German Gift Tax

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 renunciation of future rights of 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 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, 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 or the donee is a German tax resident (Inländer) of Germany at the time of the gift (Schenkung). 

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

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. 

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):

Beneficiary is ...

Exemption in EUR

the spouse of the deceased

500,000

divorced spouse

20,000

a registered same sex partner

500,000

a child of the deceased (including step-children)

400,000

a child of a predeceased child of the deceased

400,000

a child of living children of the deceased

200,000

other offspring of a living child of the deceased

100,000

a parent or an other ascendant

20,000

a sibling (sister or brother) of the deceased

20,000

a niece and nephew of the deceased

20,000

a step-parent of the deceased

20,000

a parents-in-law of the deceased

20,000

a daughters-in-law or son-in-law of the deceased

20,000

an other person (e.g. 

20,000

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:

donee is ...

Tax class

the spouse of the deceased

I

the divorced spouse

II

the registered same-sex partner

I

a child of the deceased (including step-children)

I

a child of a predeceased child the deceased

I

an offspring of a living child of the deceased

I

a parent or other ascendant 

II

a sibling (brother or sister) of the deceased

II

a nieces or nephew of the deceased

II

a step-parent

II

a parents-in-law

II

a daughter-in-law or son-in-law

II

any other person 

III

 

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:

Taxable acquisition (§ 10) up to EUR

Tax rate in every tax class in %

I

II

III

75 000

7

15

30

300 000

11

20

30

600 000

15

25

30

6 000 000

19

30

30

13 000 000

23

35

50

26 000 000

27

40

50

More than 26 000 000

30

43

50

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