How to start a holding company in Germany

What is a holding company?

A holding company is a parent entity that owns shares in one or more subsidiary companies.
Its primary purpose is to manage investments, consolidate profits, and optimise taxes.
In Germany, the most common legal form for a holding is the limited liability company 💬Gesellschaft mit beschränkter Haftung (GmbH).

Types of holdings

• Pure holding: Exists solely to hold shares in subsidiaries.
• Mixed holding: Acts as both an operational business and a parent company.

Why Germany is ideal for setting up a holding

Germany combines legal security, tax advantages, and strong access to EU markets. International founders choose Germany because it provides:

• Double tax treaties with over 90 countries
• 95% tax exemption on dividends and capital gains for qualifying holdings
• A highly stable legal framework
• Access for international investors to the European single market

Tax benefits of a German holding

• Dividend exemption: 95% of dividends from subsidiaries are tax-free.
• Capital gains exemption: 95% of profits from selling subsidiary shares are tax-free.
• Double taxation agreements: Reduce withholding tax for international shareholders.
• Loss compensation: Losses from one subsidiary can offset profits in another under specific conditions.

Example: If your subsidiary distributes a dividend of €100,000 to the holding, €95,000 is tax-exempt at the holding level. Only 5% (€5,000) is subject to corporate income tax.

Holding vs. regular GmbH

Holding formation key requirements

Before setting up a holding structure, several legal and financial requirements must be met:

• Legal form: Usually a GmbH 💬Gesellschaft mit beschränkter Haftung or UG 💬Unternehmergesellschaft.
• Minimum share capital: GmbH €25,000 (min. €12,500 upfront); UG from €1.
• Articles of association 💬Gesellschaftsvertrag: Signed articles defining purpose, rights, and responsibilities.
• Managing director(s) 💬Geschäftsführer: At least one is required. Non-EU/EFTA directors usually need a residence permit and work permit.
• Registered business address: A valid German address for the holding.
• Proof of identity: Passport copies of shareholders and directors.
• Ownership threshold: At least 10% ownership in subsidiaries to qualify for the 95% dividend tax exemption.

Best legal forms for subsidiaries

• GmbH: Preferred for credibility, liability protection, and investor acceptance.
• UG: Budget-friendly, suitable for smaller entities.
• AG: Rare, mainly for larger corporate structures with external investors.

For most holdings, GmbH subsidiaries are recommended due to their flexibility, tax efficiency, and stronger reputation.

Step-by-step: how to start a holding in Germany

Setting up a holding structure in Germany usually involves two stages: first, you form the parent holding company, then you establish or acquire the subsidiaries under it.

1. Choose your structure

Decide whether you need a pure holding (only manages investments) or a mixed holding (also operates its own business).

2. Form the parent holding

• Select the legal form
• Have a lawyer draft the articles of association
• Sign formation documents before a notary
• Open a bank account & deposit share capital (€25,000 for GmbH, min. €12,500 upfront)
• Deliver proof of share capital deposit to the notary
• Notary finalises application for the commercial register 💬Handelsregister
• Commercial register entry is published
• Register the company at the trade office 💬Gewerbeamt
• Enter beneficial owners into the transparency register 💬Transparenzregister

3. Set up the subsidiaries

• Choose the legal form (see above)
• Draft articles of association for each subsidiary; the holding acts as the shareholder
• Follow the same steps as above: notarisation, bank account, capital deposit, all registrations
• Optional: Consider a profit transfer agreement 💬Gewinnabführungsvertrag to enable group taxation 💬 Organschaft and offset profits and losses within the group. Minimum five-year term, notarisation, shareholder approval, and commercial register entry required.

4. Register with the tax office

Register the holding and all subsidiaries with the tax office 💬Finanzamt to obtain tax numbers and VAT IDs if required.

5. Set up accounting

• Ensure separate accounting for each company.
• Plan dividend distributions and intercompany agreements carefully to benefit from tax exemptions.

Costs of setting up a holding

Timeline for setting up a holding in Germany

Typically 8–10 weeks, depending on documents, licences, and processing speed. Delays can occur due to:

• Missing documents
• Required sector-specific licences
• Limited notary appointments
• Processing times at courts, tax offices, and banks

Even if delays occur, having a solid plan helps keep your holding formation on track.

Risk management and liability protection

A German holding structure helps limit liability and manage risks. Each subsidiary’s liability is restricted to its own assets, protecting the parent company and other subsidiaries. Separating business areas into distinct entities provides an extra layer of security—especially for new ventures and high-risk projects.

Management and leadership of a holding company

Effective management is key to maximising the advantages of a holding structure. A central leadership team sets strategy, coordinates subsidiaries, and safeguards shareholder interests. Professional management ensures tax efficiency, promotes collaboration, and uses resources effectively, securing sustainable growth.

Practical tips for international founders

📌 Choose the right structure: Pure holdings suit tax planning; mixed holdings work for operational setups.

📌 Use professional tax advice: German tax law for holdings is complex.

📌 Check double taxation treaties: Optimise international tax positions.

📌 Plan shareholding carefully: Ensure at least 10% ownership in subsidiaries to access tax benefits.

FAQ

Can foreigners start a holding in Germany?

Yes. Non-residents can be a shareholder and own 100% of a German holding.

Do I need to live in Germany to open a holding?

No, but you must appoint at least one managing director who can represent the company locally.
If this managing director is not an EU/EFTA citizen, they will generally need both a residence permit 💬 Aufenthaltserlaubnis and a work permit 💬Arbeitserlaubnis. The same applies to each subsidiary.

Can I use a UG instead of a GmbH?

Yes. A UG works for small holdings, but scaling investors often prefer a GmbH.

Are dividends always tax-free?

95% tax-exempt if the holding owns at least 10% of the subsidiary’s shares.

How are profits distributed?

Subsidiaries transfer dividends to the holding, which benefits from the 95% tax exemption.

Is a profit transfer agreement part of the articles of association?

No. A profit transfer agreement 💬Gewinnabführungsvertrag is a separate contract between the holding and its subsidiary. It must be notarised, approved by the subsidiary’s shareholders with a qualified majority, and registered with the commercial register, but it does not require changes to the articles of association.