German Prime Retail

Part 9. The Structure Decision: GmbH, Shareholder Loan and the German Tax Bill

The most expensive mistake a foreign investor can make in German real estate is often made before a single property has been viewed: the choice of holding structure. It determines who is liable, whether a bank will lend, how much of the rent survives taxation and what happens when the asset is sold or inherited. In our experience, most international buyers of German supermarkets settle on the same answer — a German limited-liability company (GmbH) funded largely by a shareholder loan. Set up correctly, it is efficient and robust. Set up carelessly, it produces exactly the taxes it was designed to avoid.
Key takeaways
• A GmbH limits the shareholder's exposure to the money put into it — share capital and shareholder loans alike. It does not cap the company's own liability, and its managing directors carry personal duties.
• Interest on a shareholder loan paid to a lender resident abroad is generally not taxed in Germany — but only if four conditions are met, and the lender's home country usually taxes it.
• A property GmbH is subject to trade tax by its legal form. Rental income is fully relieved only through the "extended reduction", which requires the company to do nothing but manage its own real estate, within narrow statutory allowances.
• Depreciation only defers German tax; interest paid under the four conditions moves profit out of the German tax base for good — usually into the lender's home-country tax base.

Liability, financing and succession make the GmbH the usual choice

In our experience, most investors buying single assets in the €3–20 million range choose a German GmbH. German civil law places no nationality or residence restriction on buying real estate (§§ 311b, 873, 925 BGB; Part 8), so an investor can also hold a store personally or through a company incorporated abroad.
Exhibit 1. The GmbH trades the tax-free sale for limited liability and bankability
Direct, as an individual
German GmbH
Foreign company
Tax on running profit
Income tax of 14–45% plus solidarity surcharge; non-residents receive no basic allowance
Corporate tax 15.825%; trade tax unless the extended reduction applies
Corporate tax 15.825%; no trade tax without a German permanent establishment
Depreciation, new building
3% a year
3% a year
3% a year
Gain on sale of the property
Tax-free if more than ten years pass between purchase and sale (§ 23 EStG)
Taxed in the company
Taxed in Germany
Liability
Personal and unlimited
Limited to the company's assets
Depends on the foreign company law
Bank financing
Difficult for non-residents
Standard
Possible, with more documentation
Administration
Low
Moderate
High: filings in two jurisdictions
The overview is simplified; the outcome depends on the investor's residence and the facts of the case. The equal depreciation holds only for new buildings: for a store completed before 2023, an individual depreciates at 2% a year, a GmbH generally at 3% (§ 7(4) EStG) — on a €7.5 million building, €75,000 more in deductions every year.
Direct ownership has one striking advantage — a tax-free sale after ten years — and two serious drawbacks: unlimited personal liability and progressive tax on the rent. Foreign companies can be efficient but carry anti-abuse rules, substance requirements and double administration. Three features tip the balance towards the GmbH.
Limited exposure. The GmbH is liable for its obligations with all of its company assets; its shareholders are generally not personally liable beyond their contribution (§ 13(2) GmbHG). The minimum share capital is €25,000, of which at least €12,500 must be paid in before registration (§§ 5, 7 GmbHG). The €25,000 is a floor for capitalisation, not a ceiling on what the company can lose. Managing directors can be held personally liable for breaches of duty (§ 43 GmbHG), for payments made after the company became illiquid or over-indebted (§ 15b InsO) and for taxes left unpaid through an intentional or grossly negligent breach of duty (§ 69 AO).
Bankability. German banks finance property-owning GmbHs routinely, including companies whose shareholders and directors all live abroad. The loan is secured on the property by a land charge. For smaller companies banks often also ask for a shareholder guarantee or for shareholder loans to be subordinated, so "non-recourse" is a point to negotiate, not a default.
Succession and exit. Shares in a GmbH can be transferred, pledged or inherited without a change in the land register — subject to the transfer-tax rules on share deals described below.
Inheritance tax follows the same logic as the shareholder-loan interest discussed below. Where neither the deceased nor the heir lives in Germany, it reaches only German-situs assets, such as holdings of 10% or more in a German company (§ 121 no. 4 BewG). A loan counts only if it is secured on German real estate or profit-participating (§ 121 nos. 7, 8 BewG) — the two features that would also make its interest taxable. An unsecured shareholder loan therefore stays outside, and the GmbH shares are valued net of it. German citizens abroad for five years or less count as residents (§ 2(1) no. 1 ErbStG), and home countries may tax the estate too.

A shareholder loan lowers the tax bill, not the risk

Investors usually contribute the minimum capital and lend the balance to the GmbH, rather than funding it with share capital alone. The GmbH uses the loan to buy the property and pays interest out of the rent. Interest is a deductible expense for the company; dividends are not.
Lending instead of investing does not lower the risk. In an insolvency, a shareholder loan ranks behind the company's other creditors (§ 39(1) no. 5 InsO), and repayments received in the year before the petition can be clawed back (§ 135(1) no. 2 InsO). Limited liability protects the investor's other assets, not the money lent to the company.
Two formalities must be settled before any money is lent. First, a shareholder who is also the GmbH's managing director is contracting with himself when he grants the loan. This is permitted only if he has been released from the self-dealing prohibition of § 181 BGB in the articles, or by a shareholder resolution that the articles allow; in a single-shareholder company the agreement must also be recorded in writing (§ 35(3) GmbHG). Second, the loan terms — amount, rate, term, ranking, repayment — must be agreed clearly and in advance, in practice in writing, and then followed exactly; otherwise interest paid to a controlling shareholder is treated as a hidden profit distribution.

When is the interest free of German tax?

Interest that a German GmbH pays to a lender not resident in Germany is taxable in Germany only in the cases listed in § 49(1) no. 5 EStG and, for lenders resident in a listed tax haven, under § 10 StAbwG. An ordinary loan is not among them, so the interest is neither taxed in Germany nor subject to German withholding tax (§ 43(1) no. 7 EStG) — provided all four of the following conditions hold.
Exhibit 2. Breaching any one of the four conditions triggers German tax
Condition
If it is not met
The loan is not secured on German real estate — no land charge or mortgage, not even a second-ranking one
The interest becomes German-source income and is taxed by assessment (§ 49(1) no. 5 c aa EStG); a tax treaty may reduce the tax
The loan is not profit-participating
The interest is subject to 26.375% German withholding tax
The interest rate is at arm's length and documented
The excess is a hidden profit distribution: not deductible for the GmbH and taxed as a dividend (§ 8(3) KStG)
The lender is not resident in a jurisdiction on the German tax-haven list (StAbwV — currently including Russia, Panama, Fiji and others)
15% German withholding tax on the interest (§ 10 StAbwG), extra documentation duties (§ 12 StAbwG) and no treaty protection (§ 1(3) StAbwG)
The German exemption says nothing about the lender's home country. Most countries tax their residents on worldwide interest income; whether, and how much, depends on local law.
A treaty matters only where German law taxes the interest in the first place — because the loan is secured, profit-participating or priced above arm's length, or because the lender lives in a listed tax haven. Then a UAE resident has no relief, because the Germany–UAE treaty expired on 31 December 2021 and has not been replaced; nor does a Russian resident, because the tax-haven rules override the treaty (§ 1(3) StAbwG), which Germany has suspended in full from 1 January 2027.
An investor who moves to Germany becomes taxable on the interest in Germany — with a stake of 10% or more at progressive rates of up to 45%, not the 25% flat rate on investment income (§ 32d(2) no. 1 lit. b EStG).

Without the extended reduction, tax takes roughly 25–33% of profit

Without relief, corporate and trade tax together come to roughly 25–33% of a GmbH's profit. Corporate income tax is 15% plus a solidarity surcharge of 5.5% of that tax — 15.825% in total. The 15% rate is legislated to fall by one percentage point a year from 2028 until it reaches 10% in 2032 (§ 23 KStG).
A GmbH is always subject to trade tax because of its legal form (§ 2(2) GewStG); the familiar argument that letting income "is not a business" applies to private individuals, not to companies. Trade tax is levied by the municipality: 3.5% of trade income, multiplied by the local multiplier, which in most municipalities lies between about 300% and 500% (the statutory minimum rises from 200% to 280% in 2027).
Relief comes from the extended reduction (erweiterte Kürzung, § 9 no. 1 sentences 2 ff. GewStG). A company that exclusively manages and uses its own real estate can take that income out of the trade-tax base entirely. The conditions are strict:
  • no other activity — services provided directly to tenants are tolerated only up to 5% of rental income, and electricity from renewables and EV charging up to 20%;
  • no co-letting of operating equipment (Betriebsvorrichtungen). In a supermarket, refrigeration plant and similar installations are the classic trap; the Federal Fiscal Court has held that installations the landlord must provide for structural or technical reasons, such as a goods lift, need not break the relief (BFH, 25 September 2025, IV R 31/23), but co-let refrigeration still needs case-by-case review;
  • no interruption: the conditions must be met throughout the entire year.
Whether a specific lease qualifies is a question for the tax adviser before the purchase contract is signed — not after the first tax assessment.

Interest and depreciation keep taxable profit low in the early years

Two items keep the GmbH's taxable profit low. Interest on the shareholder loan is deductible if the rate is at arm's length; the German interest barrier (§ 4h EStG) applies only once net interest expense reaches €3 million a year. And the building is depreciated at 3% a year, the rate for non-residential buildings held as business assets (§ 7(4) no. 1 EStG). Land cannot be depreciated, so the purchase price, including capitalised transaction costs, is split between land and building. Part 11 works through a complete numerical example in which the GmbH pays no corporate tax for a decade.
Depreciation defers tax rather than removing it: it lowers tax today and raises the taxable gain on a later sale, and profit later paid out as a dividend is subject to German withholding tax of 26.375%, which may be reduced under EU rules or a tax treaty. Interest is different: paid under the four conditions, it leaves the German tax base for good, usually to be taxed in the lender's home country. Repaying the principal of the shareholder loan, by contrast, is a return of capital and is not taxable.

A share deal does not automatically avoid real estate transfer tax

Buying the shares of a company that owns German property instead of the property itself does not automatically avoid real estate transfer tax. Broadly, tax arises when 90% or more of the shares pass to new shareholders within ten years, or when one acquirer or group of related acquirers comes to hold 90% or more (§ 1(2a), (2b), (3), (3a) GrEStG). Since 3 July 2026 the acquirer-based tests of § 1(3) and (3a) take precedence over the shareholder-change tests of § 1(2a) and (2b) (§ 1(3b) GrEStG); any share-deal structure must be checked against the law as it now stands.

Implications for investors

1. Settle the structure before the first viewing. In our experience, a German GmbH funded largely by a shareholder loan is the usual answer for single assets in the €3–20 million range — but set up carelessly, it produces the taxes it was designed to avoid.
2. Put the shareholder loan in writing before any funds move. Keep it unsecured, not profit-participating, at an arm's-length rate and from a lender resident outside the German tax-haven list, and ask a tax adviser in your country of residence how the interest will be taxed there.
3. Test the lease against the extended reduction before signing. Without it, corporate and trade tax take roughly 25–33% of profit, and co-let refrigeration is the classic trap — the tax adviser's opinion belongs before the purchase contract, not after the first tax assessment.
Before signing, have in place:
• a GmbH whose articles release the managing director from § 181 BGB;
• a written shareholder loan agreement — unsecured, not profit-participating, at an arm's-length rate, from a lender resident outside the German tax-haven list — signed before funds are transferred;
• a German tax adviser's opinion on the extended trade-tax reduction for the specific lease;
• advice from a tax adviser in your country of residence on how the interest will be taxed there and whether local controlled-foreign-company rules reach the GmbH;
• the GmbH's beneficial owners registered in the German Transparency Register.
Sources: GmbHG §§ 5, 7, 13, 35, 43; InsO §§ 15b, 39, 135; AO § 69; BGB §§ 181, 311b, 873, 925; EStG §§ 4h, 7(4), 23, 32d, 43, 43a, 49(1), 50; KStG §§ 8(3), 23; KStR R 8.5; GewStG §§ 2, 9 no. 1, 16(4); StAbwG §§ 1(3), 10, 12 and StAbwV § 2; BewG § 121; ErbStG § 2; BFH IV R 31/23 of 25 September 2025; Federal Ministry of Finance, status of double tax treaties on 1 January 2026; GrEStG § 1 as amended on 29 June 2026. Legal position as of October 2026.
Photo: Ricardo Gomez Angel / Unsplash
This article is general information on German law as of October 2026. It is not tax or legal advice and does not replace advice on your specific situation from a German tax adviser and from a tax adviser in your country of residence.
2026-10-09 12:04