Property Tax Reform 2022: What Owners Should Keep in Mind
The implementation of the new property tax reform (Grundsteuerreform) is beginning – the decision for this reform was made in 2019 and will come fully into force on January 1st, 2025. In this article, we will cover the most important questions surrounding this decision: What should owners do now? Why does the reform also affect tenants? Learn more here.
Property Tax Return (Grundsteuererklärung)
In 2022, anyone who owns property in Germany is required to independently submit information about their property to their local tax office in the form of a property tax return. The cut-off date of January 1st, 2022 determines the information that needs to be declared in this tax return. Your declaration to determine your property tax value (Erklärung zur Feststellung des Grundsteuerwerts) must be electronically submitted according to Section 228 Paragraph 6 of the Valuation Act (Bewertungsgesetz).
The deadline for your property tax return is between July 1st, 2022 and October 31st, 2022.
What is property tax?
Asides from trade tax (Gewerbesteuer), property tax is one of the most important sources of revenue for municipalities – property tax is paid by property owners directly to the city or municipality itself. The money made from this is then used to finance the respective infrastructure and fund things such as:
Renovating schools, daycares, and libraries Expanding roads, bridges, and bicycle paths
Property tax must be paid on all types of land whether it is developed or not. All plot owners in Germany (whether a private individual or a company) must pay tax on their property in quarterly installments on February 15th, may 15th, August 15th, and November 15th of any given year. Some of this tax is often passed on to tenants of residential buildings and can be found in their annual utility bill (Nebenkostenabrechnung). In 2025, you will find out whether you will have an increase or decrease in property tax payments whether as a landlord or a tenant.
Why is there a property tax reform?
Currently, the amount of real estate tax for a given property is calculated based on three factors, whereby the assessed standard value is of particular importance.
1. The Standard Value (Einheitswert)
The tax office assigned each plot of land a standard value according to various factors. Some of these factors include the type of building, the age of the building, and the building’s use. The assessed standard value provides information on the tax value of the property and fundamentally determines how high property tax is for owners in Germany.
2. Basic Federal Rate (Steuermesszahl)
The assessed standard value is multiplied by the basic federal rate to determine the tax assessment amount. The basic federal rate is uniform throughout Germany and amounts to 2.6 - 6 per mille (West Germany) or 5 - 10 per mille (East Germany) of the assessed value.
3. Individual assessment rate (individuelle Hebesatz)
Individual assessment rates are determined by the respective municipality themself. The assessment rate for real estate and land (Grundsteuer B) is significantly higher than the assessment rate for agricultural and forestry assets/operations (Grundsteuer A), especially in large cities.
These three listed factors are multiplied together to yield the property tax that is due on a given piece of land. Recently, however, the Federal Constitutional Court (Bundesverfassungsgericht) ruled that the standard assessment value is unconstitutional.
This was ruled because property tax has been calculated using the same standard values for decades: In East Germany, the standard values were established in 1935 and in West Germany, they were established in 1964 – although many years have passed, they still serve as a basis for calculating property tax today meaning many values are completely outdated.
What is the goal of the property tax reform?
The values of residential locations and conditions of use have drastically changed since the standard values were established in 1935 and 1964, as a result, an owner in a high-demand residential area might pay significantly less property tax than the owner of a comparable property in a similar location. This has led to an inequality that has repeatedly led to legal disputes.
For this reason, the current system was declared unconstitutional on April 10th, 2018, as it violates the principle of equality enshrined in the Basic Law (Grundgesetz). The aim of the property tax reform is to make the property tax calculation more fair with the help of new legislation. In the future, property tax is to be based on the actual value of a property – this includes not only its size and construction year, but also its location.
The property tax reform also introduces the assessment rate for undeveloped but ready-to-build properties (Grundsteuer C) to make targeted land speculation more difficult and to encourage owners to build.
Submitting a property tax return
Property tax will be calculated based on the existing standard values until the end of 2024; from January 2025 onwards, they will be calculated based on the new values. Owners of real estate and agricultural/forestry businesses must take action now to determine the value of their property. To do this, they are required to submit a property tax return (Grundsteuererklärung) or assessment declaration (Feststellungserklärung) to the tax office. They will receive all necessary information and data on this in writing from the tax authorities as of May 2022.
The following information is required for residential properties:
- Property location
- Property area
- Standard land value (Bodenrichtwert)
- Type of building
- Living area
- Year of construction
The regulations of the property tax reform are not uniform throughout the country. For example, in Bavaria and Baden-Württemberg, they’ve made use of the so-called “opening clause” which allows them to issue their own regulations on property tax which could deviate from the federal model.
The following applies to everyone: Your property tax return or assessment declaration must be received by your local tax office by October 31st via an electronic submission. The local tax office is determined by the district in which your property is located. They will then determine the new property tax value and send you a property tax value notice (Grundsteuerwertbescheid).
Note: If you miss this deadline, you can expect a lateness penalty fee (Verspätungszuschlag).