Since 1 January 2025, corporations such as foundations, associations or companies can receive tax benefits if they promote non-profit residential purposes (§ 52 II (1) No. 27 of the German Fiscal Code (AO)). In implementation of the coalition agreement, the Annual Tax Act 2024 (JStG 2024) introduced the new charitable purpose of providing subsidised housing. If corporations provide subsidised housing on a permanent basis, they can be rewarded for this with tax benefits.
Non-profit status as a tax-privileged mechanism
The recognition of non-profit status can be of great importance for housing companies, for example, as the associated tax concessions can have practical effects with regard to the company's business activities and investments. In non-profit law, these tax benefits are linked to the pursuit of specific objectives. The non-profit status benefits corporations, associations of persons and asset pools within the meaning of the German Corporation Tax Act (KStG) (see § 51 I 2 AO). These include, for example, foundations and associations that invest in the construction of housing and want to support the socially disadvantaged. However, housing companies that are committed to creating affordable housing in the long term can benefit in particular. Existing housing companies that are already active in social housing construction and have housing portfolios can be transferred as a whole to non-profit status. However, it is also possible to establish a completely new housing company under the new nonprofit housing organisation. For private investors, access to the new public housing benefit scheme is limited. However, there could be the possibility of cooperation between private and non-profit property developers.
The Federal Ministry of Housing, Urban Development and Construction estimates that around 100 organisations will initially be able to benefit from the tax breaks.
Non-profit law has been enshrined in the German Fiscal Code since 1977. The Federal Fiscal Code regulates the basic structure of tax and duty law in the Federal Republic of Germany. Specific regulations can also be found in the individual tax laws (for example in the Income Tax Act). The German Fiscal Code essentially outlines and regulates the timing of the taxation procedure. It contains the most precise possible provisions on the respective obligations
and rights of taxpayers.
It is particularly important for corporations such as housing companies to take a look at the third section, which regulates the „tax-privileged purposes“ (§§ 51 et seq. AO). If a taxable corporation pursues at least one of the charitable purposes, it can benefit from tax concessions. Specifically, the pursuit of charitable purposes in accordance with Section 52 I, II of the German Fiscal Code is the core provision that is now relevant for corporations in the housing market. In the Annual Tax Act 2024, the federal government added the new ‘residential community benefit’
purpose, the subsidised provision of housing (§ 52 II No. 27 (1) AO).
With the new non-profit housing provision (NWG), a valuable new instrument was created for corporate bodies such as housing companies, foundations and associations to incentivise the creation of housing by means of non-profit law as a tax concession mechanism.
The public benefit housing system in the Federal Republic of Germany
Non-profit housing was introduced for the first time in 1851, so the new non-profit housing law was not a novelty, but a continuation of a well-known housing policy tradition. Many non-profit housing companies were founded and subsidised by the state in order to provide an incentive to make non-profit investments in the housing market. Companies undertook to invest surplus income in new buildings. Specific incentives were created by the granting of subsidised loans, exemption from certain licensing requirements and a wide range of tax concessions, for example with regard to corporation and trade tax. As a result, the non-profit status was considered a far-reaching and comprehensive instrument for both the benefiting tenants and the tax-privileged companies. In fact, the non-profit housing sector made a significant contribution to reconstruction.
It came to an end in 1990 when the government of the time decided to rely on market forces. After a long debate and many years of calls for it, the public housing benefit has now been revived. Klara Geywitz, Federal Minister for Housing, Urban Development and Construction, is delighted about this revival in the context of the new public housing benefit scheme. „The housing association is back! I am delighted that we have succeeded in realising this important project from the coalition agreement. In addition to social housing construction, we are creating another strong pillar for more affordable living space in our country with the non-profit housing scheme. In future, social enterprises, associations and foundations will be able to provide subsidised housing and benefit from the comprehensive tax relief offered by non-profit status.“
Concrete effects of the new non-profit housing organisation
The specific tax implications for existing or newly founded housing companies, for example, are far-reaching. On the one hand, direct tax benefits are granted. When applying the new non-profit status, the organisations are exempt from income tax (corporation tax and trade tax). There are also tax advantages for property tax and real estate transfer tax. These advantages are intended to ensure that companies can cover their costs even when renting on a non-profit basis. Compensation is created for the permanent reduction in rental income due to the subsidised provision of housing. This can provide extreme relief for corporate bodies such as large companies. Companies are thus given financial leeway that would not have been available without the new housing public benefit scheme. For example, they can use the savings to invest in their portfolio. The advantage is that government incentives give companies the opportunity to rent out flats at below market prices that they would otherwise have had to rent out at a profit. In this way, the state indirectly relieves tenants and directly gives companies the opportunity to provide more flexible housing.
On the other hand, the new non-profit status grants corporations more time to save funds. In principle, a corporation must use its funds for the charitable purpose set out in its articles of association as soon as they are received (see § 55 No. 5 AO). This time limit is particularly problematic for organisations that are planning long-term and larger projects such as the construction or renovation of flats. The new non-profit housing organisation has responded to this and allows exceptions to this time limit (see § 62 I No. 1 AO). The possibility of forming tax-free reserves can be used to save funds that can later be invested in larger projects such as the construction or refurbishment of flats. The extended time flexibility also enables subsequent adjustments to plans and projects. The prerequisite is always that these serve the charitable purpose.
The Federal Ministry estimates the potential annual tax relief at around one thousand to two thousand euros per flat. For an exemplary company with 300 flats, this would mean savings totalling half a million euros. This could then be saved and invested over the longer term in accordance with the regulations described.
In addition to the tax benefits granted, the flexibility of the instrument should also be emphasised. Corporations are free to apply the New Residential Community Benefit to selected properties or projects as required. In addition, it is possible to designate only certain parts of the company for the promotion of residential community benefit purposes.
There are also no disadvantages for companies when switching from tax liability to tax exemption under the tax code. For example, if a housing company switches to the new non-profit status, it is not obliged to disclose its hidden reserves (final taxation) (§§ 13 IV, 5 I No. 9 KStG).
The specific tax and actual effects of the new non-profit status for housing associations and housing companies are therefore far-reaching. They create an attractive financial basis for planning projects over the long term and investing savings more flexibly in terms of time. According to the press release on the new non-profit housing organisation, non-profit housing companies could also be supported with targeted measures in the future.
The new non-profit housing organisation also has direct benefits for the housing market. The Federal Ministry of Housing, Urban Development and Building estimates that around 105,000 tenants will be able to benefit from the new non-profit status.
Legal requirements
In order to secure these benefits, the corporation must commit itself in its articles of association to the non-profit purpose of providing subsidised housing. If, for example, a non-profit housing company (gWU) wishes to benefit from the tax concessions, it is advisable to first take a look at its own articles of association and, if necessary, make precisely worded adjustments.
The core requirement is that housing is permanently provided at below the standard market rent. Otherwise, the non-profit status will be withdrawn. It is therefore also advisable to constantly review the standard market rent.
Finally, the requirements for promoting non-profit housing purposes must be met in accordance with § 52 II No. 27 of the Tax Code. This requires that the activity of the corporation is aimed at "selflessly promoting the general public in a material, intellectual or moral way" (§ 52 I (1) AO). The list of purposes of the Tax Code in § 52 II specifies activities that are to be recognized as promoting the general public. The purpose of providing subsidized housing (No. 27) now falls under this. According to this, the subsidized housing must be provided to people in need (§§ 52 II No. 27 (1), 53 AO). The regulation is based on the group of people who are favored within the framework of promoting charitable purposes (§ 53 AO). This regulation had already enabled tax relief within a arrow framework before the new non-profit housing.
Unlike the regulation on charitable purposes, however, the new non-profit housing system affects a much larger group of people. Which people are to be regarded as needy and who should therefore be supported is determined, among other things, by their income (§§52 II No. 27 (2) AO). People with an income that is no more than five times the standard social assistance rate now fall under the group of people. Single people and single parents are entitled to six times the standard social assistance rate (this is determined according to the twelfth book of the Social Code; SGB XII).
Geywitz, Federal Minister for Housing, Urban Development and Construction, comments: „The income limits are set so that 60% of households in Germany can benefit from the new nonprofit housing system. The day it comes into force is a good day for all tenants." This expansion of the group of people is also a great advantage for corporations such as housing companies that want to benefit from the new regulation. This is because the prerequisite for transferring the property to people in need of assistance is achieved more quickly.
In comparison to the regulation on charitable purposes (see § 53 AO), there is also no need for constant income checks. According to § 52 II No. 27 (3) of the Fiscal Code, the need for assistance only has to be proven at the beginning of the new tenancy. In other words, a change in income during the tenancy period does not negatively affect the existence of the requirements. This is an advantage, as corporations are now exempt from highly bureaucratic and time-consuming checks on changes in the income situation of individual tenants.
Resumé
The new non-profit housing system is a win-win situation. While tenants are provided with a permanently affordable housing situation, it is now legally possible and financially attractive for companies to get involved in social projects. „It is advisable for socially oriented bodies such as housing companies to look into the new nonprofit housing system. Tax benefits are provided for them," says dtb-lawyer and foundation and non-profit law expert Bertold Schmidt-Thomé. „The reintroduction of the new non-profit housing system is a sensible and flexible instrument that provides tax incentives for the provision of affordable housing. Companies are given a wide scope for investment and design for their nonprofit status with regard to their tax savings."
Status 06.03.2025