In brief
On 14 January 2026, the German government approved a draft of the ninth law amending the Tax Consultancy Act and other tax regulations. As part of the draft act, the current complex rules regarding real estate transfer taxation (RETT) of share transactions with a signing-closing mechanism shall be changed, leading to a clearer concept of the taxation of M&A transactions and making such transactions less administratively intensive for parties involved. This is a long-awaited change and will certainly be welcomed, but it also implies new considerations for the transactional process and may already affect current transactions.
Background
Since the last reform of the German RETT Act (GrEStG), in 2021, share transactions involving real property holding companies were facing increasing uncertainty regarding their RETT implications. This was caused by the implementation of a new RETT-triggering event in transactions involving corporate property holding companies, as the transfer of 90% or more shares in such companies within a period of 10 years became subject to RETT (Section 1 para. 2b GrEStG). If, in such cases, the shares are transferred to one purchaser, as is usually the case in M&A transactions, the signing of the share purchase agreement (SPA) also triggers RETT, provided a closing of the transaction cannot be expected (Section 1 para. 3 GrEStG).
The relationship between these two RETT-triggering events has been and still is highly controversial, particularly as the German tax authorities interpret the subsidiarity of the signing as the RETT-triggering event strictly in terms of timing (i.e., if the signing and closing of a transaction take place at different times, both the signing and the closing shall be taxable events). As a consequence of this view, the German legislator has implemented a rule where, in the case of a proper and timely notification of both the signing and the closing, the taxation of the signing could — upon respective application — be avoided or, if already assessed, be revoked (Section 16 para. 4a and 5 GrEStG). Otherwise, the transaction would face the risk of double RETT. This risk could become reality, as the respective notification periods are usually only two weeks and require close cooperation between the parties to the transaction to collect all required information. Consequently, SPAs of M&A transactions saw extended rules regarding cooperation obligations on the required notifications, combined with new indemnification clauses in the case of a threatened double RETT.
In its first decisions on upcoming RETT proceedings involving share transactions, the German Federal Fiscal Court (BFH) recently expressed criticism of a threatened double RETT based on the view taken by the tax authorities. However, these decision currently only were adopted in proceedings on the suspension of enforcement proceedings (AdV-Verfahren).
The draft law now presented consequently addresses this issue and attempts to solve it for the benefit of the taxpayers.
Intended changes for RETT taxation of share transaction involving signing and closing mechanism
Pursuant to the draft law, in the future, only the signing of a share transaction shall be subject to RETT, provided that the shares at closing are transferred in fulfillment of the respective obligation in the underlying SPA. In this case, the closing shall not be an additional RETT-triggering event of the same transaction, avoiding the potential double-RETT risk of M&A transactions. The change will technically be implemented by adding a new paragraph (Section 1 para. 3b GrEStG) that sets out the before condition and deleting the subsidiarity of the signing as the RETT-triggering event, as set out in the current law (Section 1 para. 3 GrEStG). As a consequence, only the signing (not the closing) of the transaction will have to be reported to the tax authorities, avoiding additional bureaucracy in the preparation of the already work-intensive closings of M&A transactions. As such transactions would now only be taxed once, the section dealing with the revocation of double taxation (Section 16 para. 4a and 5 sentence 2 GrEStG) shall be deleted.
As following the introduction of the new law in most cases only the signing of a share transaction will be the RETT-triggering event, the draft law now includes the property holding company as another taxpayer for such RETT (in addition to the parties to the SPA). This presumably ensures tax revenue for the German federal state, particularly in the case of a transaction between non-German parties.
As another welcomed change, the notification periods for share transactions shall be extended to one month (a period that currently only applies to non-German taxpayers), compared to the general two-week period under current law, which helps in the preparation of such notifications, particularly in high-volume deals involving a number of property holding companies and affected properties.
The new law shall apply to share transactions that are executed after the enactment of the draft act. For transactions where the signing will be before and the closing after the enactment of the law, only the signing shall be the RETT-triggering event (Section 23 para. 28 and 29 GrEStG).
Effects of the planned legislative changes in practice
Elimination of double taxation risk
The change in law would eliminate the double-RETT risk of share transactions due to the clear subordination of the closing as a RETT-triggering event. In cases where the property holding company at the signing and closing will hold the same property, the transaction will only be subject to one-time RETT going forward. This will bring certainty to the parties of M&A transactions and likely reduce traction on the RETT (indemnification) clauses in the SPAs. Only if the target company acquires a real property between signing and closing will another RETT-triggering event occur at closing. However, this again will only result in a one-time taxation of the (indirect) property transfer.
Earlier accrual of RETT liability and the respective consequences
As the signing would now be the regular RETT-triggering event, RETT on M&A transactions will become due earlier in the transaction process — potentially even before the closing of the deal, depending on the period between signing and closing. This will likely not change the usual concept where, contractually, the purchaser shall be liable for paying transfer taxes and thus will have to prefinance the RETT even if the closing has not yet taken place and closing financing is not yet available.
In this respect, it is yet to be seen if, under the new law, the tax authorities will — as is usually the case under the current law — issue the tax assessment to the party that has to bear the RETT based on the contractual agreement (e.g., the purchaser) or if — particularly in non-German transactions — the tax bill will be issued to the German property holding company. In addition, being an additional taxpayer, the property holding company, as well as the parties to the transaction, will now have to file a notification to the tax authorities within the extended one-month period. All of these potential consequences will have to be dealt with in SPAs that will govern the acquisition of property holding companies in the future.
Non-RETT considerations may also come into play, as a RETT assessment for the purchaser is usually not tax-deductible for corporate income tax purposes. However, this would be the case for the property holding company.
In addition, the new concept is more likely than the current law to result in situations where, due to a deal failing between signing and closing, the purchaser will have to deal with the requirements in German RETT law (Section 16 of the GrEStG) for a refund of RETT. Further, the purchaser will also have to engage in discussions with the seller regarding sharing costs if such refund is not successful and regarding costs for the (pre)financing of RETT.
Effect of the new law on current transactions
The draft stipulates that the new law shall come into force on the day after its promulgation and shall apply to acquisitions executed on or after that date. In cases where the signing takes place before that date but the closing takes place after that date, the RETT-triggering event shall only be the signing of the transaction. As it is likely that the German tax authorities will now — even though the new law has not yet been enacted — issue tax assessments following the signing, this would also shift the respective RETT payment for current transactions in the abovementioned cases closer to the signing, with the consequences set out before. Therefore, the development of the draft law and its enactment should be closely monitored also with regard to its effects on ongoing transactions.