Our world is more interconnected than ever before. Globalization and digitization expedite this process and are also changing the wealth building worldwide. One example of this is the investment in German real estate assets by foreign investors, which have risen steadily in recent years. As time goes on, the question now arises what foreign investors need to consider for the future.

In particular, the early regulation of asset succession and inheritance must be considered.

So-called “domestic assets” located in Germany are subject to German inheritance and gift tax. This also applies if neither the foreign investors nor their heirs have a domicile or habitual residence in Germany.

An inheritance from a non-resident taxpayer permanently living abroad, bequeathed to an heir who also permanently lives abroad, would lead to the limited tax liability in Germany of his property located in Germany.

This must be considered regarding the heirs’ pure obligation to declare and the financial consequences. Significant payment obligations may arise from the tax liability.

A particular problem can arise here for assets that were acquired many years ago with cheaper prices and have now experienced a significant increase in value due to a change in the housing market and the associated increase in demand. The taxable assets are generally valued with approximates values of current market price or capital value of the assets.

Foreign investors of all kinds should therefore seek to ensure an orderly succession of assets at an early stage and minimize their tax burden by taking advantage of existing allowances.

The tax regulations for inheritance also apply to gifts.

Similar regulations on inheritance and gift tax for assets located in Germany exist in many countries.

Auren will be happy to advise on inheritance and gift tax issues.

By Alexander Radmacher Steuerberatungsassistent / Tax Professional from Auren Hamburg, Germany