Germany Inheritance Tax Law Changes Approved

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By Jabeen Bhatti

Oct. 14 — Germany’s inheritance changes designed to restrict tax breaks won parliamentary approval, ending a period of uncertainty over the country’s inheritance tax laws that lasted nearly two years.

Under the new law, the inheritance tax is extended to companies with more than five employees from the current threshold of 20. Companies must continue to operate with all of their employees for five years for regular relief of 85 percent and for seven years for optional relief of 100 percent. And companies valued over 26 million euros ($28.5 million) will have to prove they can’t pay the inheritance tax if they wish to be exempt.

The bill’s passage Oct. 14 by parliament’s upper house, the Bundesrat, ends a legislative standoff on the rules governing the transfer of wealth in Germany that began in December 2014 when the German Federal Constitutional Court (BVerfG) declared the then-existing inheritance tax to be unconstitutional for unfairly privileging large corporations in addition to family-owned businesses.

The court called for parliament to amend the inheritance tax by June 30, 2016, a deadline missed by lawmakers. The lower house of parliament, the Bundestag, passed a reform of the tax bill June 24, but on July 8, the Bundesrat voted down that version of the bill and called for a mediation committee from both houses of parliament to revise the legislation.

Parliament’s failure to pass a revised version by the court’s deadline led attorneys to question whether Germany even had an effective inheritance tax in place in 2016. But the mediation committee reached a compromise on the law Sept. 22, and the Bundestag approved the committee’s changes to the bill on Sept. 29.

Still, even as lawmakers passed the bill, some worry the legislation, which must still be signed by the federal president to become law and would take effect retroactively from July 1, 2016, will face yet another constitutional problem: They say the bill didn’t offer a remedy for the court’s objections.


The inheritance tax changes free up the path for new rules on tax concessions for company heirs, the Bundesrat said in its Oct. 14 statement on the bill. “These heirs should broadly be exempt from the tax in the future if they continue to run their business and retain jobs,” the statement said. “But the mediation committee has recommended changing the provisions for these tax privileges to meet the constitutional court’s guidelines.”

Stefan Skulesch, a tax attorney at Bryan Cave in Frankfurt, told Bloomberg BNA in an Oct. 14 interview that the basic concept of tax relief for eligible assets remains intact.

Skulesch said that one difference is that family-owned businesses can apply for specific relief if they have certain restrictions in their articles of association for transfers and the distribution of dividends. These restrictions must be in place for two years before the wealth is transferred, and must remain for 20 years after the transfer, he added.

Another change concerns the reduction of the capitalization factor, the so-called multiplier, used to determine the value of companies for the inheritance tax, said Skulesch. The law reduces the multiplier to 13.75 percent from 17.86 percent to take the ongoing phase of low interest rates into account,” Skulesch said.

To contact the reporter on this story: Jabeen Bhatti in Berlin at

To contact the editor responsible for this story: Rita McWilliams in Washington at

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