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The difference between private and commercial rentals in Germany

There are many questions when it comes to temporary rentals in Germany: Can I rent out a furnished apartment temporarily as a private person? Or are commercial rentals the way?

There are many questions, especially when it comes to temporary renting: Can I as a private person rent out a furnished apartment for temporary living? Or is renting out furnished apartments a business that has to be registered – and when exactly is that the case?

Below we go into the differences between private renting and renting as a commercial activity. We answer the following questions:

 

Private asset management or commercial activity – what is the difference?

Real estate you own is called immovable property in Germany. If you rent or lease this immovable property, it is usually private asset management (§ 14 AO).

You have purchased or inherited a property and generate income by renting it out. You can pursue this activity as a private person; it is not in itself commercial. Under certain circumstances, however, renting out apartments is a business. A business is any legal, independent, publicly recognisable and permanent activity carried out with the intention of making a profit, through which income or other economic benefits are generated. This activity must go beyond the scope of private asset management.

We explain what this means in terms of renting furnished apartments for a limited period in the section below.

When do I act commercially when renting?

The distinction between renting out as a private asset management activity and as a commercial activity is not always easy. This is because there is no legal framework that defines exactly when landlord’s/-lady’s start acting commercially. It cannot be clearly stated, for example, that renting out a certain number of rented apartments or earning a certain amount of income is considered commercial.

The case law on this varies greatly and is always a case-by-case decision: For example, the Düsseldorf Higher Regional Court (Oberlandesgericht) assumed that the renting of an entire apartment building constituted commercial renting. The local courts in Berlin-Lichtenberg and Stuttgart, on the other hand, came to the conclusion that there was commercial activity even in the case of renting out a single apartment. In another case, a Berlin landlord wanted to be classified as commercial for the renting of a single apartment. However, the Federal Fiscal Court ruled that the renting did not go beyond the scope of private asset management.

It is impossible to give a firm indication as to when landlord’s/-lady’s are classified as commercial. However, there are some indicators. These are repeatedly mentioned in the reasoning of various courts for the classification of renting as a commercial activity.

This includes for instance that the rental is operated in a hotel-like manner:

  • You often have changing tenants, as is the case when renting to holiday guests by the day or week, and the rental is billed by the day. Neither of these apply to you if you rent via Wunderflats, as apartments for tourist purposes are not offered on our platform. Depending on the city, the minimum rental period is at least one month and the rent is charged monthly.
  • Additional services are offered that go beyond the ordinary renting of living space for permanent living, such as daily room service or breakfast. The mere provision of bed linen or other furnishings does not in itself constitute commercial renting. The maintenance and upkeep of the apartment and its furnishings also have no bearing on this.
  • You have employed staff who are permanently available for your tenants, for example at a reception desk.
  • You rent out several furnished apartments of the same kind in the same building as an aparthotel.

 

A commercial enterprise can be assumed if the rental is run in a business-like manner:

  • You spend a lot of your time renting, for example, if you own a large number of apartments.
  • You operate an office for the management of your properties and employ staff for this purpose.
  • You list your rental properties on a larger scale. However, posting the apartment listing on a rental platform like Wunderflats does not by itself count towards this.
  • You not only manage your own apartments but also third-party properties and/or also engage in real estate trading.
  • The profit-making intention goes beyond pure asset management. This means, for example, that you manage real estate with the aim of reselling it at the highest possible profit. As a rule, commercial property trading is assumed: if you have sold more than three properties within a period of five years since the purchase or construction of the property and if there are less than five years between the individual sales (so-called three object limit).

How do I know whether I am renting privately or commercially?

The tax office decides on the classification of your rental as private asset management or commercial activity. Therefore we advise you, to talk to your relevant tax office if you are unsure. If you do not agree with the classification, your only recourse is to go to court to clarify the facts.

You are clearly acting commercially if you set up a company to manage your furnished apartments.

What forms of business are there for the commercial renting of furnished apartments?

If you want to set up a company to manage and rent out your furnished apartments, there are various forms of organisation for this. You can set up as a sole proprietorship, a limited liability company (GmbH) or as a civil law partnership (GbR). A special form is provided by the asset-managing GmbH and GbR, which are exclusively authorised to manage assets that are owned by the company.

The various company structures differ, on the one hand, in whether you are liable with your private assets or with the company’s assets. On the other hand, there is a significant difference in the type of taxes that have to be paid depending on the form of enterprise. 

Whether setting up a company to manage your furnished accommodation is feasible and makes sense for you can best be clarified within the framework of a tax consultation.

What are the tax differences between renting as a private individual and commercially?

Various taxes may apply to the income from renting out real estate. Depending on whether you rent out as a private individual or as a company, there are important tax differences in Germany.

Taxes when renting as a private person

As a private renter, you pay income tax on your rental income according to your respective tax rate (§ 2 Para. 1 No. 6, § 21 EStG). Expenses that you have for the apartment, for example maintenance, can be claimed as income-related expenses in your tax return.

Taxes when renting as a business

If you rent out as a company, the taxes differ depending on your company type. Sole proprietorships, GmbHs and GbRs are taxed differently. A GmbH or GbR that exclusively manages its own assets is treated differently for tax purposes than those companies that manage third-party real estate or also engage in commercial real estate trading.

Depending on the form of organisation, income tax, capital gains tax, trade tax or corporation tax may be payable on the income from the rental.

Value added tax for rentals of less than six months

As a rule, income from renting and leasing is exempt from value added tax. An exception applies only to rentals with a rental period of less than six months. Here, the reduced VAT rate of 7 % applies for commercial landlord’s/-lady’s.

At Wunderflats, we compensate our commercial landlord’s/-lady’s for this VAT: For rentals of less than six months, we deduct 7 % from the total rent and only charge our service flat-rate on the remaining amount.

We also grant you this discount if you operate as a small business. The classification as a small business is independent of the organisational form of your business and only affects the payment of VAT. As a small business, you are generally exempt from VAT. To be exempt, your total turnover in the previous calendar year must not exceed €22,000 and your total turnover in the current calendar year is not expected to exceed €50,000.

What else changes if I rent commercially?

Apart from the tax regulations, there are other differences between renting as private asset management and renting commercially.

Commercial renters are obliged to keep accounts (§ 238 HGB). If the annual turnover is more than €600,000 or an annual profit of more than €60,000 has been earned, there is an obligation to keep accounts (§ 266 HGB). Those who are not subject to the obligation to draw up a balance sheet must instead submit a revenue-surplus account (§ 4 Para. 3 EStG). Anyone registering a commercial enterprise in Germany must become a member of the Chamber of Industry and Commerce (IHK). This results in regular membership fees. However, membership also has advantages, such as further training, advisory services and networking opportunities.

There is also a difference when tenants rent an apartment from a company. In this case, there is a right of withdrawal under consumer law of 14 days if the tenants have not inspected the apartment before concluding the rental agreement and the rental agreement was concluded online (§ 355 BGB). This right of withdrawal is also stated in the Wunderflats rental agreement if you are renting out as a company. We have summarised all information about the rental agreement for you here: Rental contracts for temporary living.

Finally, the commercial renting of apartments also has an impact on property sales. In the case of private sales, apartments are always exempt from the so-called speculation tax if they have been in your possession for at least ten years before the sale. If real estate is owned by a limited liability company (with the exception of asset-managing limited liability companies), its sale is considered commercial. A commercial sale is always taxable. However, you can claim any losses for tax purposes.

Renting privately or commercially – which is better for me?

The essential differences between renting as private asset management and commercially are summarised for you:

The advantages and disadvantages
for private landlord’s/-lady’s for commercial landlord’s/-lady’s
Private asset management Hotel-like or business-like running of the rental
Hiring of staff for the renting and management of the apartments can be taken as an indication of commercial renting Staff can easily be hired for the rental and management of the apartments
Income tax on rental income Depending on the type of company, income tax, capital gains tax, corporate income tax or trade tax on rental income
No value added tax for rentals with a rental period of less than six months  Reduced VAT of 7 % for rentals with a rental period of less than six months (except small businesses)
No bookkeeping or accounting obligation; expenses can be claimed as income-related expenses in the tax return Obligation to keep accounts; obligation to draw up balance sheet if annual turnover exceeds €600,000 or annual profit exceeds €60,000
No membership in the IHK required Membership in the IHK necessary
No right of withdrawal for tenants In the case of renting out by companies, under certain circumstances, tenants have a 14-day right of withdrawal
No speculation tax on the sale of real estate if the apartment has been in your possession for at least ten years Speculation tax on the sale of real estate

Whether landlord’s/-lady’s act privately or commercially has tax implications. Therefore, talk to your tax office about how you are classified.

Whether private or commercial renting is more suitable for you depends on your individual situation – for example, the number of apartments you rent out or the annual turnover you generate with them. We recommend seeking tax advice to clarify whether setting up a company to manage your furnished apartments is worthwhile for you.

In which instances can I rent out via Wunderflats?

Regardless of whether you act privately or commercially when renting out your apartments – you are in good hands with Wunderflats! We offer you a platform for renting out your furnished apartments on a temporary basis.

If you rent out a single apartment, offer a large number of apartments or operate a serviced apartment building, if you only want to sublet your own apartment once or you are interested in a long-term cooperation – as a Wunderflats landlord/-lady, whether private or commercial, you will benefit from our comprehensive rental services. We will find you verified tenants, provide you with our verified rental agreement if required, and provide you with professional photos of your apartment free of charge.

Would you like some advice? Request your free personal consultation appointment here. Or start renting out now with Wunderflats.

Please note: The contents of this page have been prepared for your information and the law firm Heuking Kühn Lüer Wojtek has been commissioned to check the legal correctness of the German version of this article. However, this posting does not replace legal advice. For legal advice in your specific case, please contact a law firm. With more than 400 lawyers, tax advisors and notaries at eight locations in Germany, the law firm Heuking Kühn Lüer Wojtek can quickly help you. Contact Dr. Marcus Georg Tischler, our Wunderflats contact person on site. He will connect you with the appropriate expert in the law firm who will take care of your individual concern when you submit a request.

Person to contact
Dr. Marcus Georg Tischler

 

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