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Extended Trade Tax Relief for German Property Firms 2026

Last updated: 14 September 2026 · Reading time approx. 9 minutes

Hold your portfolio in a German limited company and the same rent is taxed twice over: corporation tax plus trade tax (Gewerbesteuer). The extended reduction under § 9 no. 1 sentence 2 of the Trade Tax Act (Gewerbesteuergesetz, GewStG) takes the letting profit out of trade tax completely — and it is the most fragile relief in German property taxation. A single day, one goods lift let along with the building, or a classic car sitting in the balance sheet costs you the relief for the entire year. This article shows who actually needs it, what it is worth in euros, and the three points where it fails in practice.

Who is exposed to trade tax on letting at all

Trade tax applies to "every standing business operation, in so far as it is operated in Germany" (§ 2 para. 1 sentence 1 GewStG). Private letting is asset management, not a business operation — as long as trading does not take over, which we covered in our article on the three-property threshold for commercial property trading. An individual who lets property has nothing to do with this provision.

A corporation is different. Under § 2 para. 2 sentence 1 GewStG, whatever a GmbH does counts "always and in full" as a business operation. The fiction applies regardless of whether the activity would be commercial in substance. A GmbH that does nothing but let three apartment buildings is liable to trade tax — and unlike an individual it has neither the allowance of €24,500, which under § 11 para. 1 sentence 3 no. 1 GewStG is reserved for individuals and partnerships, nor the credit under § 35 EStG. That credit reduces income tax by "four times" the trade tax assessment amount, capped at the trade tax actually payable (§ 35 para. 1 sentence 1 and sentence 5 EStG); it largely neutralises trade tax for sole traders and partners. For the GmbH the burden stays.

The short version: the extended reduction is irrelevant to a private landlord. It is the decisive instrument once property is held in a GmbH or in a commercially characterised GmbH & Co. KG.

What the relief is worth in euros

Trade tax is calculated in two steps: the base rate is 3.5% of the trade profit under § 11 para. 2 GewStG, and the municipality applies its own multiplier (Hebesatz) to the resulting assessment amount (§ 16 para. 1 GewStG). From assessment period 2027 a statutory minimum multiplier of 280% applies where the municipality has not set a higher one (§ 16 para. 4 sentence 2 GewStG in conjunction with § 36 para. 5b GewStG).

The comparison below uses a trade profit of €100,000 and a multiplier of 400%, which is common in larger German cities. It is an illustration, not a benchmark:

ItemRateAmount
Trade profit—€100,000.00
Trade tax assessment amount3.5%€3,500.00
Trade tax at a 400% multiplier14.00%€14,000.00
Corporation tax15.00%€15,000.00
Solidarity surcharge on it0.825%€825.00
Total burden without the extended reduction29.825%€29,825.00
Total burden with the extended reduction15.825%€15,825.00

In this example the relief is worth €14,000 a year — a six-figure sum over ten years at a constant profit. It feeds straight into the after-tax cash flow and therefore into every acquisition model built around a corporate structure.

Corporation tax is 15% for assessment periods up to 2027 under § 23 para. 1 KStG; it then falls in stages to 14% (2028), 13% (2029), 12% (2030), 11% (2031) and 10% from 2032. The solidarity surcharge is 5.5% of the assessment base (§ 4 sentence 1 SolZG 1995). Because the corporation tax rate falls while trade tax does not, the relative value of the extended reduction grows over the coming years.

New since 2025: the simple reduction is measured by property tax

Without an application, only the simple reduction under § 9 no. 1 sentence 1 GewStG applies. Its base changed with the German property tax reform: the reduction is now measured by "the property tax recorded as a business expense in the assessment period for real property belonging to the entrepreneur's business assets". Under § 36 para. 4b sentence 1 GewStG this version applies for the first time to assessment period 2025. Older texts and judgments cite a percentage of the assessed value (Einheitswert) instead — that reference point is gone.

The gap between the two remains wide: the simple reduction removes a four-figure amount from the trade profit, the extended one removes the entire letting profit. You cannot have both — sentence 2 expressly applies "in place of" sentence 1.

The conditions, in the words of the statute

The extended reduction requires an application under § 9 no. 1 sentence 2 GewStG and is available to businesses that "exclusively manage and use their own real property or, alongside their own real property, their own capital assets". Everything hangs on the word "exclusively". The Federal Fiscal Court (Bundesfinanzhof, BFH) reads it as qualitative, quantitative and temporal at the same time — the activity must qualify by its nature, by its extent, and throughout the whole year.

The statute itself permits only a narrow set of side income:

Side activityCeilingProvision
Electricity from renewable energy installations or from charging points for electric vehicles and e-bikes20% of the income from letting the real propertysentence 3 lit. b
Other services under direct contractual relationships with the tenants5% of the income from letting the real propertysentence 3 lit. c
Managing residential construction, building and selling one- and two-family houses and condominiumsno quota, but a separate profit calculation is requiredsentence 2 and sentence 4

The electricity ceiling is the most useful opening in practice. It has stood at 20% since assessment period 2023 (§ 36 para. 4b sentence 2 GewStG) and allows a solar installation on your own roof without losing the relief. Two details sit in the same sentence: the electricity must not be supplied to end consumers unless they are tenants of the operator — and the profit from the side activity must be calculated separately under § 9 no. 1 sentence 4 GewStG. What else comes with such an installation is covered in our article on solar power on a let apartment building.

Two exclusions cut off the relief irrespective of any quota. Under § 9 no. 1 sentence 5 no. 1 GewStG it is lost where the real property "serves, in whole or in part, the business operation of a shareholder or member" — the classic split-operation case in which the letting company rents to its own shareholder. And under § 9 no. 1 sentence 6 GewStG it is excluded for disposal and cessation gains within the meaning of § 7 sentence 2 nos. 2 and 3 GewStG.

What the courts have decided

The statute says "exclusively" and leaves open how strictly that is meant. Three recent, officially published decisions of the Federal Fiscal Court (Bundesfinanzhof, BFH) answer that for the three situations in which the relief actually fails: timing, fittings, and side assets.

BFH, judgment of 17 October 2024 – III R 1/23 (officially published)

A GmbH sold its only property with possession, benefits and burdens passing "at the start of 31 December". The court held that it cannot claim "the so-called extended reduction under § 9 no. 1 sentence 2 of the Trade Tax Act, since in that case it was not exclusively engaged in managing real property". A single day without property cost the relief for the whole year, and the court expressly refused an exception for insignificance. For owners this means: a sale must be timed for 31 December, 23:59, or pushed into the following year. The company did at least keep the simple reduction under sentence 1.

BFH, judgment of 25 September 2025 – IV R 31/23 (officially published)

The issue was a goods lift installed in 1987 in a let department store. The court made the rule explicit: "Since operating equipment does not form part of real property for valuation purposes, letting it along with the property excludes the extended reduction of the trade profit under § 9 no. 1 sentence 2 of the Trade Tax Act (GewStG). This also applies where the operating equipment is firmly connected to the land or the building." The only way out is a "side transaction that does not harm the relief", meaning one that is a "mandatory necessary part of an economically sensible management and use of one's own real property". Anyone letting commercial space should have lifts, cooling plant, loading ramps and specialist lighting checked before signing — the item here cost around €20,000 to install and still decided the case.

BFH, judgment of 24 July 2025 – III R 23/23 (officially published)

A letting GmbH held two classic cars as an investment in its fixed assets. It earned no income from them. The court denied the relief anyway: a "side activity not expressly permitted in § 9 no. 1 sentences 2 et seq. of the Trade Tax Act (in the case at issue: holding classic cars for the purpose of appreciation in value) may lead to the exclusion of the extended property reduction even where no income is generated from it." The common assumption that a side activity is harmless as long as it earns nothing is therefore wrong. Alongside its own real property, a company may only hold its own capital assets — art, vehicles or precious metals in the same GmbH do not qualify.

Frequently asked questions

Does the extended reduction have to be applied for every year?

Yes. § 9 no. 1 sentence 2 GewStG grants it "on application", and trade tax is an annual tax: the assessment period is the calendar year (§ 14 sentence 2 GewStG). The application is made with that year's trade tax return, and the conditions are tested afresh each year.

Does the relief cover the gain on selling a property?

For a GmbH, an ordinary disposal gain from its own real property belongs to the relieved part of the trade profit, provided the company does not slide into commercial property trading. Excluded under § 9 no. 1 sentence 6 GewStG are disposal and cessation gains within the meaning of § 7 sentence 2 nos. 2 and 3 GewStG — essentially gains on the sale of partnership interests.

What if I let a warehouse to my own trading company?

Then § 9 no. 1 sentence 5 no. 1 GewStG applies: where the real property "serves, in whole or in part, the business operation of a shareholder", the relief is lost. How small the affected part is does not matter.

Does a solar installation on the roof cost the relief?

Not necessarily. Income from supplying electricity is harmless up to 20% of the income from letting the real property (§ 9 no. 1 sentence 3 lit. b GewStG), provided the electricity does not go to end consumers outside your own tenants and the profit is calculated separately.

Is a GmbH still worth it without the extended reduction?

That is arithmetic, not a matter of principle. Without the relief the ongoing burden at company level in the example above is 29.825% instead of 15.825% — and the advantage over private letting shrinks to the difference from your personal tax rate. Anyone planning around a GmbH should treat the relief not as a bonus but as a condition of the calculation.

Every property with its own tax file

RenoDiary brings purchase price allocation, depreciation, tradespeople's invoices, rents and side income together per property — the basis for any clean split between relieved letting and a side activity.

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Sources

This article offers general orientation and does not replace individual tax or legal advice within the meaning of § 3 StBerG. Whether the extended reduction is available in a particular case depends on the actual activity, the lease agreements and the fittings of the properties; the figures are illustrative calculations, and each municipality sets its own multiplier.