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German tax law distinguishes between resident and non-resident status. A German resident entity is, in principle, subject to tax on its worldwide income (so-called ‘unlimited tax liability’). A non-resident is subject to tax on German-source income (so-called ‘limited tax liability’) unless exemption from German tax is provided under the terms of a tax treaty concluded between the country of residence and Germany. The international tax treaties concluded by Germany give Germany in principle the right to tax income derived from German real estate.
It is possible for a non-resident of Germany to make a direct investment in German real estate or an indirect investment (through an interposed acquisition vehicle). The acquisition vehicle in the latter case may be either a German resident or non-resident entity. A German resident entity is one that has either its seat or place of management in Germany. An indirect investment may be through a newly formed entity established for this purpose or by the acquisition of an existing entity, which owns German real estate.
Source : PWC
