The Zinsschranke, or interest barrier, caps the net interest expense a business may deduct at 30% of its tax EBITDA once that expense reaches €3 million a year. A single-store GmbH rarely comes near that mark; a portfolio pooled in one company can cross it — and because the threshold is a cliff, not an allowance, all of the net interest then falls under the limit.
What it is
Interest expense is deductible up to interest income and, beyond that, only up to 30% of tax EBITDA — taxable profit before net interest and depreciation (§ 4h(1) sentences 1–2 EStG; for a GmbH, § 8a(1) KStG). Non-deductible interest is carried forward without time limit (Zinsvortrag); in years in which the limit applies, unused EBITDA is carried forward for five years (§ 4h(1) sentences 3–5 EStG).
The limit does not apply in three cases (§ 4h(2) sentence 1 EStG):
- net interest expense is less than €3 million (lit. a) — a threshold: at €3 million or more, the whole amount is tested;
- the business has no related party within § 1(2) AStG — such as a shareholder with 25% or more — and no permanent establishment abroad (lit. b), a test an investor-owned GmbH rarely passes;
- a group company's equity ratio is at least the group's (lit. c), an escape § 8a(3) KStG restricts for shareholder financing.
Why it matters to investors
The threshold shelters most single-asset structures. In the Part 11 example, the GmbH pays €327,000 of shareholder-loan interest — about 11% of the mark. Were the limit to apply, only €127,500 — 30% of the €425,000 operating profit — would be deductible, deferring about three-fifths of the interest (our calculation). At Part 11's 3.0% rate, the threshold corresponds to €100 million of debt: a portfolio's size, not a single store's.
Two consequences are easily missed. First, an interest carry-forward follows the forfeiture rules for tax losses. It is lost if more than 50% of the shares pass to one acquirer within five years, subject to exceptions such as taxable hidden reserves (§ 8a(1) sentence 3 with § 8c KStG). It also lapses when the business is given up or transferred (§ 4h(5) EStG).
Second, staying below the threshold settles only this limit: the rate must still be at arm's length (§ 8(3) KStG; Part 9). And without the extended reduction, a quarter of financing costs above €200,000 is added back for trade tax (§ 8 no. 1 GewStG).
What to check
• Projected net interest from bank and shareholder loans, for all stores in the same company, against €3 million.
• Evidence that the shareholder-loan rate is at arm's length.
• In a share deal, the target's interest carry-forward and whether the purchase forfeits it.
• The trade-tax add-back where the extended reduction does not apply.
Sources: EStG § 4h; KStG §§ 8(3), 8a, 8c; AStG § 1(2); GewStG § 8 no. 1; Gordon Real Estate Group, "German Prime Retail", Parts 9 and 11. Legal position as of 10 October 2026.
Photo: Peter Herrmann / Unsplash
This entry is general information and not legal or tax advice.