Taxes when renting out a logistics property

Taxes when renting out a logistics property: The guide for owners & investors

Letting industrial and logistics property is booming: driven by e-commerce growth, nearshoring and rising space demand, modern logistics halls in Germany’s top regions (for example Rhine-Main, Munich, Hamburg) achieve prime rents of 7.50 to 11.50 €/m². Yet the gross yield is misleading when tax pitfalls erode net operating income (NOI). Whether pure cold storage, a cross-dock hub or a specialised multi-user warehouse for contract logistics: anyone letting a logistics hall operates in the tension between private asset management and a commercial character, the VAT option and dangerous input-VAT clawbacks.

Principle: VAT exemption under section 4 no. 12a UStG and the option to tax

In principle, the letting of land and hall buildings in Germany is VAT-exempt under section 4 no. 12 sentence 1 letter a of the German VAT Act (UStG). For owners of commercial and logistics property this is often a serious yield trap: if rental turnover is exempt, the input-VAT deduction (section 15 (2) UStG) is lost for construction costs (CAPEX), refurbishments and ongoing maintenance.

To secure the input-VAT deduction, landlords use the option under section 9 UStG:

• Requirement: The tenant must be an entrepreneur who uses the logistics space almost exclusively (at least 95%) for supplies that do not exclude the input-VAT deduction.
• Practical relevance: Contract logistics providers (3PL/4PL), CEP services and classic freight forwarders supply regularly taxed transport and logistics services at 19% VAT. The option is generally straightforward here.
• Caution with mixed tenants: If a bank, an insurer or another VAT-exempt party rents part of the space as an archive or buffer store, a proportionate loss of input VAT and a ten-year input-VAT adjustment under section 15a UStG are at risk.

Trade-tax trap: the extended trade tax reduction (section 9 no. 1 sentence 2 GewStG)

Asset-managing property companies (such as commercially characterised GmbH & Co. KGs or pure property GmbHs) can reduce their trade income by the portion attributable to managing their own real estate. In the ideal case, trade tax is 0%; with corporation tax of 15% plus the solidarity surcharge (effectively 15.825%), the total tax burden sits well below the regular corporate tax rate of around 30%.

The risk in the logistics sector: if operating equipment is let together with the pure hall space, the extended trade tax reduction is lost for the entire company:

• Operating facilities: Conveyor technology, automated high-bay warehouses (AS/RS), crane runways, dock levellers and specialised refrigeration plant are often classified, under civil law or valuation law, as operating facilities and not as part of the building.
• Thresholds: Since the German Fund Location Act (FoStoG), the legislator allows harmless income from co-letting operating facilities of up to 5% of the rental income from the real estate (section 9 no. 1 sentence 3 letter b GewStG) and from rooftop PV systems of up to 10%. In highly automated logistics centres this 5% threshold is quickly exceeded.
• Structuring solution: Split into a pure property company (real-estate shell) and a separate operating or leasing company for the logistics technology.

Contract logistics vs. pure letting: where is the line to a commercial business?

In classic warehouse logistics the landlord provides the hall for the tenant’s autonomous use (a classic lease or triple-net agreement). For tax purposes the income is pure income from letting and leasing (section 21 EStG) or real-estate asset management.

If the property owner also acts as a contract logistics provider and supplies operational value-added services (VAS) such as:

• order picking (pick & pack), kitting and labelling,
• goods-in inspection and inventory management via a WMS,
• returns processing (reverse logistics),

there is no pure tenancy, but a mixed service or works contract. Tax consequence: all income is originally commercial (section 15 EStG), is fully subject to trade tax, and requires a strict accounting separation of the pure space charge and the logistics service.

Depreciation, building write-off and rooftop PV

Investments in logistics property tie up substantial equity (CAPEX). A precise depreciation strategy (AfA) materially improves the after-tax yield:

• Regular building depreciation: Under section 7 (4) no. 1 EStG, logistics halls that belong to business assets and were completed after 31 December 2000 are depreciated on a straight-line basis at 3% per year (useful life: 33.3 years).
• Shortened remaining useful life: With intensive 24/7 use through cross-docking traffic or lightweight construction, a building-fabric survey (section 7 (4) sentence 2 EStG) can evidence a shorter actual useful life, which allows higher annual depreciation rates.
• Photovoltaics on the hall roof: On logistics halls with roof areas of 10,000 to 50,000 m², large PV systems are standard. Income from selling solar power does not jeopardise the extended trade tax reduction as long as it does not exceed 10% of rental income (section 9 no. 1 sentence 3 letter a GewStG).

Property-tax reform and regional multipliers (geo impact)

Property tax is an apportionable operating cost (OPEX), but it affects the tenant’s total cost of occupancy:

Depending on the federal state (federal model versus area and area-factor models as in Bavaria, Baden-Württemberg or Lower Saxony) and the municipal multiplier, property-tax burdens for 20,000 m² of hall space vary by several tens of thousands of euros a year.

Under triple-net leases (NNN) the contract logistics provider bears these costs directly. Excessively high municipal multipliers can therefore argue against a location.

Frequently asked questions (FAQ) on taxes for logistics property

1. Why should a landlord of a logistics hall voluntarily waive the VAT exemption?

By waiving it (the option under section 9 UStG), rent is invoiced plus 19% VAT. This entitles the landlord to a full input-VAT deduction on construction and planning costs (CAPEX) and on contractor, facility-management and repair invoices (OPEX). On new-build sums running into the millions, this saves up to 19% of the investment costs.

2. What happens for tax purposes if the logistics tenant files for insolvency or the hall stands empty?

During a vacancy the right to deduct input VAT remains in place as long as the intention to let in a way that does not harm input VAT is credibly evidenced (for example by instructing a broker on specialist portals such as LAGERflaeche.de). If a tenant who is not entitled to deduct input VAT rents on an interim basis, section 15a UStG applies: for each year of vacancy or incorrect occupation, 1/10 of the original input VAT must be repaid to the tax office.

3. Do mezzanine levels and racking systems belong to the building for tax purposes?

Mobile pallet and shelf racking and free-standing racking platforms are separate assets or operating facilities. They are not depreciated over 33.3 years like the building, but usually over 8 to 14 years according to the depreciation table. Fixed, building-supporting high-bay warehouses in silo construction, by contrast, count as an integral structure.

4. What is the effect of co-letting outdoor areas and truck parking spaces?

Looked at in isolation, the letting of pure parking spaces is always subject to VAT (section 4 no. 12 sentence 2 UStG). If the truck yard is let to the same commercial tenant as a dependent ancillary service to the logistics hall, it shares the tax treatment of the main service (opted hall rent).

5. When does the risk of a business split (Betriebsaufspaltung) arise for logistics property?

When the owning entrepreneur (owner of the hall) and the operating company (for example the owner’s own forwarding business) are intertwined in terms of persons and assets. If the hall is an essential business asset of the forwarding company, the letting automatically becomes commercial. A later sale of the logistics property then triggers substantial income tax and trade tax on the disclosed hidden reserves.

6. Which clauses must a commercial lease contain?

The contract must stipulate that the tenant uses the space exclusively for activities entitled to input-VAT deduction, that any change of use requires consent, and that the tenant is liable for all input-VAT damage under section 15a UStG in the event of a breach.

7. What must be observed with cross-border leases?

Real estate is always subject to the situs principle: a logistics hall on German soil is mandatorily subject to German tax law, regardless of whether the tenant is a group from the Netherlands, Poland or the United States.

Conclusion: Tax structuring protects hall value and yield

Letting logistics and contract-logistics space is far more than merely providing square metres. The optimal structure – from opting for VAT, through a clean separation of building and operating facilities, to using the extended trade tax reduction – protects against unexpected tax back-payments and maximises the asset’s market value. Those who implement clear green-lease and input-VAT clauses before the lease is signed establish a future-proof, value-stable investment.

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