How Much Money Does an Investor Actually Keep?
Let us assume that, following a comprehensive Due Diligence process, a non–tax resident of Germany concludes that it is economically reasonable to acquire a newly built full-assortment food retail supermarket of a well-known chain such as REWE or EDEKA in one of Germany’s cities, at a contract price of €10 million, generating €500,000 in net annual rental income.
After registering a German legal entity — a GmbH (German Limited Liability Company) — the investor (now acting in the separate capacity of a private individual) issues a targeted Shareholder Loan (Gesellschafterdarlehen) to this GmbH for €10 million* at an annual interest rate of 3.0%. The GmbH uses these funds to acquire the asset during the notarized closing process and, from the moment the supermarket opens, begins accumulating rental income.
Out of the €500,000 annual rental income, the investor’s GmbH pays the investor €300,000 each year as interest on the shareholder loan. These interest payments are not subject to any taxation in Germany, because the investor (as an individual) is not a German tax resident.
As a result, the company’s taxable base decreases from €500,000 to €200,000.
* The €10 million figure is used for simplicity. In practice, when the contract price is €10 million, the investor typically issues the GmbH a shareholder loan of approximately €11 million, taking into account transaction-related expenses such as the Real Estate Transfer Tax (which varies between 3.5% and 6.5% depending on the German federal state), brokerage fees, notary fees, and land registry charges.
Amortization Reduces the Tax Base Even Further
German law provides for annual depreciation (amortization) of commercial buildings (non-residential stock) constructed after 31 March 1985 and used for generating rental income.
The depreciation rate is 3.0% per year, which implies that a commercial building in Germany is fully amortized over:
100% / 3.0% = approximately 33 years.
Important nuance:
Depreciation is calculated only on the value of the building, not the land on which it is built. As a rule, the land component does not exceed 30% of a food retail asset’s total contract price.
Thus, for a supermarket with a contract price of €10 million, the land value will not exceed €3 million even in the most expensive German cities.
Therefore:
As a result, the taxable base of the GmbH decreases from €200,000 (after interest payments) by another €210,000 in depreciation —
shrinking to approximately –€10,000.
Thus, the company reports a tax loss, to which annual operating expenses (approximately 15–20% of rental income) are added throughout the year.
What Happens to the “Written-Off” Money?
The €210,000 depreciation amount — or, in “real money,” around €200,000 remaining after the GmbH pays interest on the shareholder loan — does not disappear.
It simply remains in the company’s bank account and is fully available to the investor. It can be used to:
So How Much Does the Investor Keep?
In the current environment, a foreign investor who is not a German tax resident, and who owns a German GmbH holding a €10 million food retail asset generating €500,000 in annual rental income, receives:
✔ €300,000 per year — tax-free interest on the shareholder loan
✔ €100,000–125,000 per year — tax-free cash flow left inside the GmbH
(after all expenses, depreciation, and operating costs)
Additionally, the investor becomes the owner of a high-quality, ultra-stable asset in the most populous and economically powerful country in Western Europe.
Who Does This Appeal To?
This type of highly conservative, stability-oriented investment appeals primarily to:
For these investors, food retail real estate in Germany is seen as a reliable instrument for preserving hard-earned capital. Rental income that at least keeps pace with inflation is considered fully satisfactory — especially in cases where the asset is acquired 100% with own funds, without bank leverage or external financing.
After registering a German legal entity — a GmbH (German Limited Liability Company) — the investor (now acting in the separate capacity of a private individual) issues a targeted Shareholder Loan (Gesellschafterdarlehen) to this GmbH for €10 million* at an annual interest rate of 3.0%. The GmbH uses these funds to acquire the asset during the notarized closing process and, from the moment the supermarket opens, begins accumulating rental income.
Out of the €500,000 annual rental income, the investor’s GmbH pays the investor €300,000 each year as interest on the shareholder loan. These interest payments are not subject to any taxation in Germany, because the investor (as an individual) is not a German tax resident.
As a result, the company’s taxable base decreases from €500,000 to €200,000.
* The €10 million figure is used for simplicity. In practice, when the contract price is €10 million, the investor typically issues the GmbH a shareholder loan of approximately €11 million, taking into account transaction-related expenses such as the Real Estate Transfer Tax (which varies between 3.5% and 6.5% depending on the German federal state), brokerage fees, notary fees, and land registry charges.
Amortization Reduces the Tax Base Even Further
German law provides for annual depreciation (amortization) of commercial buildings (non-residential stock) constructed after 31 March 1985 and used for generating rental income.
The depreciation rate is 3.0% per year, which implies that a commercial building in Germany is fully amortized over:
100% / 3.0% = approximately 33 years.
Important nuance:
Depreciation is calculated only on the value of the building, not the land on which it is built. As a rule, the land component does not exceed 30% of a food retail asset’s total contract price.
Thus, for a supermarket with a contract price of €10 million, the land value will not exceed €3 million even in the most expensive German cities.
Therefore:
- Contract price: €10,000,000
- Minus land value: €3,000,000
- Building value: €7,000,000
- Depreciation: €7,000,000 × 3.0% = €210,000 per year
As a result, the taxable base of the GmbH decreases from €200,000 (after interest payments) by another €210,000 in depreciation —
shrinking to approximately –€10,000.
Thus, the company reports a tax loss, to which annual operating expenses (approximately 15–20% of rental income) are added throughout the year.
What Happens to the “Written-Off” Money?
The €210,000 depreciation amount — or, in “real money,” around €200,000 remaining after the GmbH pays interest on the shareholder loan — does not disappear.
It simply remains in the company’s bank account and is fully available to the investor. It can be used to:
- cover the GmbH’s ongoing operating costs, or
- be reinvested as additional equity for future acquisitions.
So How Much Does the Investor Keep?
In the current environment, a foreign investor who is not a German tax resident, and who owns a German GmbH holding a €10 million food retail asset generating €500,000 in annual rental income, receives:
✔ €300,000 per year — tax-free interest on the shareholder loan
✔ €100,000–125,000 per year — tax-free cash flow left inside the GmbH
(after all expenses, depreciation, and operating costs)
Additionally, the investor becomes the owner of a high-quality, ultra-stable asset in the most populous and economically powerful country in Western Europe.
Who Does This Appeal To?
This type of highly conservative, stability-oriented investment appeals primarily to:
- internationally oriented high-performance entrepreneurs
- UHNW families
- investors generating strong cash flow from their core businesses
- individuals prioritizing capital preservation over yield
For these investors, food retail real estate in Germany is seen as a reliable instrument for preserving hard-earned capital. Rental income that at least keeps pace with inflation is considered fully satisfactory — especially in cases where the asset is acquired 100% with own funds, without bank leverage or external financing.
Credits: EDEKA Gruppe