A GmbH – including an asset-managing GmbH – is, due to its legal form, always considered a commercial enterprise and subject to trade tax. Nevertheless, the German Trade Tax Act (Gewerbesteuergesetz, GewStG) contains certain exceptions to this tax liability, which particularly benefit companies engaged in real estate management. The following sections therefore explain the trade tax deductions for business-owned real estate pursuant to § 9 No. 1 GewStG.
Fundamentals – Trade Tax Deductions for Real Estate
As a general rule, the assessment base for calculating trade tax payable is the trade income, increased or decreased by the amounts specified in §§ 8 and 9 of the Trade Tax Act. The deductions under § 9 of the Trade Tax Act also include the deduction for business-owned real estate pursuant to § 9 No. 1 GewStG. The purpose of this deduction is to mitigate or avoid double taxation through real estate-related taxes (property tax and trade tax).
Standard Trade Tax Deduction – Business-Owned Real Estate (§ 9 No. 1 S. 1 GewStG)
Pursuant to § 9 No. 1 S. 1 GewStG, the trade income of commercial enterprises is reduced by a percentage of the real estate held as business assets that is not exempt from property tax. Specifically, the deduction amounts to 1.2 % of the standard assessed value (Einheitswert, until 31 December 2024) or the property tax value (Grundsteuerwert, from 1 January 2025). The decisive date for allocating the property to business assets is the beginning of the calendar year. It should also be noted that only the portion of the property belonging to business assets qualifies for the deduction (§ 20 GewStDV). For example, if half of the business property is attributable to the private assets of the spouse, this share is excluded from the deduction under § 9 No. 1 GewStG.
Extended Trade Tax Deduction – Business-Owned Real Estate (§ 9 No. 1 S. 2 GewStG)
In contrast, a real estate company may, upon application, be fully exempted from trade tax if the business exclusively manages and uses its own real estate. The following activities are not harmful to the extended trade tax deduction, although they themselves are not privileged: the management of one's own capital assets, the construction of residential buildings, the construction and sale of single-family homes, two-family homes or condominiums (provided no commercial real estate trading exists), and the supply of electricity from renewable energy sources to tenants of the business-owned real estate. This means that a deduction of trade income from the management and use of one's own real estate remains possible despite generating income from the activities mentioned. However, the profits attributable to these activities are nevertheless subject to trade tax. This provision serves to place asset-managing companies that qualify as commercial enterprises by virtue of their legal form (e.g. GmbH, GmbH & Co. KG) on an equal footing with the rental and leasing of real estate held as private assets. In principle, income from rental and leasing (§ 21 EStG) is not subject to trade tax.
Practical Note: Trade Tax Deduction
In practice, the different trade tax deductions under § 9 No. 1 GewStG play a significant role, as there is a considerable difference in the trade tax burden between the standard and extended deduction. For this reason, the extended trade tax deduction in particular is frequently the subject of fiscal court proceedings and is handled especially restrictively by the tax authorities.
Frequently asked questions
Frequently asked questions
What is the purpose of the trade tax reduction for real estate under § 9 No. 1 GewStG?
The reduction is intended to mitigate or avoid the double taxation of real estate with both property tax (Grundsteuer) and trade tax (Gewerbesteuer). Since both are real taxes (Realsteuern), the same real estate would be taxed twice without this provision. § 9 No. 1 GewStG therefore provides for a simple reduction and an extended reduction.
How high is the simple trade tax deduction for business real estate?
The simple deduction amounts to 1.2% of the assessed value (Einheitswert, until 31/12/2024) or the property tax value (Grundsteuerwert, from 01/01/2025) of the real estate belonging to the business assets that is not exempt from property tax. The relevant date is the beginning of the calendar year. Only the portion of a property that actually belongs to the business assets qualifies for the deduction.
When can a company use the extended trade tax deduction under Section 9 No. 1 Sentence 2 GewStG?
The extended deduction can be claimed upon application if the business exclusively manages and uses its own real estate. In this case, income from real estate management is fully exempt from trade tax. The rule ensures equal treatment with private letting and leasing, which is not subject to trade tax.
Which ancillary activities are harmless for the extended trade tax reduction but not themselves privileged?
Harmless activities include managing one's own capital assets, developing residential buildings, constructing and selling single-/two-family homes or condominiums (provided this does not constitute commercial real estate trading), and supplying electricity from renewable energy sources to tenants. However, the profits from these activities are not privileged and remain subject to trade tax.
Why is the extended trade tax deduction particularly contentious in practice?
There is a significant difference in trade tax burden between the simple and the extended deduction, as the extended version allows for a complete exemption of real estate income. For this reason, it is reviewed restrictively by the tax authorities and is frequently the subject of tax court proceedings. Careful structuring and documentation are therefore advisable.