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Tax issues regarding rental income in Germany as a foreign resident

November 16, 2014 | 50,00 EUR | answered by Tobias Heinrich

Dear Sir or Madam,

After completing my studies and internship in 2006, I moved from Frankfurt to London and started my own business here. I hold German and Polish nationality, but am only registered here in England and pay my taxes here.

Since 2012, I have been investing in properties in Germany with my English partner, and we now jointly own a total of 9 apartments, each financed with a mortgage. The rental income from these apartments is very low or sometimes shows losses after deducting all expenses such as marketing costs, maintenance fees, operating costs (heating, electricity, water), and loan depreciation.

2012: €600 profit
2013: €4500 loss (due to renovation costs)
2014: €3000 profit

Can you confirm whether the above-mentioned costs can be depreciated, or if the loan only consists of interest payments?

If only interest payments can be depreciated, then the balance for the years would be as follows:
2012: €1900
2013: €7600
2014: €22000

As we both live and work in England and pay our taxes here, do we still need to file an income tax return in Germany despite the low income? Or is there a minimum threshold for this? I have heard about limited and unlimited tax liability and I am not sure which category my case falls into - this affects the tax rate, right? What tax rate would apply in our case?

Regarding the depreciation of costs: The apartments were all acquired in vacant condition, completely renovated, and fully furnished with furniture, etc., and are mostly rented out to foreign students for short-term leases of 1 year. Unfortunately, many of the renovation costs were paid from our English account or purchased at flea markets, so we do not have receipts. Is there a flat rate for tax depreciation per apartment that can still be used?

It is also worth noting that we both have separate bank accounts opened in Germany where the rental income profits/losses are split equally.

I hope you can help shed some light on all these questions.

Thank you.

Tobias Heinrich

Dear questioner,

In the context of an initial consultation and your fee commitment, while observing the regulations of this forum, I would like to answer your question.

Deductible are generally only payments that burden your assets. This means that as long as the maintenance fee payment flows into reserves, it does not represent a burden. The same applies to the repayment portion of bank payments.

Additionally, depreciation on the building part and the use of reserves can be taken into account here.

In my opinion, it is advisable to consult a tax advisor at least once. The explanations for subsequent years may then be manageable independently.

Regarding tax liability, it should be noted that you are subject to limited tax liability in Germany if you do not have a tax residence or habitual abode in Germany. This will need to be reviewed on a yearly basis.

For limited tax liability, any benefits for EU citizens may need to be considered.

There is no one-size-fits-all approach here. For the past, it would be necessary to provide evidence of your investments. For the future, it is advisable to request receipts.

It would also be worth checking if travel expenses have been incurred.

I hope your questions have been answered satisfactorily.

Best regards,
Tobias Heinrich