's anti-abuse test (§ 50d(3) EStG). Relief is refused if the company's shareholders would not be entitled to it directly and the company itself has no economic activity substantially connected with the income. The company can avoid refusal only by proving that obtaining a tax advantage was not one of the principal purposes of including it in the structure.

The GmbH pays dividends to an individual resident in Cyprus net of 26.375%. The Federal Central Tax Office (Bundeszentralamt für Steuern) refunds the difference down to 15% on an application filed no later than four years after the end of the year of payment (§ 50c(3) EStG).

Transparency Register, power of attorney and sanctions are settled before signing

Cyprus's EU membership simplifies the formalities. A foreign buyer company must enter its beneficial owners in the German Transparency Register (Transparenzregister) unless it has already filed this information with the register of another EU member state (§ 20(1) GwG; Part 8). A power of attorney to buy needs at least a notarially certified signature, or the land registry (Grundbuchamt) will not accept it (§ 29(1) GBO). Cyprus has been party to the Hague Apostille Convention since 1973, so a signature certified in Cyprus needs only an apostille.

For Russian citizens living in Cyprus, two different tests matter. The German tax-haven rules look at tax residence: a person tax-resident only in Cyprus does not fall under the § 10 StAbwG tax on interest of 15% (15.825% with the solidarity surcharge). EU sanctions look at citizenship. EU banks may not accept deposits above €100,000 per bank from Russian citizens; the exception covers holders of a residence permit in an EU member state, including Cyprus (Art. 5b of Regulation (EU) No 833/2014).

How Cyprus taxes the income is a question for a Cypriot tax adviser: this page describes only the German side and the treaty text.

Implications for investors

1. Check that the Cypriot company has real business activity before the first payment. Without economic activity substantially connected with the income, Germany may refuse both the directive exemption and the treaty rates (§ 50d(3) EStG).

2. File the refund application on time. Dividends reach an individual net of 26.375%; the difference down to 15% is refunded only on application, no later than four years after the end of the year of payment.

3. Check sanctions status separately from tax status. A person tax-resident only in Cyprus does not fall under § 10 StAbwG. A residence permit in an EU member state, including Cyprus, lifts the EU limit on Russian citizens' deposits above €100,000 per bank.

What to check:
• the recipient's tax residence on the date of each payment — the treaty protects residents of Cyprus, not citizens;
• the Cypriot company's own economic activity and purpose — for § 50d(3) EStG and Art. 27(2) of the treaty;
• the application for exemption from, or refund of, German withholding tax;
• the beneficial-owner details in an EU member state's register — before the deal is notarised;
• for Russian citizens — the residence permit and the EU sanctions restrictions.

See also: Part 8. The Notarial Closing; Part 9. The Structure Decision; What taxes does a property-owning GmbH pay?; Investing in German commercial property from the UAE.

Sources: Double tax treaty between the Federal Republic of Germany and the Republic of Cyprus of 18 February 2011 (BGBl. 2011 II p. 1068), Arts 1, 4, 6, 10, 11, 13; Protocol of 19 February 2021 (BGBl. 2021 II p. 731), Art. 3 (new Art. 27(2)); Federal Ministry of Finance, status of double tax treaties as of 1 January 2026; § 2 StAbwV; § 10 StAbwG; §§ 43b, 50c, 50d(3) EStG and Annex 2 to the EStG; § 29(1) GBO; § 20 GwG; Art. 5b of Council Regulation (EU) No 833/2014; Hague Conference on Private International Law, status of the Convention Abolishing the Requirement of Legalisation for Foreign Public Documents as of 30 June 2026. Legal position as of October 2026.

Photo: Mathias Konrath / Unsplash

This page is general information and not investment, legal or tax advice.

Ilya Gordon