Limited tax liability
Individuals without a place of residence or habitual abode in Germany are subject to limited tax liability (beschränkte Steuerpflicht) on their German income. Under § 49(1) no. 6 of the Income Tax Act (EStG), this income includes income from the letting and leasing of real property located in Germany.
There is no withholding tax at source; the income is assessed via an income tax return in Germany. Under § 19(2) of the Fiscal Code (Abgabenordnung, AO), the competent office is generally the tax office in whose district the flat is located (with several properties, the one with the most valuable assets).
No basic tax-free allowance – with one exception
Persons with limited tax liability are taxed according to the normal progressive tariff, but under § 50(1) sentence 2 EStG the taxable income is increased by the basic tax-free allowance (Grundfreibetrag). In practice, this eliminates the tax-free basic amount, which is €12,348 in 2026; even small surpluses are taxed.
Anyone who earns almost all of their income in Germany (at least 90%, or foreign income below the basic tax-free allowance) can apply under § 1(3) EStG to be treated as having unlimited tax liability. This rarely applies to typical investors with income in their home country.
Depreciation (AfA) on the building
Only the building's share of the acquisition costs is depreciated, not the share for the land. Under § 7(4) EStG, straight-line depreciation (AfA) is 3% per year for residential buildings completed after 31 December 2022, 2% for completion between 1 January 1925 and 31 December 2022, and 2.5% for completion before 1925.
For new rental residential buildings whose construction began after 30 September 2023 and before 1 October 2029 (or, where the purchase contract is concluded within this period, in the year of completion), declining-balance depreciation of 5% of the residual value is possible as an alternative (§ 7(5a) EStG). Your tax adviser should calculate whether it is more favourable for you.
Deductible expenses
Deductible expenses (Werbungskosten) include in particular interest on debt, the parts of the service charge (Hausgeld) that cannot be passed on to the tenant (such as the administrator's fee), repairs, rental management costs, travel and advisory costs, and depreciation. In practice, contributions to the owners' association's maintenance reserve (Erhaltungsrücklage) only become deductible when the association actually spends the money on maintenance.
Be careful with renovations shortly after the purchase: if repair costs in the first three years exceed 15% (net) of the building's acquisition costs, they are treated under § 6(1) no. 1a EStG as acquisition-related production costs (anschaffungsnahe Herstellungskosten) and take effect only through depreciation.
Tax return and deadlines
A return must be filed for each calendar year. Without a tax adviser, the deadline under § 149(2) AO generally ends at the end of the seventh month after the end of the year (31 July); longer deadlines apply with a tax adviser. Keep the purchase contract, service charge statements, tenancy agreements and receipts in good order.
Double taxation agreements
Under the German double taxation agreements (Doppelbesteuerungsabkommen) – in line with Art. 6 of the OECD Model Convention – the country in which the property is located has the right to tax. Depending on the agreement, your country of residence exempts the income (often subject to progression, Progressionsvorbehalt) or credits the German tax. How your home country proceeds depends on the respective agreement and your national law.
If you buy from the UK or the US
UK residents are generally also taxed on foreign income in the UK and can claim relief for the German tax (Foreign Tax Credit Relief). US citizens are taxable in the USA on their worldwide income; a German account must be reported in the FBAR if all foreign accounts together exceed US$10,000.
Do I have to file a return even if I make a loss?
Filing a return makes sense so that losses can be determined and offset against later surpluses from German sources. Whether there is an obligation is something your tax adviser or the tax office can clarify.
Is tax withheld from the rent?
No, there is no withholding tax on rental income received by private individuals; the tax is set through the assessment.
Which depreciation rate applies to a period building from 1910?
For buildings completed before 1 January 1925, straight-line depreciation is 2.5% per year.
