The new business identification number for companies in Germany is intended to simplify the general tax process and reduce red tape. It can also play an important role in share deals involving companies that own real estate.
General Information on the Introduction to Tax Procedures
Starting in November 2024, every business entity will be assigned a so-called Business Identification Number (W-Id.Nr.) for unique identification in the German tax system. The Federal Central Tax Office (BZSt) will assign these numbers in phases without requiring an application.
This W-ID number consists of the initial letters “DE” followed by nine digits and corresponds to the previous value-added tax identification number (VAT ID), e.g., DE123456789, provided that the respective legal entity has already been assigned a VAT ID. This number is assigned to the following legal entities:
- any legal entity engaged in economic activity. These may include natural persons, legal entities, and associations of persons, and
- businesses or small business owners that are legally required to pay sales tax under Section 19 of the German Sales Tax Act (UStG).
If a company operates in several different business sectors, the W-ID numbers will subsequently be supplemented with distinguishing characteristics (so-called “U-characteristics”); however, this supplement is not expected until 2026 (e.g., DE123456789-00001). The BZSt (issuing authority) does not charge any fees for issuing the W-Id.No. If the business operator already has a VAT ID number, this VAT ID will also be assigned as a W-Id.No. as of a cutoff date specified in a public notice. No notification letter will be sent to the business operators or their tax advisors.
The existing tax number—which, in the case of individuals, should not be confused with the so-called tax identification number—will continue to serve its current function even after the introduction of the W-Id.No. and should initially be used as before, particularly on tax forms in administrative proceedings. Electronic forms will gradually be updated to include the W-Id.No. Due to the phased rollout, inclusion of the W-Id.Nr. on tax return forms is not mandatory until December 31, 2026. In the long term, however, the W-Id.Nr. is intended to replace existing identification identifiers, such as the tax number or VAT ID number, with a transition period of indefinite duration set to begin in 2024.
The W-ID number has the same structure as the VAT ID number. The VAT ID number is not being replaced and must continue to be used by companies engaged in intra-Community, cross-border transactions that are subject to value-added tax. The tax ID remains in effect and identifies a natural person. Every natural person in Germany is assigned and notified of this number shortly after birth. The W-Id.Nr. is assigned to natural persons on a supplementary basis only if that natural person engages in economic activity, such as operating a sole proprietorship.
Relevance for Real Estate Transfer Tax
For real estate transfer tax purposes, the new W-ID number is also formally relevant when real estate purchasers or property-owning companies report real estate transfer tax transactions to the tax authorities. This is because, in the future, reports of real estate transfer tax transactions must include the applicable business identification number of the seller, the purchaser, and the property-owning company. Previously, for legal entities such as limited liability companies (GmbHs) or stock corporations, their commercial register number and tax identification number had to be included in the report (Section 20 of the Real Estate Transfer Tax Act (GrEStG)).
Furthermore, the future inclusion of a valid W-ID number in real estate transfer tax filings plays a crucial role in ensuring their completeness and accuracy, particularly in light of the so-called “signing-closing trap.”
In a share deal involving (90% or more of) the shares in a company with real estate assets, if the signing (signing of the contract for the sale of the shares) and the closing (actual transfer of the shares) occur at different times, the tax authorities consider this to constitute two separate transactions subject to real estate transfer tax, even though they involve the same property (Section 1(3)(1) and (3), and Section 1(2b) of the Real Estate Transfer Tax Act (GrEStG)). The reason for this is that the individual elements constituting a real estate transfer tax event do not take precedence due to the time lag between the signing and the closing.
The legislature has generally mitigated this unintended and inappropriate risk of double taxation by granting affected real estate companies the right to file a petition, whereby any real estate transfer taxes assessed as of the signing date can be waived, resulting in real estate transfer taxes being levied exclusively at the closing. However, this right to file an application is subject to the strict requirement that, for both the signing and the closing of a single share transaction, formally correct, substantively complete, and timely notifications (within two weeks) must be received by the competent tax office (§ 16 (4a), (5) sentence 2, §§ 18–20 GrEStG).
Therefore, future real estate transfer tax returns for relevant share deal transactions involving real estate assets should include the new economic identification number of all participating companies in order to avoid double taxation under real estate transfer tax laws for a share deal due to a formal deficiency in the return.
