Planned time schedule for the implementation and effects of the land tax reform from 2022

Land tax is calculated on the basis of the land tax value (value of the property), the tax rate (0.034%) and the assessment rate set by the respective municipality. The land tax value is to be determined according to the income approach (residential properties) or cost approach (non-residential properties), depending on the type of property. The determined value should approximate the market value:

A. Business properties ("non-residential properties") are valued on the basis of a simplified cost approach. The land tax value results from the land value and the building value multiplied by a value figure. The land value is determined by multiplying the land area and the standard land value. The building value is determined by multiplying the normal production costs by the construction price index published by the Federal Statistical Office and the gross floor area less a reduction in value due to age of up to 70%. The normal production costs are determined on the basis of the type of building (e.g. office building, production building of solid or skeleton construction or storage building depending on use) and the year of construction. The gross floor area is the sum of the usable floor areas of all floor plan levels including only covered areas (e.g. covered passageways). The value figure depends on the land and building value and the standard land value.
In the assessed value, cubic metre data (cbm) have been used up to now to determine the building value under the cost approach. The area data is not yet known to the tax office. The external data required by the tax office are the land area, standard land value, type of building, gross floor area/usable floor area and year of construction. All other data are included from statistical values already available.

B. Residential property or real estate used for residential purposes is to be valued using the income approach. The value of the property is determined on the basis of the standard land value, the land area, the statistically determined net cold rent/listed rent (available to the tax office), the living floor area of the property and the year of construction of the building

C. In the case of undeveloped land, the valuation shall be carried out by multiplying the land area by the standard land value.

On 4 November 2020 Baden-Württemberg became the first federal state to pass its own land tax law, which is a modified land value model based on the name of a reform proposal. This applies to all land that is not part of the agricultural and forestry assets. The federal model applies to these.

Unlike the federal model, which is based on the market value of the respective property for taxation purposes, as shown above, the federal state model is based on the land value to determine a land tax value. This land tax value is determined by multiplying the land area and the standard land value and finally multiplied by a tax assessment figure of 1.3 per mille, if necessary reduced by deductions, e.g. of 30 % for residential space. This results in the tax assessment amount, which is then multiplied by the municipal assessment rates to arrive at the amount of land tax. The value of standing buildings is not taken into account. In addition, Baden-Württemberg waives land tax C.

However, in view of possible violations of equality and performance aspects, a first case against this model is already pending before the federal state constitutional court.

The equivalence model, which was so far only adopted in Bavaria on 6. December 2020, does without a differentiation with regard to the calculation methods in favour of a simplified tax collection, as it exists in the federal model mentioned above. Location factors are also not included. Instead, the tax amount is calculated in the same way (equivalently) for all properties, namely on the basis of the type of building, land area and living/usable floor area as well as a possible use-related discount together with the assessment rate determined by the municipalities. In this model, it is therefore not necessary to make periodic assessments for the development-accompanying valuation.

According to the current status, the land area is to be taxed at € 0.04 per square metre while the floor area of the building triggers a taxation of € 0.50 per square metre. Subsequently, deductions, e.g. to the amount of 50 % for residential use, are to be taken into account. At this point, other privileges, for example in the case of listed buildings or in favour of social housing, can also be included in the calculation. Finally, a multiplication with the assessment rate set by the municipalities takes place.

An escape in favour of a differentiation that takes into account the respective local conditions is to result from the fact that the municipalities are permitted, under certain conditions, to create areas with a deviating assessment rate within the otherwise uniform municipal area.  

Despite this escape clause, however, there is currently a lively debate as to whether the equivalence model could lead to unequal tax treatment of structurally strong and structurally weak areas and thus be unconstitutional. In this respect, there could still be lawsuits to overturn the model.

The area factor approach, which has already been partially introduced for Hamburg, Hesse and Lower Saxony, does without differentiation via the assessment rate and supplements the Bavarian equivalence model already before the application of the assessment rate with a location factor, which is intended to tax properties in better locations higher than those in poor locations.

The starting points for this in Hesse and Lower Saxony are, in each case with different weighting, the standard land values as an indication of location, while Hamburg wants to fall back on the list of residential locations.

While the implementation in Hamburg and Lower Saxony has already been decided, the law in Hesse is to be implemented in the near future.

In view of the proximity to the equivalence model, constitutional criticism cannot be ruled out for this model either. However, the discussion here has not been as intense as with the models from Bavaria and Baden-Württemberg. Nevertheless, it cannot be ruled out that here, too, there will be isolated lawsuits.

When the relevant data is requested by the tax offices from mid-2022, you should be prepared. Particularly in the case of established real estate structures, it is often not possible to determine the data at short notice. We will be happy to provide you with targeted support in converting the standard values to the new property tax values.