Rental Income of a GbR & Russian Partner
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BERLIN (AP) — Rental income from property located in Germany is subject to German taxation, even if the income is attributable to a shareholder residing abroad, according to a recent ruling. This applies specifically when the rented property is situated within Germany,as outlined in Section 49 (1) No. 6 of the German Income Tax Act (EStG).
A tax agreement between Germany and Russia, designed to prevent double taxation, does not supersede this principle. The agreement, officially titled “agreement between the Federal Republic of Germany and the Russian Federation to Avoid Double Taxation in the field of Taxes from Income and Assets of May 29, 1996,” including changes from a protocol dated October 15, 2007, does not exempt a GbR partner (a partner in a German civil law partnership) residing in Russia from german taxation on German property income.
According to Article 4 of the agreement, the right to tax income from immovable property in Germany rests wiht Germany (Art. 6 Para. 1). This applies to the portion of rental income attributable to the partner.
As both the rental income generated within Germany and the rental income attributable to the Russian partner are subject to either income or corporation tax, a separate and uniform determination is not required under Section 180 (3) sentence 1 No. 1 of the German Fiscal Code (AO).
The double taxation agreement with Russia does not conflict with the determination of income from renting and leasing. The agreement does not dictate how each country must determine taxable income, notably regarding which expenses qualify as advertising costs. The method for determining income is governed solely by the laws of the respective country.
Contrary to some interpretations, article 11 of the agreement does not provide specific guidance on deducting advertising costs for rental income.This provision addresses the taxation of income from claims of all kinds, such as loan interest, and primarily affects the borrower’s taxation, which is not in dispute in this case.
the court noted that if differing tax classifications between Germany and Russia result in double taxation, the partner residing in Russia is responsible for initiating a dialog procedure in accordance with Article 25 of the agreement, following the procedures of their country of residence.
The ruling was issued by the Federal Finance Court on November 27, 2024 (Case number: IR 19/21).
This article provides clear answers regarding the taxation of rental income in Germany when a shareholder resides abroad, drawing information from a recent ruling by the Federal Finance Court.
Q: Is rental income from German property subject to German taxes, even if the shareholder lives abroad?
A: Yes, according to a recent ruling, rental income from property located in Germany is subject to German taxation, even if the shareholder resides outside of Germany. This principle is based on Section 49 (1) No.6 of the German Income Tax Act (EStG).
Q: Does the tax agreement between germany and Russia affect this principle?
A: No, the tax agreement between Germany and Russia, designed to prevent double taxation, doesn’t supersede this principle.This means that a partner in a German civil law partnership (GbR) residing in Russia is still subject to German taxation on income from German property.
Q: What does Article 4 of the Germany-Russia tax agreement say?
A: Article 4 of the agreement states that the right to tax income from immovable property in Germany rests with Germany. this applies to the portion of rental income attributable to the foreign shareholder.
Q: Are there different ways to calculate the income?
A: No separate uniform determination is required under Section 180 (3) sentence 1 No. 1 of the German Fiscal Code (AO).Both the rental income generated in germany and the income attributable to a Russian partner, for example, are subject to income or corporation tax.
Q: Does the Germany-Russia double taxation agreement dictate how rental income should be calculated?
A: No, the agreement doesn’t dictate how each country determines taxable income or which expenses qualify as advertising costs. The method for determining income adheres to the laws of the respective country.
Q: can I deduct costs like advertising expenses?
A: No, article 11 of the agreement doesn’t provide guidance on deducting advertising costs for rental income. This article addresses a different type of income.
Q: What happens if I experience double taxation?
A: If differing tax classifications between Germany and your country of residence result in double taxation, you, the partner residing abroad, are responsible for initiating a dialog procedure according to Article 25 of the agreement, following the procedures of your country of residence.
Q: What’s the reference for this ruling?
A: The ruling was issued by the Federal Finance Court on November 27, 2024 (Case number: IR 19/21).
Key Takeaways and Considerations
here’s a summary of the main points:
Taxability: Rental income from German property is taxed in Germany, irrespective of the shareholder’s residency.
Agreement Impact: Tax treaties like the one with russia primarily prevent double taxation of the