As a foreign investor: How to optimise the taxation of an Investment/Asset Management GmbH in Germany
Bernhard Schwechel
by Bernhard Schwechel
In certain scenarios, an Investment GmbH or an Asset Management GmbH can be the ideal legal structure for managing assets in a tax-efficient manner in Germany. The primary role of these entities is not to run an operational business but to hold and manage capital assets and to manage real estate.
The benefits offered by such entities, from a tax point of view, include:
Generally, the profit of a GmbH is subject to following taxes:
Corporate income tax/Solidarity surcharge at a rate of 15.8%
Trade tax of approximately 15%
However, for an Asset Management or Investment GmbH, various tax reliefs may be applicable depending on the type of assets that the GmbH manages.
One such relief is a corporate tax reduction if the GmbH holds a stake of at least 15% in another company. In such cases, dividends are nearly tax-exempt.
Capital gains from the sale of shares in other corporations are almost entirely tax-exempt, regardless of the size of the investment.
If an Asset Management GmbH solely holds real estate assets, its profits are exempt from trade tax, provided that the company meets the following conditions:
Management of own capital assets,
Rental of residential buildings, and
Construction and sale of residential buildings
If the company also engages in other activities, the exemption from trade tax does not apply. This means that the tax burden of a GmbH in Germany that is active in the management of real estate is only just under 16%.
This is a low tax burden by European standards. It is important to ensure that no activities are carried out beyond the area of letting, as otherwise the tax burden will double due to trade tax.
Not only is the profit from the rental of real estate exempt from trade tax, but under certain conditions the profit from the sale of at least three properties within a five-year period can also be exempt from trade tax.
If one compares the tax burden of investments in real estate between a GmbH and an asset-managing partnership/an individual, the main advantage of the GmbH is that the profits from ongoing letting are taxed at only 15.8%, but capital gains are potentially also subject to trade tax; only in the exceptional case described above is there no trade tax.
In the case of asset-managing partnerships/natural persons, the taxation of current profits is considerably higher, likely amounting to 42% or 45%: However, profits from the sale of real estate are generally tax-exempt after a holding period of 10 years.
Therefore, the GmbH offers significant structuring potential, as for example the inheritance/gift of a GmbH with a substantial real estate portfolio (>300 residential units) to heirs may be exempt from inheritance/gift tax.Other important points to be considered:
EXIT TAX: shareholders in a GmbH might be subject to exit taxation. In case of real estate: Purchase/sale of real estate is subject of real estate transfer tax, as well as the purchase/sale of shares in the GmbH itself.
FACT GmbH Wirtschaftsprüfungsgesellschaft is a tax consultancy, public auditing company, and law firm located in Kassel, known as the heart of Germany. FACT provides German and international accountancy and tax services to companies and individuals. The experienced team works on cross-border issues for German clients as well as for foreign clients. FACT works closely with its clients and responds rapidly to their needs.
GGI member firmFACT GmbH Wirtschaftsprüfungsgesell-schaftKassel, GermanyT: +49 561 316 6860Tax, Auditing & Accounting, Advisory, Corporate Finance, Fiduciary & Estate Planning
Bernhard Schwechel is a Managing Partner of FACT GmbH and is experienced in the field of International Taxation. His areas of expertise include tax and business advice for large multinational corporations and mid-size companies, as well as for internationally-oriented individual clients. He supports his clients in inbound and outbound M&A projects. Contact Bernhard.
