Limited Partnership (KG)

Limited Partnership (KG) is a partnership under German commercial law (Sections 161 et seq. of the German Commercial Code (HGB)), in which at least one partner has unlimited liability (general partner) and at least one other partner is liable only to the extent of their capital contribution (limited partner). In the real estate industry, the KG-particularly in the form of a GmbH & Co. KG-is frequently used as a vehicle for real estate projects, closed-end real estate funds, and project companies, as it offers tax transparency and limits personal liability to the capital contribution.

Structure and Partner Roles

In a real estate KG, the general partner (often a GmbH, hence GmbH & Co. KG) is the managing partner with unlimited liability-however, the GmbH limits this liability to the GmbH’s assets. The limited partners are the investors who are liable to the extent of their share of the limited partnership capital, but not personally beyond their contribution. This model combines entrepreneurial flexibility with limited liability for investors.

Forming a KG requires a partnership agreement and registration in the commercial register. The limited partnership contribution is listed in the commercial register as the liability contribution-this amount is the maximum amount for which the limited partner is liable to third parties. If profits are distributed that reduce the contribution below the liability contribution, liability is reinstated up to the amount of the difference-an important point that investors need to be aware of.

Use in Real Estate Projects and Closed-End Funds

The GmbH & Co. KG is the most common legal form for closed-end real estate funds, project development companies, and portfolio management structures. Investors subscribe to limited partnership interests and become co-owners of the KG-and thus economically involved in the real estate. From a tax perspective, the KG is transparent: profits and losses are directly attributed to the partners and taxed at their level. Historically, this was a significant advantage, as losses (e.g., from depreciation) could be offset against other income-these loss-offset options have been significantly restricted since 2006 by the German Tax Code (Section 15a EStG).

In the field of project development, the KG is frequently used as a special purpose vehicle (SPV): A separate KG is established for each construction project, which is liquidated upon completion and sale. This protects the project developer’s remaining assets from risks associated with the respective project.

Tax Considerations

Income from a real estate KG may be classified as income from commercial operations or from renting and leasing, depending on the company’s activities. If the activity is commercial in nature (a limited liability company (GmbH) as general partner, no natural person as general partner), the income is classified as business income; this has implications for trade tax liability and loss carryforward. The limited partnership itself does not pay corporate income tax; the partners are taxed on their share of the profits as part of their personal income tax.

Real estate transfer tax is particularly relevant: Under certain conditions, real estate transfer tax may apply to share transfers in a real estate-owning KG (share deal). The exact thresholds and structuring options have changed due to the 2021 Annual Tax Act; expert advice is essential.

Practical Tip for Property Owners in Nuremberg and Franconia

In Nuremberg and the Franconia metropolitan region, project developers and professional investors in particular use the GmbH & Co. KG as a holding company for real estate projects. For private real estate owners who own multiple properties, the KG structure can also make sense from a tax and liability perspective-for example, if the real estate portfolio is transferred into an asset-managing GmbH & Co. KG. We recommend consulting with a tax advisor and attorney when choosing a corporate structure. At my-home.de, we help investors acquire professionally structured real estate properties in the region-and explain the corporate structure behind them.

Frequently Asked Questions

Is a limited partner liable with their personal assets if the KG goes bankrupt?

Generally, no. A limited partner is liable only up to the amount of their liability contribution as recorded in the commercial register. Once this contribution is fully paid in, there is no further personal liability to the KG’s creditors. An exception applies if the contribution has been repaid through distributions.

What is the difference between a KG and a GbR in the real estate sector?

The general partnership (GbR) is less formal and suitable for smaller joint ownership arrangements, but all partners have unlimited liability. The KG offers limited liability through the limited partner status and is better suited for larger investments. The GmbH & Co. KG combines the advantages of both structures.

Can I bequeath limited partnership interests in a real estate KG?

Yes. Limited partnership interests are inheritable and pass to the heirs unless the partnership agreement contains a provision to the contrary (e.g., a redemption clause or a buyout provision). In the event of inheritance, the KG interest may be subject to estate tax; tax exemptions and tax benefits for business assets may be utilized.

When does the KG structure make sense for private individuals?

Starting with approximately three to four rental properties generating significant annual profits, it is worth exploring tax and liability optimization through a GmbH & Co. KG. Key factors include the individual’s tax situation, liability risk, and long-term succession planning. Individual consultation with a tax advisor specializing in real estate is essential.

What ongoing obligations does a real estate KG have?

In addition to tax filing obligations-trade tax return, tax assessment return for the company, and income tax returns for the partners-a KG must maintain proper accounting records in accordance with commercial law and prepare annual financial statements. The general partner GmbH must also publish its own annual financial statements in the Federal Gazette. For real estate KGs in the commercial sector, trade tax returns and, if applicable, value-added tax returns (for commercial leases with an option to purchase) are also required. These ongoing obligations generate fixed costs-tax consulting, bookkeeping, publication requirements-which can quickly offset the tax advantages for a small real estate KG with only one or two properties. For investors in the Nuremberg metropolitan region, we recommend realistically calculating the profitability of a KG structure: Starting with a rental portfolio of approximately 1 million euros in property value, the company’s ongoing administrative costs are generally more than offset by tax and liability advantages.

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