German Prime Retail

Part 11. Net Cash to the Investor: One Supermarket, Line by Line

Ask ten advisers what a €10 million German supermarket pays its owner and you will hear ten different yields. The honest answer requires something sales brochures rarely show: a line-by-line calculation from purchase price to the cash that reaches the investor, with every German cost and tax in between. This part provides one, using the structure set out in Part 9. The result — about €425,000 of annual cash on €11 million invested, with no German corporate tax for a decade — is tax-efficient rather than spectacular. The conditions behind it matter just as much.
Key takeaways
• Acquisition costs add roughly 4.5–11% to the purchase price — 9.45% in our example — depending on the federal state and on who pays the broker.
• In our example the GmbH reports a tax loss every year for ten years: interest and depreciation exceed operating profit.
• The investor receives €327,000 of interest in year one; under the conditions in Part 9 it is not taxed in Germany. A further €98,000 stays in the GmbH and can repay loan principal without German tax.
• Funding the same GmbH with equity only would cost some €68,000 a year in German tax if its after-tax profit were paid out: about €28,000 of corporate tax and about €40,000 of withholding tax on a dividend of about €150,000. The rest of the cash can come back from the capital reserve free of withholding tax.

A full price and cautious cost assumptions make the example conservative

A non-resident investor acquires a newly built full-range supermarket in Lower Saxony, let for 15 years to a leading German food retailer. The contract price is €10,000,000; the net rent is €500,000 a year, so the price is 20 times the rent — a gross initial yield of 5.0%. Round numbers keep the arithmetic readable, but they make this a full price: BNP Paribas Real Estate put the multiple for prime supermarkets at 18.5 times rent in 2025 (Part 12). At that multiple, the net initial yield calculated below would be about 4.2% rather than 3.9%; most of the remaining gap to the 5.0% prime yield in Part 1 reflects our deliberately cautious cost assumptions (our calculation).
Exhibit 1. Transfer tax and broker commission make up most of the 9.45% in acquisition costs
Acquisition costs
€
Note
Real estate transfer tax (Lower Saxony, 5.0%)
500,000
Rates range from 3.5% (Bavaria) to 6.5%
Notary, incl. 19% VAT
41,000
Statutory fee schedule (GNotKG)
Land registry
17,000
Priority notice and transfer of ownership
Broker commission, 3% + VAT
357,000
Freely negotiable for commercial property; often paid by the seller
Legal, tax and technical due diligence
30,000
See Part 7
Total
945,000
9.45% of the price
All-in cost is therefore about €10.94 million. The VAT on the notary and broker is counted as a cost to keep the example conservative; a GmbH that opts to charge VAT on the rent — common for supermarkets, as Part 7 explains — can reclaim it as input tax, which would lower costs by about €63,500.
A shareholder loan funds almost the entire cost: the investor founds a GmbH with €25,000 of share capital, pays a further €20,000 into its capital reserve and lends it €10,900,000 at 3.0% a year, unsecured and on arm's-length terms (see Part 9). Bank debt is left out to isolate the effect of the structure.

Depreciation and interest keep the GmbH out of the tax net

Exhibit 2. Depreciation turns a €98,000 cash surplus into a €148,300 tax loss
GmbH, year one
€
Net rent
500,000
Non-recoverable operating costs (assumed 15% of rent, the top of the 8–15% range in Part 10)
–75,000
Interest on the shareholder loan (3.0% of €10.9 m)
–327,000
Cash surplus retained in the GmbH
98,000
Depreciation: 3% of the building share (75% of all-in cost)
–246,300
Taxable result
–148,300
Depreciation is a non-cash expense: it reduces taxable profit without reducing cash. The building's share of the all-in cost, including the capitalised transaction costs, is depreciated at 3% a year (§ 7(4) no. 1 EStG). Land is not depreciable; in our experience the land share of a supermarket typically lies between 15% and 30% of the price, and we assume 25%.
The result is a tax loss of about €148,000, carried forward, so the GmbH pays no corporate tax. It pays no trade tax either: if the extended reduction applies, letting income is outside the trade-tax base, and even if it did not, the interest add-back of €32,000 would still leave a loss.

No holding structure can raise the property's 3.9% yield

Exhibit 3. Of €425,000 generated, €327,000 reaches the investor and €98,000 stays in the GmbH
Cash generated, year one
€
Interest received
327,000
German tax on the interest, if the four conditions in Part 9 are met
0
Cash retained in the GmbH
98,000
Total cash generated
425,000
Cash yield on €10.945 m invested
3.9%
The 3.9% is the property's net initial yield — €425,000 of net operating income on €10.94 million of all-in cost. No holding structure can raise it; the best one only decides how much of it the German tax office takes.
As long as the GmbH is loss-making, the total cash generated — €425,000 — does not depend on the interest rate. The rate only decides how that cash is split between the investor's account and the company's account, and how long the company stays out of the tax net.
The €98,000 retained in the GmbH is not "tax-free income" but cash on which the company has not yet paid tax, because depreciation and interest together exceed its operating profit. It can be used in three ways: to repay shareholder-loan principal, which returns capital to the investor without German tax; to build a maintenance reserve; or to fund the equity of the next acquisition. A dividend is not an option here: while the GmbH reports losses it has no profit to distribute (§ 29 GmbHG), and payments that erode its share capital are prohibited (§ 30(1) GmbHG) — a ban that, by statute, does not cover repaying a shareholder loan.

The loan's €68,000 German tax saving can be reversed at home

Funded entirely with equity — €25,000 of share capital, the rest paid into the capital reserve — the same GmbH becomes taxable in year one.
Exhibit 4. Without the loan, the GmbH pays €28,300 of tax and its dividend is taxed again
Annual cash, year one
With shareholder loan
Equity only
Taxable profit of the GmbH
–148,300
178,700
Corporate tax and solidarity surcharge (15.825%)
0
–28,300
Cash after German corporate tax
425,000
396,700
Cash available to the investor after German withholding tax
327,000 paid out, 98,000 retained
357,000 if fully paid out: a dividend of 150,400, taxed at 26.375%, plus a tax-free return of 246,300 from the capital reserve
With a shareholder loan, interest leaves the GmbH as a deductible expense and, under the conditions above, without German tax. With equity only, profit is taxed in the company and taxed again on distribution. Both columns assume the extended trade-tax reduction; without it, the equity-funded GmbH would pay about €25,000 more a year at a 400% multiplier, the loan-funded one still nothing.
The comparison stops at the German border, and the investor's home country can reverse it. Many countries tax interest as ordinary income but tax dividends more lightly or credit the German withholding tax. If interest is taxed at 40% at home and dividends at 20%, the €327,000 of interest costs about €131,000 there — almost twice the €68,000 of German tax the loan saves. Loan, equity or a mix: the choice can only be made with both tax systems in one model.

Ten years deliver €4.5 million and no corporate tax bill

Over ten years the investor receives €3.1 million of interest and €1.4 million of repaid principal — €4.5 million in total — while the GmbH pays no corporate tax and builds up more than €1 million of tax losses to offset future profits. The projection assumes that the rent rises by 1.4% a year — for example, 70% of 2% consumer-price inflation; actual indexation clauses vary and usually apply only once inflation passes an agreed threshold — and that the GmbH uses its entire cash surplus each year to repay loan principal.
Exhibit 5. Rising rent and repayments shrink the annual tax loss; accumulated losses pass €1 million
Year
Net rent
Interest to investor
Principal repaid
Taxable result of the GmbH
Accumulated tax losses
1
500,000
327,000
98,000
–148,300
–148,300
3
514,100
320,900
116,100
–130,100
–417,700
5
528,600
313,600
135,700
–110,500
–648,800
10
566,600
290,000
191,600
–54,600
–1,038,000
The losses carry conditions. On a sale of the property they can be set against the gain, within the minimum-taxation limits of § 10d(2) EStG; but if more than 50% of the shares pass to one buyer within five years, they are forfeited except to the extent of the company's taxable hidden reserves (§ 8c KStG). From 2028 any taxable profit will also meet a lower corporate tax rate, falling to 10% in 2032.

Five assumptions decide whether the result holds

  • The tenant. The calculation assumes the rent is paid for the full term. The security of German food-retail property rests on the strength of the tenant and the location (Parts 2 and 5); re-letting a supermarket box after an early exit would take time and capital.
  • The interest rate. The 3.0% rate must be defensible as an arm's-length rate for an unsecured, subordinated loan. A higher rate needs stronger justification; any excess would be taxed as a hidden profit distribution. If the lender is a foreign company rather than the investor personally, the GmbH must also show that it could have serviced a loan of almost its entire cost over the full term (§ 1(3d) AStG).
  • The investor's residence. The German treatment of the interest assumes the lender lives outside Germany and outside the jurisdictions on the German tax-haven list. A move changes the answer.
  • The extended trade-tax reduction. It must be confirmed for the specific lease, particularly where operating equipment belongs to the landlord.
  • The exit. On a sale, the gain is measured against the depreciated book value, so part of the depreciation claimed now is recovered as tax later. The tax on a sale of the property, or of the GmbH shares, should be planned before the purchase, not at the point of sale.

Implications for investors

1. Judge a supermarket by the cash it delivers, not the yield it advertises. Model every line from purchase price to the investor's account, as this example does: here a 5.0% gross initial yield becomes a 3.9% cash yield.
2. Choose between loan and equity only with both tax systems in one model. The loan saves about €68,000 a year of German tax in this example, but if the home country taxes interest at 40%, the €327,000 of interest costs about €131,000 there.
3. Test the assumptions and plan the exit before you buy. Confirm the four conditions in Part 9, including an arm's-length rate, and the extended trade-tax reduction for the specific lease; then plan the tax on a sale of the property or the GmbH shares before the purchase.
Every figure above is illustrative. Non-recoverable costs depend on the lease (Part 10), the land share must be supported by a valuation, and the indexation formula is specific to each lease. Test each assumption on your own transaction — and add the tax your country of residence levies on the interest, which this example does not include.
Sources: Gordon Real Estate Group calculation, October 2026; BNP Paribas Real Estate, Grocery-Investmentmarkt Deutschland Q4 2025 (purchase-price multiples); GNotKG fee table B; GrEStG § 11 and state rate laws; EStG §§ 7(4), 10d, 20(1) no. 1, 43, 43a, 49(1) no. 5; KStG §§ 8(3), 8c, 23, 27; GewStG §§ 8 no. 1, 9 no. 1; GmbHG §§ 29, 30; UStG §§ 15, 15a; AStG § 1(3d); StAbwG § 10.
Photo: Didier Weemaels / Unsplash
This example is illustrative and simplified. It is not tax or legal advice. The tax treatment of a real transaction depends on its specific terms and on the investor's country of residence and must be confirmed by qualified advisers in Germany and in that country.
2026-10-09 12:02