As a French expatriate in Germany, This is your chance to invest in real estate on both sides of the Rhine. A great opportunity! 🏡
But how do you choose between a rental investment in France or Germany ?
Among the many criteria to consider, taxation plays a central role: it can strongly influence the net profitability of your project. This guide reviews the main tax differences between the two countries.
Rental income: where is it taxed?
- Visit Tax treaty between France and Germany is clear: real estate income is taxable in the country where the property is located (unlike capital income!).
- Result:
- Rental income French → taxed only in France even if you live in Germany
- Rental income Germans → taxed in Germany
I live in Germany: how is my French rental income taxed?
As a resident of Germany for tax purposes, rental income from property in France remains taxable. only in France, in accordance with the Franco-German tax treaty.
By default, these revenues are subject to a minimum tax rate :
- 20 % up to €27,519 taxable income (2024 scale)
- 30 % beyond
However, it is possible to request the application of the average tax rate calculated on worldwide revenues, if the latter is more advantageous. This option is activated by ticking the box 8TM when you file your tax return, and by providing proof of foreign income (e.g. German income).
In addition to income tax, non-residents must pay social security contributions :
- In principle, these levies amount to 17,2 %
- But, If you are affiliated to a social security scheme in another EU/EEA country or Switzerland (e.g. Germany), you are exempt from CSG and CRDS.
In this case, only the solidarity levy of 7.5 % remains due.
Finally, non-residents cannot create a property deficit if their only French-source income is from property. No matter how many «losses» you make, you have no income from which to offset them. At the very most, you can carry them forward to subsequent years, but in no case will you receive a tax refund from the French tax authorities ... whereas this would be possible for German rental income.
Investing in Germany: how are rents taxed?
As a resident of Germany for tax purposes, rental income from German sources must be declared in the German tax return. German tax return (Einkommensteuererklärung). They are included in the total income of the tax household and are subject to tax. progressive German income tax scale.
Please note: if your overall income is already high, your rental income can be taxed at a rate of 47% (Einkommensteuer + Solidaritätszuschlag, without Kirchensteuer) a rate reached for a taxable income of ~75,000€!)
However, the German tax system is very favorable for real estate investors, because it allows you to deduct a very large number of charges unlike the French land tenure system.
Deduction of actual expenses :
By default, the German tax authorities allow the deduction of all expenses relating to the management of the property:
- Loan interest
- Notary and agency fees
- Miscellaneous expenses
- Insurance and local taxes
- Maintenance or renovation work
- And above all: depreciation of the property (usually 2 % per year over 50 years, and in some cases much more).
Visit tax result (rent - expenses - depreciation) can easily be negative.
And it is no need to opt for a specific regime to benefit from tax advantages (unlike France with BIC, micro foncier, SCI à l'IS etc )
Chargeable property loss :
If expenses and depreciation exceed rental income, a land deficit is created. It is then deductible from other household income (wages, other property income, etc.)
In concrete terms, this means that you can recover up to 47 % of the amount of your deficit in the form of a tax refund, a particularly attractive lever for investors with high income taxes.
In a nutshell:
- In France, for a non-resident, even with careful optimization:
- Minimum taxation will rarely be less than 27.5 % (flat rate + social security contributions)
- Visit land deficit is unusable
- Actual expenses are more difficult to deductible
- At best, we reach limit taxation, but never generate a tax gain
- In Germany, on the other hand:
- Visit expenses and depreciation are largely deductible, by default
- It is relatively easy to generate a property deficit (especially in the early years)
- This deficit is deductible from other household income, and can therefore give rise to a tax refund
But that's not all...
New-build or listed real estate: why are these investments unbeatable for tax purposes?
The German government wants to encourage certain types of rental investment. And there's nothing better than a tax carrot.
New real estate (Neubau)
In Germany, the standard tax depreciation rate for real estate is 2 % per year. However, recent measurements (§ 7b EStG - Einzelnorm) introduced more advantageous rates for new buildings:
• 5 % per year : Decreasing rate applicable to all new rental properties, with no special conditions.
• Up to 10 % in the first year By combining the declining-balance depreciation of 5 % with an additional special depreciation of 5 %, provided certain conditions are met (construction cost not exceeding €5,200 per square meter and high energy performance).
Example in figures
Let's assume the purchase of a new apartment that meets the criteria for accumulating the 2 depreciations. Purchase price €400,000. Depreciation base 320,000 (part of the purchase price is considered to be the land, which cannot be depreciated).
• Declining-balance depreciation (5 %) 5 % of €320,000 = €320,000 16 000 €
• Special depreciation (5 %) 5 % of €320,000 = €320,000 16 000 €
Total deductible depreciation in the first year : 32 000 €
This depreciation is deducted from your property income, thus reducing the tax due. If this apartment is rented for €1,400 a month, and you have paid €16,000 in interest (4%) (for simplicity's sake, we're not taking into account other deductible expenses), you have a deficit of €3,200! If you're taxed at 45%, the taxman will give you back more than €14,000!
Historical monuments (Denkmalschutz)
The renovation work is deductible in an accelerated manner
Resale property taxation: France vs. Germany
Resale taxation is also more generous in Germany than in France. Consult the exact rules here.
To remember For example, when you invest in a rental property in Germany, you have the opportunity to recoup taxes during the holding phase, and then cash in on the capital gains on resale tax-free after 10 years!
Investing in France or Germany as an expatriate: the final game
| Criteria | France | Germany |
| Tax rates | 20-30 % + social security contributions | Progressive scale, no social security contributions |
| Deductibility of expenses | Limited | Large |
| Chargeable property loss | Impossible | Possible |
| Exemption from capital gains tax | After 22 years for tax and 30 years for social security contributions | After 10 years of ownership |
If you wish to reduce your taxes while investing in real estate, investing in Germany is more favorable.
Of course, even if taxation plays a key role, it's not the only criterion to consider when choosing between Germany and France. Here are a few other important factors:
- You'll find it easier to get a good loan in Germany because in France, you may be French, but you're still a non-resident!
BUT
- You may know the French market better than the German one.
- And you probably speak better French than German!
If you're thinking of buying in Germany, take a look at these two articles.
- Mortgages in Germany: 5 differences from France - Expat Finance
- Buying real estate in Germany (primary residence) in 5 steps
And of course for a personalized study contact Expat Finance
