Investor Guide
2026-10-10 08:42

AfA (tax depreciation): Why 3% a Year Defers a GmbH's Tax Rather Than Removing It

AfA (Absetzung für Abnutzung) is German tax depreciation: a building's cost, not the land's, is deducted from taxable income in fixed annual instalments — generally 3% a year for a supermarket owned by a GmbH. It is the owner's largest non-cash deduction and, with shareholder-loan interest, the reason a GmbH can report tax losses for years — yet every euro deducted lowers the book value against which a later sale is taxed.

What it is

The general rule spreads the acquisition or construction cost of an asset used for more than one year evenly over its useful life (§ 7(1) EStG). For buildings the law fixes the annual rates instead (§ 7(4) sentence 1 EStG):
  • 3% for buildings held as business assets, not used for residential purposes, whose building application was filed after 31 March 1985 — generally the rate for a supermarket owned by a GmbH (no. 1);
  • for other buildings, such as a store owned privately: 3% if completed after 31 December 2022, 2% if completed in 1925–2022, 2.5% if completed earlier (no. 2).
A shorter actual useful life may be claimed instead — on the 3% rate, if it is less than 33 years (§ 7(4) sentence 2 EStG). Declining-balance depreciation for buildings is currently available only for new residential buildings (§ 7(5a) EStG), not for supermarkets.

Why it matters to investors

Depreciation is a non-cash expense with a cash effect. In the Part 11 example, the building accounts for 75% of the all-in cost, capitalised transaction costs included. Depreciating that share at 3% gives €246,300 a year and turns a €98,000 cash surplus into a €148,300 tax loss. The rate also separates structures: for a store completed before 2023, an individual depreciates at 2% and a GmbH generally at 3%. On a €7.5 million building, that is €75,000 more in deductions every year (Part 9).
Three points are often misjudged. First, land is not depreciable, so the land–building split drives the deduction. In our experience a supermarket's land share typically lies between 15% and 30% of the price, and a valuation must support it (Part 11). Second, renovation and modernisation within three years of the purchase that exceed, net of VAT, 15% of the building's acquisition cost are added to that cost instead of being deducted at once (§ 6(1) no. 1a EStG).
Third, in a GmbH, unlike a private holding sold after more than ten years (§ 23 EStG), depreciation defers tax rather than removing it. The gain on a later sale is measured against the depreciated book value (Parts 9 and 11).

What to check

• The completion date and building-application date, which decide the rate.
• A purchase-price allocation between land and building, backed by a valuation.
• Works planned for the first three years, against the 15% threshold.
• Who owns installations such as refrigeration plant — relevant for depreciation and for the extended trade-tax reduction (Part 9).
• The tax on a future sale, modelled against the depreciated book value.
Related terms: Körperschaftsteuer · Gesellschafterdarlehen · Zinsschranke
Sources: EStG §§ 6(1) no. 1a, 7(1), 7(4), 7(5a), 23; Gordon Real Estate Group, "German Prime Retail", Parts 9 and 11. Legal position as of 10 October 2026.
Photo: Annie Spratt / Unsplash
This entry is general information and not legal or tax advice.