Before 2009, non-resident companies directly holding German real estate were denied the higher depreciation rate of 3%. The Lower Fiscal Court of Cologne ruled that forcing non-resident companies directly holding German real estate to use the regular 2% depreciation rate is a breach of the free movement of capital. Since 2009, non-resident companies that directly hold German real estate also qualify for the higher 3% depreciation rate.
Depreciation of real estate
On 10 July 2013, the Lower Fiscal Court of Cologne ruled in the case of a Luxembourg company directly holding German real estate. Because the non-resident company did not have a permanent establishment in Germany, its income from the real estate was considered to be income from immovable property instead of business income. Therefore, the non-resident company was forced to use the 2% depreciation rate. However, resident companies that held German real estate qualified for a 3% depreciation rate, resulting in a cash flow benefit for German residents. The Lower Fiscal Court ruled that this distinction between resident and non-resident companies constitutes a breach of the free movement of capital within the European Union.
As a result of this verdict, the Luxembourg company could now apply the 3% depreciation rate. However, an appeal has been filed with the Federal Fiscal Court, which could overturn the verdict of the Lower Fiscal Court. Furthermore, as of 2009, due to a change of the law, non-resident companies directly holding German real estate are considered to receive business income (instead of income from immovable property). This means they qualify for the 3% depreciation rate the same as German resident companies.