Recently changed tax structures in Germany provide significant opportunities for healthy returns for Australian property investors, according to professional services firm, Deloitte.

David Brown, Deloitte partner from the UK practice and currently seconded to the Australian firm, said the coming months provide some of the best value opportunities seen in Germany for years.

“As the market environment has changed, tax strategy has also been evolving to deal with the changing tax regulations in Europe. The state of the market means that there are likely to be great value opportunities for superannuation and managed funds to invest in key European markets over the coming year or two, particularly in Germany and the UK,” Mr Brown said.

The big news was the business tax reform in Germany in late 2007. The overall German corporate tax rate has been reduced to approximately 30% (from 40%), while the effective rate for passive real estate activities is as low as 15.825%.

“As the German tax rate is now close to the 15% incurred on income by Australian super funds, it is probably more efficient to structure German property vehicles via entities that would be considered transparent for Australian purposes, such as a German KG (limited partnership),” Mr Brown said.

“German taxes paid would then flow straight through the Australian trust fund vehicle (of LPT) and end up as a tax credit. Managed funds or individual investors could use this to offset against their Australian tax bill.

“This structure would also enable investors to benefit from tax deferred income and discounted tax rates where capital against are made on the sale of the underlying property or partnership interests.”

Mr Brown added that the tax reforms introduced by the Australian Government in 2007 gave property trusts more leeway in their offshore investments.

“The main thrust was to allow trusts to retain tax transparency for Australian purposes when they invested into offshore entities that had a degree of trading activity. This relaxation was intended to be sufficient to allow an LPT to acquire a REIT offshore. Some UK REITs, in particular, are trading at significant discounts to the latest valuation of their underlying assets which may make them attractive targets for Australian buyers,” Mr Brown said.