2026-10-10 11:26

What taxes does a non-resident pay on rental income in Germany?

A non-resident pays tax in Germany on rent from German property in every case; the rate depends on the ownership structure. An individual pays income tax at 14–45% with no basic allowance, a foreign company 15.825%. A German limited-liability company (GmbH) pays 15.825% plus trade tax (Gewerbesteuer) unless it qualifies for the extended reduction, and withholding tax is added when it distributes profit.

Rental income is taxed where the building stands

Rent from property located in Germany is German-source income for a non-resident too (§ 49(1) no. 6 EStG). For a foreign company it counts as business income (§ 49(1) no. 2 f EStG). No tax is withheld from the rent: the law provides for withholding only on certain types of income (§ 50a(1) EStG). Tax is therefore assessed on an annual return (§ 25 EStG), which a non-resident individual files with the tax office where the property is located (§ 19(2) AO).

Only expenses connected with the German income reduce the base (§ 50(1) EStG): interest, repairs, management and depreciation (AfA) on the building — 2% or 3% a year, depending on the year of construction and the owner (§ 7(4) EStG). Non-residents receive no basic allowance: the rate scale is applied as if their income were €12,348 higher (§ 50(1), § 32a(1) EStG), so tax starts with the first euro of profit.

Property tax (Grundsteuer) is levied by the municipality and paid by the owner, but supermarket leases usually pass it on to the tenant (Part 10).

The ownership structure sets the rate and the number of tax layers

Exhibit 1. The rate depends on the owner: 14–45% for an individual, 15.825% for a company

	Individual	Foreign company	German GmbH
Tax on income	14–45% plus solidarity surcharge (Solidaritätszuschlag) of up to 5.5% of the tax	15.825%	15.825%
Trade tax	No	No, if it has no permanent establishment in Germany	3.5% × municipal multiplier, usually 300–500%; zero with the extended reduction
Profit paid out to the investor	—	Under the rules of the company's home country	Dividend: 26.375% withheld at source, reduced under EU law or a treaty
Sale of the property	No tax after 10 years of ownership (§ 23 EStG)	Taxed in Germany	Taxed at company level

For a GmbH, corporate income tax (Körperschaftsteuer) is 15% plus the solidarity surcharge; the rate falls by one percentage point a year from 2028, to 10% in 2032 (§ 23 KStG). A GmbH owes trade tax by virtue of its legal form (§ 2(2) GewStG). Only the extended reduction (erweiterte Kürzung) frees rental income from it — if the company does nothing but manage its own real estate (see Part 9 of the series German Prime Retail). Interest on a shareholder loan moves profit out of the German tax base, but only if four conditions are met.

German tax comes first; the country of residence decides the rest

The country of residence usually taxes its residents' worldwide income. Whether it credits the German tax depends on its own law and the double tax treaty. For residents of Russia, the treaty has not limited Germany's taxing rights since 2024 (§ 1(3) StAbwG), and from 1 January 2027 Germany suspends its treaty with Russia in full.

Implications for investors

1. Choose the ownership structure before the purchase, not after. It sets the rate — 14–45% for an individual or 15.825% for a company — and the number of tax layers; calculate the burden for both countries at once.

2. Budget for tax from the first euro of profit. Non-residents receive no basic allowance, and only expenses connected with the German income reduce the base: keep the records of interest, repairs and depreciation.

3. Check whether your country of residence credits the German tax. That depends on its own law and the double tax treaty; Germany suspends its treaty with Russia in full from 1 January 2027.

What to check:
• the ownership structure before the purchase, with a calculation for both countries — Germany and your country of residence;
• registration with the tax office where the property is located, and the deadline for the annual return;
• records of the expenses that reduce the base: interest, repairs, depreciation;
• for a GmbH, an opinion on whether the extended reduction applies to the specific lease;
• whether the lease passes property tax on to the tenant.

Sources: §§ 7(4), 23, 25, 32a, 49(1) nos. 2, 6, 50(1), 50a(1) EStG; §§ 2, 23 KStG; § 4 SolZG; §§ 2, 9 no. 1, 11, 16 GewStG; §§ 43, 43a EStG; § 19 AO; § 1(3) StAbwG; Federal Ministry of Finance on the suspension of the double tax treaty with Russia (9 July 2026); the series German Prime Retail, Parts 9 and 10. Legal position as of 10 October 2026.

Photo: Jan-Philipp Thiele / Unsplash

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

Ilya Gordon