The property tax reform in Germany poses a major challenge for europes biggest market place. In particular, those who own a lot of real estate face a daunting task this summer: they have to submit tax returns as part of the property tax reform, which must include a range of data and information on the real estate – the land and buildings. The cut-off date for the assessment is 1 January 2022.
The reason: because of a ruling by the Federal Constitutional Court, the basis of assessment for land tax is changing. The three-stage procedure of valuation, tax assessment amount and municipal assessment rate used until now will remain largely unchanged. But as a rule, extensive data is now required for reporting to the tax authorities. On this basis, the new assessment basis is then calculated for each property.
Property Tax: valuation models differs from states to state
One of the challenges here is that the federal states could develop regulations that deviate from federal law – and some states have made use of this opening clause. As a result, there are now different valuation models in each state on the basis of which the property tax is calculated. 11 of the 16 federal states apply the federal model (two of them with different measurement figures), the other five rely on their own solutions, for example an area-factor model or an area-location model:
Depending on the model, different data must be provided to different extents. For owners of real estate in several federal states, for example in the case of cross-state locations, this can result in considerable additional work.
Value-based models require a particularly large amount of data
The regulations of the value-based models (federal model as well as the models of the states of Saxony and Saarland) are particularly complicated, because – unlike the model applied in Baden-Württemberg, for example – they differentiate according to the type of use of the individual property (e.g. commercial property, residential property or land for agriculture and forestry). For this, the owners must have complete up-to-date information on the current use.
The calculation of areas, especially residential areas, can also be tricky in view of detailed specifications. Depending on the type of use and valuation model, sometimes residential and usable floor space is used, sometimes gross floor space is used. Many owners may not yet have this information or only have fragments of it. If necessary, it may be necessary to consult building and architectural documents or even to carry out new surveys.
Apart from general location data (address, land register data), it will be easiest to collect published standard land values and years of construction. But even there, the devil lurks in the detail: when specifying the year of construction, extensive maintenance or modernisation measures may have to be taken into account.
The challenges of the property tax reform in connection with the different valuation models are now well known, so that many property owners are now tackling the requirements of the reform and starting to gather and sift through the necessary information.
This is particularly time-consuming and costly if – apart from data gaps – the data is not stored uniformly digitally, but is available in different formats, for example partly on paper, partly in PDF documents, etc. The data is not stored in a uniform format.
Only use approximate values in exceptional cases
The time to compile the material is pressing, because the deadline for tax returns begins on 1 July 2022 and ends on 31 October 2022. Thus, haste is required. However, missing the submission deadline can have equally unpleasant consequences, with late penalties or even an estimate of the data by the tax authorities.
As a matter of principle, exact data should be used, especially with regard to the area data according to the DIN standards or the Living Space Ordinance. However, if you are unable to determine the exact figures within the short period of time, you should, as an exception, initially provide appropriate approximate values, but explicitly show these to the tax authorities as provisional values. Then the information can still be corrected in the coming year, e.g. after a new measurement.
Further innovation: communicate changes promptly
However, many people are not yet aware of another aspect of the property tax reform: In future, changes to land and real estate must be reported to the tax authorities within certain deadlines without being asked to do so. Owners must therefore notify the tax authorities of any alterations, additions or changes in use after the deadline of 1 January 2022.
Real estate companies and companies with real estate property are therefore recommended to implement an internal process for recording these changes to ensure timely reporting.
