Rental income calculation - Germany

For foreigners

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francs
I found here this application (in english) which ease the calculations.

http://www.parmentier.de/steuer/steuer.htm?incometax.htm

Now it is said that to your income, in case you're a foreingner, 8004€ has to be added to the income for tax calculation.
So if i were to gain 12000€ as a rental income, the taxable income would be 20000€.

Do you agree?
El Jeffo
What? Who says that? Where?

Could you give us a little information about your situation? Are you planning on moving to Germany? Is your rental income in Italy? Throw us a bone here, please.
bal00
I found here this application (in english) which ease the calculations.

http://www.parmentier.de/steuer/steuer.htm?incometax.htm

Now it is said that to your income, in case you're a foreingner, 8004€ has to be added to the income for tax calculation.
So if i were to gain 12000€ as a rental income, the taxable income would be 20000€.

Do you agree?
Sort of. If you're a resident in Germany and your income is 12,000€, your taxable income would be 3996€, because you get to deduct 8004€. If you're not a resident, your taxable income would be 12,000€.

This calculator assumes that you're a resident, so it automatically applies the 8004€ standard deduction, which means you as a non-resident would have to add 8004€ to the stated income when using this particular calculator.
francs
Thank you very much for the answers.
I'm thinking to buy a house in germany (Munich) and rent it, as an investment.
So at least for a few years i'll be a foreigner who has a rental income generated in germany, still living in Italy.

"For a few years" cause i'm planning to move there because my company has offices in Munich and i always liked to change.

Now at the web address which i mentioned
http://www.parmentier.de/steuer/steuer.htm?incometax.htm
it is said:

Non-residents (not living in Germany) with income in Germany (such as property let) are subject to limited income tax liability. They could only deduct expenses which relates to the income (such as renovating the appartement) and have no basic tax allowence. So for 2009 to the income (expenses deducted) the amount of 7.834 € (2010/2011: 8.004 €) have to be added before calculating the income tax (§50 EStG)

I asked the creator of the site if the 12000 (my gross rental income)+8004 = 20004 was the taxable income and he answered me "unfortunately yes".
But i've also found an english translated book on the German tax laws which is:

http://books.google.it/books?id=TAHtXWpA9soC&pg=PT147&lpg=PT147&dq=rental+income+germany&source=bl&ots=yI3E_FiqG-&sig=5qhgJyaOkj462WdY_SUBn_6rK04&hl=it&ei=2K7_TLzKI4Ki4Qbqlo3wCA&sa=X&oi=book_result&ct=result&resnum=10&ved=0CGgQ6AEwCTgK#v=onepage&q=non%20residents&f=false

where it is said that non-resident taxes are paid starting from a fee of 25% while residents starts from 14%.

So the possible scenarios are basically three (considering what i found over the web):

1-i pay progressively starting from a minimum of 25% of the rental income.
2-i pay progressively like what i found on germantaxes.info tables
http://www.steuerliches-info-center.de/cae/servlet/contentblob/151664/publicationFile/2526/est_Tabelle_2010.pdf
3-i pay adding the 8004€ to my income (whatever it is) and then i apply the tables at point 2 or use the automatic calculator on the www.parmentier.de (tables and calculator give the same result).

Note that i also called the tax department in munich but the employ answered that he didn't know what to say and sent me back to the German Embassy in Italy.

The answer of bal00 look similar to the point 3.

Once i've opened an account in a german bank, may i ask them to fill my tax return and/or to pay everything taking funds from my account?
Erised
If you can afford to purchase superflious property in another country, can't you afford an accountant?
francs
Well i always try to find information asking, googleing and reading, before i pay.
There's nothing worse than to know that you payed for something that everybody was aware of.
Double check is also necessarily.
But you're absolutely right, in point of fact, i've yet asked for an accountant to the german real estate agent, who couldn't help.

Obviously any one who payed the information (whatever it is) is not inclined to share it, like we don't share our cars and i can relate.

Thanks.
Starshollow
Francs: can understand your wish to check-out things yourself very well. But German tax system is about the worst in the world, a true maze. Did you know that 2/3 of the worldwide literature about taxes and taxation is written about the German tax system? TRust me, I know that, I have a degree in International Taxation from HLS and seen the library more often than I wish to remember.....

So, best idea is really to let a tax advisor help you who is deep into double taxation issues... A number of these are advertising on Toytown, I can - because a lot of my clients use him and are very satisfied - recommend Thomas Zitzelsberger from ExPatTax. http://www.toytowngermany.com/munich/zitzelsberger_expat_tax_advice.html
Best of all - he can help you by email, so that will make things easier for you.

I would assume that at first the German tax authorities would withhold a certain amount of tax and then you'll either get some back or have to pay some more in Italy, depending on the difference in tax rates between the two countries....

Cheerio
francs
Ok.
You're absolutely right.
I contacted a professional foreign taxation studio via email and they answer that the taxation on the rental income for a foreigner, non resident, EU citizen will be exactly the one calculated via the

http://www.parmentier.de/steuer/steuer.htm?incometax.htm

by adding the 8004€ to your income.
Then you have to deduct expenses (don't know what kind expense you can deduct) and depreciation which is: (the market price of the house) x 75% x 2% (that is multiply by 0.015) for buildings built after 1960.

To triple-check: i've also transfer a hundred € to a german (Munich) tax accountant, english speaking, to simulate my income with more precision. As soon as i get the results, i'll post here, they may be useful to everybody. I don't think i'm violating any professional secret cause every taxable situation is different and varies from an year to another.

It seems that i'm soooooooooooo rich that i can also afford to give away information!
PandaMunich
Ok, here it is, because you asked nicely in the PM...

Disclaimer: I'm not a tax advisor. In Germany only tax advisors (Steuerberater) are allowed to give tax advice. So double check everything with a professional.

see here for the double tax treaty between Italy and Germany (in German and Italian)

1-i pay progressively starting from a minimum of 25% of the rental income.
That was the old regulation, valid until 2008.


3-i pay adding the 8004€ to my income (whatever it is) and then i apply the tables at point 2 or use the automatic calculator on the www.parmentier.de (tables and calculator give the same result).
This is correct starting with 2009.
So for a rental profit of 12,000€ per year, you would have to pay following taxes:
2,702.00€ income tax
148.61€ solidarity tax to help pay for the costs of the German re-unification (Solidaritätszuschlag)
_________
2,850.61€

The good/bad news is that you have to tell the Italian tax department what rental profit you had in Germany and they will add it to your other Italian income and calculate a tax amount you have to pay for everything. The Italian tax department will then reduce this tax amount by the German tax (2,850,61€) you have already paid.

So depending on your personal tax rate in Italy this is good or bad news.


Note that i also called the tax department in munich but the employ answered that he didn't know what to say and sent me back to the German Embassy in Italy.
The tax department is not allowed to give out tax advice. The embassy isn't the right place to ask either. In Germany only tax advisors (Steuerberater) are allowed to give tax advice.

Once i've opened an account in a german bank, may i ask them to fill my tax return and/or to pay everything taking funds from my account?
No. Banks only do direct source taxation on interest you earn with them or from profits when you sell stocks (for those it would be a flat tax of 25%)

For all other kinds of income you (or your tax advisor if you employ one) have to fill in tax forms at the end of every year (until May 31st for the preceding year) stating your income and do an income tax return by either submitting these forms them electronically or in paper form (or a combination of both) to the German tax department (Finanzamt). See here for a description of electronic submission via the Elster software.

I advise you to do it in paper form, because the tax department will want to see paper proof for everything, including the purchase contract done at the notary and the rental contract.

You can give the German tax department the permission to take the tax they calculate after processing your tax forms directly from your German bank account. This is called "Einzugsermächtigung". That way you will never be late with a tax payment.

Don't forget to make a copy of everything (including your filled in, signed tax forms) before you send it to the tax department by snail mail.

Since you will have rental income in Munich, that will probably be, depending on what the first letter of your surname:

A to E
Finanzamt München I
80276 München

F to I:
Finanzamt München II
80269 München

J to M:
Finanzamt München III
Deroystr. 18
80335 München

N to S (without Sch)
Finanzamt München IV
Deroystr. 4
80335 München

T to Z (and Sch):
Finanzamt München V
Deroystr. 4 / Aufgang II
80335 München

************************************
What tax forms will you have to submit:
- Mantelbogen for persons with limited income tax liability= form ESt 1 C
This is the general form everybody has to fill in, with your name, address, bank account details
- Anlage V Form for stating your rental income, expenses, depreciation and as a result, your rental profit/loss

************************************
How to fill in the Mantelbogen form ESt 1 C

line 1: cross to the left of "Einkommensteuererklärung"
line 3: your tax number: leave empty the first year, they will then assign you one which you'll have to fill in the future
line 4: ID number: leave empty, only people living in Germany get one
line 5: name of your tax department, e.g. if your surname is Schiaparelli --> starts with Sch --> fill in: Finanzamt München V

line 6: your surname and date of birth
line 7: your first name
line 8: your street name and number
line 9: postal code, city
line 10: your country of residency: Italien
line 11: your nationaliy: Italienisch
line 12: city of birth
line 13: your profession, e.g. Ingenieur

line 14: your bank account number and bank sort code
line 15: your IBAN: international bank account number, long alpha-numeric string, starts with DE for German bank accounts
line 17: name of your bank, city it is in

line 22: cross to the left of "lt.Anlage(n) V"
line 22: To the right of "Anzahl" write the number of apartments/houses you rent out. I suppose: 1

line 34: to the right of "lt. Anlage", fill in: V

line 66: cross to the left of "Nein"

line 79: cross to the left of "als steuerpflichtige Person."

line 80: write the date and sign

************************************
How to fill in Anlage V (attach as many as you have rented out apartments/houses)

line 1: your surname
line 2: your first name; cross to the left of "zur Einkommensteuererklärung"
line 3: your tax number: leave empty the first year, they will then assign you one which you'll have to fill in the future

line 4: street name and number of the rented out apartment/house
line 4: "Angeschaft am": date when you bought it
line 5: Postleitzahl: postal code; Ort: city in which your rented out apartment/house is
line 5: "Fertig gestellt am": date your rented out apartment/house was built

After you buy the apartment/house you will get a letter called "Einheitswertbescheid" from the Munich tax department, giving you a "Aktenzeichen" (a long string of numbers, e.g. 145/405/1234/006/034/9)
line 6: write this long number "Aktenzeichen" from the "Einheitswertbescheid"
line 7: total square metres of all your apartments, e.g. 50 if you have one, 350=150 if you 3 apartments of 50sqm each in that building
line 8: depending on the fact on which floor your apartment is, choose a columns to fill in: Erdgeschoß = ground floor; 1. Obergeschoß = 1st floor; 2. Obergeschoß = 2nd floor; weitere Geschosse: anything above that
and fill in: your rental income in that year without the costs for heat, water, etc. = cold rent = Kaltmiete
Write the total amount for all floors in field 01

line 9: Anzahl: number of your your apartments on that floor
line 9: Wohnfläche: total square metres of all your apartments on that floor

Each year the company administrating the apartment building (Hausverwaltung) will send you a "Hausgeldabrechnung" with an overview of what the heat, water, repairs cost in that year. They will also write in there which costs you can oblige your tenant to pay (heat, water, maintenace of lift, ...) and which you have to bear yourself, like that company's fee and the repair costs.
line 12, field 4:
Normally the tenant will pay an advance on these "Nebenkosten" (utility costs) to you every month together with his "cold rent". Add up all these utility cost payments your tenant made to you that year, subtract the reimbursements you made to him when he overpaid you on utilities and write the total into field 04

line 15: if you also rent out a parking space, put in the income for that year from that into field 07

line 20: add up the amounts from field 01, field 04 and field 07
line 21: forget about that for now, here you have to fill in the sum of (depreciation + interest costs + all real costs from the "Hausgeldabrechnung") which you only calculate later on, on the second page in line 50!
line 22: rental profit or loss = subtract amount in line 21 from amount in line 20

line 33: here you will put in the amount of depreciation
- if the apartment/house was built in 1924 or earlier: 2.5% of the "Pure building price"
- if the apartment/house was built in 1925 or later: 2% of the "Pure building price"
Now the calculation of the "Pure building price" is a bit complicated, but bear with me. The idea is that your apartment /house stands on some ground and that the price of the ground doesn't change the older the house gets, but that the apartment/house itself gets older and will be worth less with time.
So how does the ta department how much of the price you paid was for the ground and how much for the building standing on it?
They have a committee that decides every year how much a square metre of ground is worth in a certain region (= Bodenrichtwert).
Depending on where your apartment/house stands in Munich, this can be 700€ per square metre of ground or even up to 5,000€ per square metre of ground.
-------------------------
You can find out this Bodenrichtwert by phoning the Finanzamt and asking them for it for that certain street. They don't like giving it out, but just say you bought an apartment there and now need this value to do your tax declaration and then they will tell you. Just be sure to phone another person when you want to ask it for another street!

The Finanzamt doesn't like telling you the Bodenrichtwert because another state institution, that "committee", charges 30€ per information if you ask them, see here: http://tinyurl.com/24lgvyg
-------------------------

They then subtract this "imaginary" value of the land the building stands on from your purchase price and the result is the "Pure building price".

Example:
Bodenanteil = value of ground your apartment stands on: 50/1000 x 400qm = 20sqm
Bodenrichtwert= "imaginary" value per sqm: 3,000 €/qm
Wert Bodenanteil = value of ground part = 20sqm x 3,000 €/sqm = 60,000€
Prozentsatz Bodenanteil = percentage of ground costs = 60,000€ / 180,000€ = 33.33% (assuming you paid 180,000€ for the apartment)

Now we get on to the calculation of the "Pure building price":
180,000€ Purchase price of apartment
1,000€ cost of notary
6,264€ estate agent fee (3.48% of purchase price)
500€ fee to enter your name into the land register
6.300€ real estate transfer tax (3.5% of purchase price)
______________
194.064€ real total purchase price
--> part of that for ground: 33.33%: 64,688€
--> part of that only for building: 66.67% = "Pure building price": 129,376€

Depreciation over 50 years (I assume it was built after 1924):
0.02 x 129,376€ = 2,587.52€ is the yearly depreciation

line 33, column 1 and column 4: put in the amount of yearly depreciation, e.g. 2,587.52€
line 36, column 1 and column 4: put in the interest you pay on the mortgage (only the interest, not the part with which you actually pay off the mortgage!)

line 39, column 1 and column 4: repair cost out of "Hausgeldabrechnung"
line 46, column 1 and column 4: land tax (= Grundsteuer, between 150€ and 300€ per year), real utility and other costs from "Hausgeldabrechnung"
line 47, column 1 and column 4: fee of company adminitrating the building (= Hausverwaltung)

line 50: sum of all above costs in column 4
--> now copy that amount from line 50 into line 21 on the first page and calculate your rental profit or loss in line 22

Congratulations, you're done.
Don't forget to make a copy of everything (including your filled in, signed tax forms) before you send it to them by snail mail.

***************************************

There is a big pitfall in above depreciation.

If you buy a apartment it can pay off to rent it out because you only own a small share of the land under the building (20 sqm in the example).

However, if you buy a house with 400sqm of ground, then you will have as the total "imaginary" land value a huge amount. Regions with houses typically have a Bodenrichtwert of around 700€/sqm in Munich.

Example:
Price of house: 400,000€
Land value according to Bodenrichtwert: 400sqm x 700€/sqm = 280,000€
--> "Pure building price" = 400,000€ - 280,000€ = 120,000€
They don' take into account what the "real" market value of that building alone would be, they just stubbornly subtract the "imaginary" land price from the price you paid and then you can only depreciate 120,000€ over 50 years, i.e. 2,400€ depreciation per year for an outlay of 400,000€!

***************************************

Are you really aware of all the bureaucracy that is involved in renting out an apartment in Germany?
A tenant has a lot of rights here and it's kind of difficult to repair a broken water pipe when you're actually in Italy. Please remember a tenant has a legal right to have things repaired immediately! If you don't jump when he says so, he will pay you less rent until you do the repair and it's absolutely legal.

It can also be difficult to get a tenant out of the apartment even if he stopped paying the rent and utilities. You have to drag him through the courts for 2 years until you get an eviction order and the procedure will cost you between 6,000€ and 10,000€ (lawyer, court costs, bailiff = Gerichtsvollzieher, deposit costs for tenant's furniture, ...).

These things are all much more complicated if you don't live in the same city as your tenant, let alone in a different country...

Please consider all these aspects carefully before deciding.
francs
Well, thanks a lot, don't know what else to say, this is way more detailed info than what i had intended to ask for.
I'm also under the impression that i've had given a bad impression of myself and i'm really sorry if i have.
Now i'll print it and study it.
Thanks again.
Vicar
Hello everyone.

I am going to fill form Anlage V(first time for this apartment) and I am wondering if I can include my travel ,accommodation and other expenses ,related to "viewing-buying" process. I know I can include notary and agent fees to line 37, but not sure about rest of expenses.
Thanks, in advance.
Vicar
Any advice guys,please?
Freising
In line 37 you would only put notary costs related to the loan. All other costs related to the buying process (including notary and agent) are part of your "Anschaffungskosten" (purchase cost). The correct differentiation between notary cost in case 1 and 2 might not be so easy. (A case for a paid professional maybe?)

Purchase costs obviously can´t be deducted directly. They will be amortized over a certain amount of years. See line 33

Of course there could also be travel costs related to the normal business of being a landlord...

If you are doing this the first time, it might be a good idea to talk to a tax advisor.
PandaMunich
I know I can include notary and agent fees to line 37
As Freising said, line 37 is for the part of the notary costs and entry cost into the Grundbuch (= land registry) that pertain only to the mortgage you took from the bank to pay the apartment.
If you did not take out a mortgage/bank loan to pay for the apartment, you will not put anything in line 37.
If you do have a mortgage you should read both the notary's invoice and the invoice from the Grundbuchamt (that amount may be included in your notary fee, i.e. the notary paid it for you and then asked you to reimburse him for it) attentively and find out which amount of the whole pertains to registering the mortgage, only that amount are you allowed to put into line 37 and are allowed to depreciate immediately.

The rest of the notary fee, the fee to enter your name into the Grundbuch and the fee of the real estate agent (= Makler) are considered to be an integral part of the apartment price and you are not allowed to depreciate them immediately, but only over 50 years, and only that part of them which pertains to the building (not the part pertaining to the land the building stands on) so they become part of the your yearly depreciation amount.

This was explained in my example calculation, so here it is again:

Example:
Bodenanteil = value of ground your apartment stands on: 50/1000 x 400qm = 20sqm
Bodenrichtwert= "imaginary" value per sqm: 3,000 €/qm
Wert Bodenanteil = value of ground part = 20sqm x 3,000 €/sqm = 60,000€
Prozentsatz Bodenanteil = percentage of ground costs = 60,000€ / 180,000€ = 33.33% (assuming you paid 180,000€ for the apartment)

Now we get on to the calculation of the "Pure building price":
180,000€ Purchase price of apartment
1,000€ cost of notary
6,264€ estate agent fee (3.48% of purchase price) --> now with 19% VAt it will be 3.57%
500€ fee to enter your name into the land register
6.300€ real estate transfer tax (3.5% of purchase price)
______________
194.064€ real total purchase price
--> part of that for ground: 33.33%: 64,688€
--> part of that only for building: 66.67% = "Pure building price": 129,376€

Depreciation over 50 years (I assume it was built after 1924):
0.02 x 129,376€ = 2,587.52€ is the yearly depreciation

line 33, column 1 and column 4: put in the amount of yearly depreciation, e.g. 2,587.52€

*********************************************

I am wondering if I can include my travel ,accommodation and other expenses ,related to "viewing-buying" process
Of course.
You attach a page where you list and add up all those expenses and to which you also attach proof, e.g. original train tickets, hotel invoices, ...
The sum of these costs you then put into line 49: Sonstiges of the Anlage V.
They are part of your "Werbungskosten".

Definition of "Werbungskosten" = all expenses you had to:

  • buy the apartment,
  • to keep it and
  • to ensure continuing rental income


Werbungskosten sind alle Aufwendungen eines (zukünftigen) Haus- oder Wohnungseigentümers zum Erwerb, zur Sicherung und zur Erhaltung der Mieteinnahmen (source: § 9 Abs. 1 EStG).
You can claim a lot of costs as Werbungskosten in Anlage V, so here's a list (ignore the line numbers they quote in that list for Anlage V, those refer to an older version of the Anlage V):
- list machine translated into English
- list in German original (so that you know the proper German terms for each cost category)

I suggest you go through this list and see which of the expenses you had.
Vicar
Hello and thank you all, who reply for your help.

The things are become more clear and understandable after your explanations. I will try to fill Anlage V on my own. I know I might make some mistakes, but I have tried to contact few tax advisers and the result was close to nothing. Some of them were too busy to take the work; some were too busy even to answer on emails. Your instructions, PandaMunich are very helpful and I hope even if I make some mistakes, tax office will always correct me.
Thank you again.
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