Inheritance Tax (Erbschafts­steuer)

With regard to the tax exemption for business assets, a distinction must be made between assets that are generally eligible for tax relief and assets that are actually eligible for tax relief. 
Assets eligible for tax relief include:  

• Domestic agricultural and forestry assets and assets located in the EU or the EEA.  
• Domestic business assets or business assets serving a permanent establishment in an EU or EEA member state  
• Participations in domestic partnerships or in partnerships with permanent establishments in EU or EEA Member States  
• Shares in corporations with their registered office or management in Germany, a Member State of the EU or the EEA and a minimum shareholding of more than 25 percent. 

The beneficiary assets are then derived from the assets eligible for tax relief on the basis of a large number of calculation steps. In a simplified summary, it can be stated here that so-called administrative assets are excluded from tax relief and are deducted from the assets eligible for relief in order to determine the assets eligible for relief. 
Administrative assets are precisely defined by law. The definition is made with regard to the property serving the actual business. Of the assets eligible for preferential tax treatment, 85 percent are tax-exempt (= so-called “Verschonungsabschlag”).  

However, a prerequisite for the granting of the exemption discount is compliance with the so-called payroll deadline. The tax exemption is only to be granted if the business is continued with its employees. According to the regulation, within 5 years after the acquisition, the wage total may not fall below 400 percent of the initial wage total. The initial wage bill is the average wage bill of the last 5 financial years ending before the date on which the tax arises.  However, the regulation does not apply if the initial wage bill is EUR 0.00 or the enterprise has no more than 5 employees.  

If there are more than 5 but not more than 10 employees, a minimum wage bill of 250 percent replaces 400 percent. If there are more than 10 but not more than 15 employees, the 400 percent minimum wage rate is replaced by a 300 percent minimum wage rate.  If the minimum wage amount is not reached within the 5 years, the tax exemption lapses to the same percentage extent as the minimum wage amount was not reached.  

In addition, the tax relief cannot be claimed or can only be claimed on a pro rata basis if the business or the shareholding is sold or abandoned within 5 years after the acquisition (so-called retention period).  If the assets eligible for relief do not consist of more than 20 per cent administrative assets, a tax exemption of 100 percent can be claimed instead of the 85 percent tax exemption.  

However, this results in the following tightening of the payroll and retention periods to be complied with:  

• Retention period is 7 years instead of 5 years  
• Wage sum deadline is 7 years instead of 5 years  
• In the basic case, the minimum wage total is 700 percent instead of 400 percent.  
• If there are more than 5 but not more than 10 employees, the minimum wage bill increases from 250 percent to 500 percent.  
• If there are more than 10 but not more than 15 employees, the minimum wage bill increases from 300 percent to 565 percent.  

In addition, the assets remaining after deduction of the tax-free allowance are only taxed if they exceed EUR 150,000.00.