German Gift Tax

Applicable Tax Laws

The taxation of gifts in Germany is codified in the German Inheritance and Gift Tax Act (ErbSt). Additionally, other German tax laws, such as the German General Fiscal Code (AO) and the Valuation Act (BewG) can apply.

Please note: Germany has ratified tax treaties with the USA (Germany-U.S. Estate and Gift Tax Treaty), Greece, France, Sweden, Denmark and Switzerland, that may affect Germany`s taxation of a gift. 

Unified System of Gift and Inheritance Tax

Germany has a unified inheritance and gift tax system: Transfers upon death or inter vivos between the same persons within 10 years are aggregated and the tax is (re-) calculated based on the aggregated taxable acquisition. See § 14 ErbStG. 

Example: A makes a lifetime gift to his sole child in 2010 and dies in 2019 leaving his estate to his child, the value of both transfers is aggregated in order to calculate the tax. 

Taxable Lifetime Gifts

Pursuant to § 7(1) ErbStG the following transfers are regarded as lifetime gifts:

1. any gratuitous benefit among living persons, insofar as it enriches the recipient at the expense of the person making the benefit;
2. value received without corresponding consideration as a result of the fulfilment of a condition imposed by the donor or as a result of the fulfilment of a condition attached to a legal transaction while alive.
3. which is received by a person who, upon approval of a gift, receives benefits ordered to other persons or voluntarily accepted for the purpose of obtaining approval;
4. the enrichment which a spouse or a life partner experiences upon agreement of the community of property (Gütergemeinschaft);
5. what is granted as compensation for a waiver of rights over future inheritance (Erbverzicht);
6. (omitted)
7. what a prior heir gives to the subsequent heir (Nacherbe) in consideration of the ordered subsequent inheritance prior to its occurrence;
8. the transfer of assets on the basis of a foundation transaction among the living. The same applies to the formation or endowment of a foreign pool of assets (Vermögensmasse ausländischen Rechts), the purpose of which is to bind assets;
9. what is acquired upon the dissolution of a foundation (Stiftung) or upon the dissolution of an association (Verein) whose purpose is to bind assets. The same applies to the acquisition in the event of the dissolution of a foreign pool of assets (Vermögensmasse ausländischen Rechts), the purpose of which is to bind assets, as well as the acquisition by beneficiaries during the existence of the foreign pool of assets. Like a dissolution, the change of legal form of an association with legal capacity, the purpose of which is to bind assets in the interest of a family or certain families, is also treated as a joint-stock company;
10. which is granted as severance pay for claims acquired by way of postponement, age or limited term, unless it is a case under § 3(2) ErbStG, before the time of the occurrence of the condition or event.

Taxation of Residents

Pursuant to § 2(1) ErbStG (unlimited tax liability) Germany taxes all gifts, if either the donor (Schenker) or the donee (Beschenkter) is a German tax resident (Inländer) of Germany at the time of the gift (Schenkung). 

An individual is a German (deemed) tax resident if:

• he/she has either a residence (Wohnsitz) or a habitual abode (gewöhnlicher Aufenthalt) in Germany. 
• he/she is a German citizen who has not lived abroad for continuous time of 5 years without having a residence in Germany - extended unlimited gift tax liability (erweiterte unbeschränkte Schenkungssteuerpflicht) -; 
• he/she is a German citizen employed by a German authority abroad (e.g. Germany Embassy).

A corporation, a partnership, an association and/or a foreign pool of assets (Vermögensmasse ausländischen Rechts) is a German tax resident, if its registered office (Sitz) or place of effective management (Ort der Geschäftsleitung) is situated in Germany. 

Non-Resident Taxation

If the donor and the donee are not residents or deemed residents under § 2 ErbStG, generally only German domestic property (Inlandsvermögen) is subject to German gift tax (beschränkte Steuerpflicht). Cash in account or privately held stocks are generally not German domestic property. 

Tax Exemptionshttps://www.german-probate-lawyer.com/#

The German Inheritance and Gift Tax Act provides for significant exemptions (sachliche Steuerbefreiungen): 

Exemption for the Family Home

The transfer of the family home (Familienheim) to the spouse (or registered same-sex partner) is completely tax exempt, if

• it is located in the European Union (EU) or European Economic Area (EAA); and
• the spouse personally use it as principle home. See § 13(1) Nr. 4 a ErbStG. 

Appropriate occasional gifts (übliche Gelegenheitsgeschenke)

Gifts are tax exempt if they are appropriate to the occasion (e.g. wedding, birthday, anniversary). 

Personal Tax-free Exemption

The personal tax-free exemption depends on the familial relationship between donor and the donee. In case of unlimited tax liability - the following tax-free exemption applies (see § 15 ErbStG and § 16 ErbStG):

Personal Tax-free Exemption in Case of Non-Resident Taxation

Prior to June 2017, the tax-free exemption under § 16(2) ErbStG was limited to €2,000 in matters involving situs taxation. The European Court of Justice has since ruled in the cases Vera Mattner v. Finanzamt Velbert (Case C‑510/08) and Yvon Welte v. Finanzamt Velbert (Case C‑181/12)  that this reduced tax-free allowance violates European Law and that the full exemption amount under § 16(1) ErbStG must be granted. In response to aforementioned rulings, § 16(2) ErbStG was reformed. The new law became applicable on June 25, 2017 and holds that the personal tax free allowance under § 16(1) ErbStG shall also be granted in cases of situs taxation, however, it is reduced by a partial amount which is calculated as follows:

All estate assets and gifts within a 10-year period not subject to German situs taxation

÷ all gifts in a 10-year period.

Example: The decedent’s fiscal domicile at the time of death was Los Angeles, CA USA. At the time of her death, the decedent owned an apartment in Munich with a value of €400,000. The value of her worldwide estate is determined to €1 million. The decedent gives everything to her son. Germany taxes only the value of the apartment. However, the tax-free amount of €400,000 under § 16(1) ErbStG is not granted in full. Instead, it is reduced by €240,000 under § 16(2) ErbStG:

Tax free allowance minus €600,000 (estate assets not subject to German situs taxation)

÷ €1 million (all transfers in a 10-year period)

× €400,000 (tax free allowance)

= €240,000

Thus, the tax-free allowance under § 16(2) is limited to €160.000.

The newly enacted law does not explicitly state how the 10-year period shall be calculated. The stated purpose of the law was “to ensure that taxation cannot be circumvented by spreading out payments split into several parts between the same persons and deducting only a pro rata allowance, earlier acquisitions made by the same person within 10 years have to be included in the calculation of the pro rata allowance.” It is arguable, that not only gifts prior to the taxable event are counted, but also thereafter. However, as § 16(2), sentence 2 ErbStG states that “Any earlier acquisitions must be recognized at their earlier value”, we opine that the newly enacted law must be interpreted in a way that only prior gifts are considered. Accordingly, it is generally advisable to transfer German situs asset prior to assets abroad.

Example: In the above example the decedent gifted his son prior to the apartment non-German situs assets (e.g. balance of a bank account in Germany). This will further reduce the available tax exemption amount at the time of gifting the apartment and it would be lower than €160,000. If he had made the gift after the transfer of the apartment, the pro-rata exemption amount would still be available.

Furthermore, it may be favorable to make gifts every 10 years with a value of up to €400,000 as such gifts would not be aggregated.

Gift Tax Classes and Rates

The German gift tax rates depend on the tax class and the value of the taxable acquisition of the beneficiary.

Gift Tax Classes

The tax class depends on the familial relationship between the deceased and the beneficiary:

Gift Tax Rates

The German gift tax rates (2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019) in each tax class can be taken from the following table:

Personal Tax Liability 

The donor and the donee are liable for the German gift tax (Schenkungsteuer). See § 20 ErbStG.

German Gift Tax Return and Duty of Disclosure

There is no obligation to file a German gift tax return (Schenkungsteuererklärung) unless a tax office demands it. However, according to § 30 ErbStG, the beneficiaries are obliged to report the transfer to the local gift tax office within 3 months after gaining knowledge of the gift. If the beneficiary fails to comply with this duty of disclosure and, as a consequence, German gift taxes are not or not sufficiently paid, they may be prosecuted for tax fraud.