Real estate transfer tax (RETT; Grunderwerbsteuer in Germany) is one of the most significant transaction cost items in German and Austrian real estate law: at rates of up to 6.5% (Bavaria and Saxony: 3.5%; Brandenburg, North Rhine-Westphalia, Saarland, Schleswig-Holstein and Thuringia: 6.5%), RETT on a large real estate transaction can amount to double-digit millions. The share deal — the acquisition of shareholdings in a property-owning company rather than the direct purchase of real estate — can, under specific conditions, avoid RETT because no direct transfer of land ownership occurs. The reform of the Real Estate Transfer Tax Act (GrEStG) under the Annual Tax Act 2021 (Jahressteuergesetz 2021, JStG 2021) substantially tightened the framework conditions for share deals — without eliminating them. For institutional transaction parties, a differentiated understanding of the reformed legal framework is essential.
The Pre-Reform Legal Position: The 95% Model
Until the legislative amendment on 1 July 2021, the German GrEStG operated on the following fundamental structure: the acquisition of at least 95% of the shares in a property-owning partnership (§ 1(2a) GrEStG) or corporation (§ 1(3) GrEStG) triggered RETT liability. By constructing a scenario where a buyer acquired only 94.9% of the shares and the remaining 5.1% stayed with a co-investor or the existing shareholder, RETT liability under § 1(3) GrEStG could be avoided — provided the buyer did not acquire a right of economic disposition within the meaning of § 1(2) GrEStG. This structure was legally robust, but legislative criticism on alleged tax avoidance grounds was sustained over many years.
The 2021 Reform: Reduction of Thresholds
The Annual Tax Act 2021 (in force from 1 July 2021) fundamentally modified the central threshold values of the GrEStG:
§ 1(2a) GrEStG (Partnerships): The taxability threshold was reduced from 95% to 90% of the partnership interests. Newly introduced: an extended retention period for the remaining 10%+ interests of now 10 years (previously: 5 years). If more than 90% of the interests are transferred to new partners within 10 years, RETT liability arises.
§ 1(2b) GrEStG (Corporations — new provision): The reform introduced for the first time a § 1(2b) GrEStG, applying to corporations the same principles as § 1(2a) applies to partnerships: transfer of at least 90% of the shares within 10 years to new shareholders triggers RETT. This closed a previous regulatory gap through which corporate structures (GmbH, AG) had an advantage over partnership structures in multi-tier share deals.
§ 1(3) GrEStG (Consolidation of interests): The taxability threshold for consolidating at least 95% of shares in one hand was reduced to 90%. The holding structure with a 10.1% co-investor (instead of the former 5.1% model) is thus the new minimum threshold for RETT optimisation — provided the co-investor is genuinely independent and economic ownership does not rest with the primary acquirer.
Structuring Options after the Reform
The 2021 reform did not eliminate share deals, but elevated the structuring requirements. Structuring approaches that remain valid under the new law:
Genuine co-investor structure with 10%+ participation: The acquirer acquires 89.9% of the shares; an independent co-investor permanently holds 10.1% and participates economically in the risks and rewards of the property. The co-investor must not be economically or legally an extended arm of the acquirer — otherwise significant risk arises under the general anti-avoidance rule (§ 42 AO, abuse of legal structuring options).
Staged share transfer over the 10-year retention period: For acquirers seeking full control long-term, a staged transfer is possible: acquisition of 89.9% at T=0, acquisition of the remaining 10.1% after expiry of 10 years (T=10). This requires the co-investor to accept the tenor — in practice often secured through purchase options, put options or preferred return structures.
Asset deal for structures resistant to the RETT reform: For transactions where the structuring costs of the share deal (co-investor sourcing, retention periods, compliance) exceed the RETT advantage, the direct asset deal — accepting RETT — is the more transparent and operationally simpler alternative.
§ 42 AO — Abuse of Legal Structuring Options
The central tax law challenge of the share deal after the reform is the distinction between legitimate tax structuring and abuse of legal structuring options under § 42 AO. The tax authorities and tax courts are applying increasingly strict standards: a co-investor without genuine economic interest in the property, functioning merely as a formal holding bridge, is classified as abuse of legal structures, with the consequence that RETT is assessed as if the primary acquirer had acquired 100%. In practice: due diligence of the co-investor arrangement, economic substance of the co-investor engagement (risk participation, no hedging via call options at nominal value) and tax documentation of arm's-length character are mandatory.
RETT in International Context: Austria and the Netherlands
The German GrEStG share deal regime has parallels in other jurisdictions. In Austria, since the RETT reform 2016, an analogous interest consolidation threshold of 95% applies (for corporations); share deals below this threshold are free from RETT. In the Netherlands, RETT (Overdrachtsbelasting) for commercial real estate was increased to 10.4% in 2021 — while share deals below the participation threshold of 33.33% remain RETT-free. For cross-border real estate transactions with interests in multiple jurisdictions, a coordinated analysis of the respective share deal regimes is essential.
Market Development and Practice Outlook
The 2021 reform has not driven share deals out of the German market: in the institutional large-transaction segment (volume >€50 million), share deals remain the dominant transaction structure. The elevated structuring requirements have, however, increased the proportion of structurally simpler transactions executed as asset deals. For transaction parties seeking to avoid material RETT burdens, the share deal remains the most important optimisation instrument — but requires more careful tax and corporate law structuring than before 2021.