Germany is a popular vacation destination with the Dutch, in part because of its easy accessibility. More and more countrymen have second homes in areas such as the Eifel and Sauerland. If you are thinking of buying a vacation home in Germany, you need to consider a number of taxes: income tax, sales tax and transfer tax.

Buying a vacation home in Germany: Income tax

As a Dutchman with a second home in Germany, you basically have to pay income tax in both countries. However, to avoid paying double tax, the Netherlands has entered into a tax treaty with Germany. As a result, you only have to pay income tax in the country where the second home is located. You do have to declare the house in box 3 of your Dutch tax return but a correction is made, so you do not pay income tax here.

The amount of income tax in Germany (‘Einkommensteuer’) is usually not too bad. This is because in Germany you can deduct all kinds of charges and costs, such as the interest on the financing and the depreciation on the inventory and the house itself.

Sales tax

If you want to rent out your second home in Germany, you can become an entrepreneur for sales tax (“Mehrwertsteuer”). When you purchase the property, as an entrepreneur you can then deduct the sales tax from the purchase price of the property and inventory. If you sell the vacation home within 10 years or start using it entirely yourself, this deduction is partially reversed. For the inventory, the time limit is 5 years. This reversal is similar to the revision scheme in the Netherlands.

In case of short-term rental of a second home in Germany, you have to take into account a sales tax of 7%. In the case of long-term rental to a tour operator, the rate is 19%. You can deduct all VAT in the expenses you incur for the second home from taxes. In the first 2 years as owner, you have to file monthly sales tax returns. From the third year, you can also do this on a quarterly basis.

Transfer tax

When purchasing a second home in Germany, you must pay transfer tax (“Grunderwerbsteuer”). Usually the rate is 3.5% (6% in the Netherlands). Sometimes it is higher, for example 4.5% in Berlin.

Other taxes on a German second home

In all German municipalities, you have to pay property tax (“Grundsteuer”). The rate and its calculation depend on the municipality where the property is located.

Upon death, your heirs must pay inheritance tax (‘Erbschaftsteuer’) in both the Netherlands and Germany. Due to the double taxation treaty between the Netherlands and Germany, they only have to pay this tax in Germany, where the home is located.

If you buy a second home in Germany, it is in any case advisable to get advice and guidance from a tax advisor (‘Steuerberater’). This way you can be sure that everything is properly taken care of and you can sleep on both ears… and enjoy your vacation home to the fullest.