The German Property Federation (ZIA) has positively received the European Commission's latest legislative proposal as part of the “Omnibus on Taxation”. This proposal brings the issue of interest limitation rules, which are considered to hinder investment, into the focus of European legislation. The initiative is seen as a decisive step towards improving investment-friendly framework conditions and as an important signal for the entire market.
The European initiative aims to significantly relieve corporate tax law in Europe. This is to be achieved by dismantling bureaucratic duplicate structures in conjunction with other tax regulations and by reducing disproportionate compliance costs.
Significance of Interest Limitation for the Market
Iris Schöberl, President of the ZIA, commented on the problem of the full tax deductibility of interest expenses for bank loans under the interest limitation rules. She emphasised that the lack of comprehensibility of this regulation, which was less relevant during times of low interest rates, has become more significant given the current interest rate environment. The fact that the European Commission has recognised the need for adjustments to the interest limitation rules is considered a significant signal. The present draft contains key positions which, from the perspective of the real estate industry, can help resolve the current investment backlog and stabilise market sentiment.
As unanimous adoption in the EU Council is required for direct corporate tax law, the ZIA stresses the need for decisive political action. Ms Schöberl underlined that the German government must seize the current momentum in Brussels to ensure a swift, investment-friendly implementation in the Council. Creating housing and improving framework conditions require the dismantling of tax barriers, both at European and national levels.
Potential Impact on Property Development
Adjustments to the interest limitation rules could have long-term positive effects on the willingness to invest in the real estate sector. Improved deductibility of interest expenses would reduce capital costs for property projects, which could open up new opportunities for developers and investors. This would be relevant not only for project development, but also for the financing of existing property portfolios. Stabilising market sentiment through appropriate legislative measures is therefore a basis for sustainable growth and the realisation of urgently needed housing in Bavaria and beyond.
