Do I need a German bank account?

Not by law, but in practice yes: the Kaution must sit at a German bank, and tenants pay by transfer in euros. Most owners abroad let the Verwalter run a separate account for the flat.

Can I do this without a Verwalter?

You can, if you can act in Germany within days: the deposit account, the operating-cost statement, the rent-increase letter and the tax return each need someone who reads German and can sign. Most owners abroad appoint one.

What happens if the Betriebskostenabrechnung is late?

Any balance the tenant owes for that year is lost, unless the delay was not your fault. Credits the tenant is owed must still be paid.

Is my German rent taxed twice?

Usually not: double-taxation treaties leave the taxing right on German property with Germany, and your home country exempts the income or credits the German tax. You still file in both countries.

Checklist for overseas owners of German rental property

If you live outside Germany and let a German flat or house, four things run on German rules whatever your home country says: the deposit, the annual operating-cost statement, the rent rules, and the tax return you must file in Germany on the rent. Most of them have a fixed deadline and a fixed consequence for missing it, and almost none of them can be handled from abroad without someone in Germany.

Before the first tenant

Decide who acts for you in Germany. A Mietverwalter (letting manager) handles the tenancy, the money and the Betriebskostenabrechnung for you; the WEG-Verwalter of the building manages the common property and is not the same person or role. If the flat is in a Wohnungseigentümergemeinschaft, you will deal with both.

Give the Verwalter a written Verwaltervertrag that says what they may sign, what they may pay, and how they report; German managers act on written authority, and a bank or a tenant may ask to see it.

Register with the Finanzamt before the first rent (the Fragebogen zur steuerlichen Erfassung, through the ELSTER portal), so that you have a tax number to file against.

Be ready to name a recipient in Germany for tax post if the Finanzamt asks: a taxpayer without a residence in Germany, another EU state or the EEA must name a domestic Empfangsbevollmächtigter on request, within a reasonable period (section 123 AO).

Check whether the flat is in an area with a rent cap (Mietpreisbremse): in an area designated by the state, the rent at the start of a new tenancy may exceed the local comparative rent by at most 10 per cent, with exceptions for new builds and thoroughly modernised flats (section 556d BGB); the state ordinances can run until 31 December 2029 at the latest. The Verwalter should confirm the area and the exception before setting the rent.

Check the local rules on short lets before offering the flat for holiday use: Berlin, Hamburg, Munich and other cities restrict or license the conversion of housing to short stays (Zweckentfremdung). Cuvanti's short-term rental rules pages for Germany hold the current position by city.

The deposit (Kaution)

The Kaution is no more than three months' rent excluding the operating-cost advances, that is, three months' cold rent (section 551 BGB).

The tenant may pay it in three equal monthly instalments, the first at the start of the tenancy and the other two with the next two rent payments (section 551 BGB).

It is held at a bank, separate from the owner's own money, at the usual rate for savings deposits with three months' notice, and the interest belongs to the tenant and adds to the deposit (section 551 BGB). An owner abroad normally has the Verwalter hold it on a German Kautionskonto.

At the end of the tenancy there is no statutory deadline for its return; the courts allow the landlord a reasonable period to inspect the flat and settle claims, and a reasonable retention for the final operating-cost statement where one is still due. That period is court practice, not a figure in the statute.

The annual operating-cost statement (Betriebskostenabrechnung)

Operating costs may be passed on only if the lease says so and only for the cost types in the Betriebskostenverordnung; management fees and repairs are not operating costs and stay with the owner.

The statement for each accounting period must reach the tenant no later than the end of the twelfth month after the period ends (section 556 (3) BGB). Miss it and any balance owed by the tenant is lost, unless the delay was not the landlord's fault; the tenant likewise has twelve months from receipt to object.

For a flat in a WEG, the owner's statement to the tenant depends on the WEG-Verwalter's annual accounts (Jahresabrechnung); the calendar should show both, because the second cannot be finished until the first is.

Rent and rent increases

An increase to the local comparative rent may be demanded only when the rent has been unchanged for 15 months, needs written reasons, and may not raise the rent by more than 20 per cent within three years, or 15 per cent in areas the state designates (section 558 BGB). Index and stepped rents follow their own clauses.

The Verwalter collects rent into an account the owner can see, and the monthly report shows rent, operating-cost advances and any arrears separately; German tenants pay by transfer or standing order, and the Verwalter reconciles by reference.

Tax in Germany

Rental income from real property in Germany is German-source income of a person with limited tax liability (section 49 (1) no. 6 EStG), taxed in Germany even though you live elsewhere; most double-taxation treaties leave the taxing right with the country where the property is.

You file a German income-tax return for persons with limited tax liability each year, reporting the rent and the deductible costs: interest on the loan, the Verwalter's fee, repairs, insurance, the non-recoverable operating costs, and depreciation.

Depreciation on the building (not the land) is 2 per cent a year for buildings completed from 1925 to the end of 2022, 2.5 per cent for buildings completed before 1925, and 3 per cent for residential buildings completed after 31 December 2022 (section 7 (4) EStG). The purchase price must be split between land and building.

The return is due seven months after the end of the calendar year, that is 31 July of the following year, or the last day of February of the second following year when a German tax adviser prepares it (section 149 AO).

Property tax (Grundsteuer) is assessed by the municipality and is usually passed on to the tenant as an operating cost; it is still the owner's bill to pay on time.

Letting residential property is exempt from VAT (section 4 no. 12 UStG); do not charge it and do not claim it. Short-term letting of rooms to guests is not exempt, which is one more reason to check the short-let rules first.

When you sell

A gain on a German property sold within ten years of purchase is taxable in Germany as a private sale, unless the property was used only as your own home (section 23 EStG); after ten years it is not. The notary handles the transfer and the land-transfer tax, and the tenancy passes to the buyer with the flat.

Cuvanti holds the tenancy dates, the Kaution record, the operating-cost calendar and the monthly owner statement in one place, in English and German, and produces the year's figures in the form a German tax adviser expects. General information, not legal or tax advice: the figures above carry the statute and the date they were checked, and a German tax adviser should confirm your position before the first return.