An asset-managing company can have many legal forms. The GmbH is one of them. Here you can read about what an asset-managing GmbH is, who it’s suitable for and to what extent the asset-managing GmbH can be advantageous for taxes.
Two variants of the Vermögensverwaltende GmbH
An asset-managing GmbH can take two different forms. On the one hand, it can be the transfer of private assets to the company, mostly in the form of stocks, ETFs, bonds or real estate. On the other hand, direct interests in a capital company (Kapitalgesellschaft), GmbH, stock company (Aktiengesellschaft) or other types of companies can be combined in a parent company (Muttergesellschaft).
With an asset-managing GmbH, GmbH partners have the opportunity to apply tax benefits to their private assets by transferring them in whole or in part to a special, asset-managing GmbH (also called a ‘coin box GmbH’).
Shareholders who convert the company’s profit distribution (Gewinnausschüttung) into private investments such as real estate, shares or securities, have to accept a high tax burden. The 15-per cent corporate income tax (KStG) usually includes an additional 25-per cent withholding tax, a solidarity surcharge and trade tax, which results in a tax burden of about 56 per cent. In particular, withholding tax (Abgeltungssteuer) can be avoided by either transferring the private assets into an existing limited liability company or by establishing an asset-managing limited liability company solely for the purpose of asset management.
With an asset-managing GmbH, GmbH partners have the opportunity to apply tax benefits to their private assets by transferring them in whole or in part to a special, asset-managing GmbH (also called a “coin box GmbH”).
Shareholders who convert the company’s profit distribution (Gewinnausschüttung) into private investments such as real estate, shares or securities, have to accept a high tax burden. The 15 per cent corporate income tax (KStG) usually includes an additional 25 per cent withholding tax, a solidarity surcharge and trade tax, which results in a tax burden of about 56 per cent.
In particular, withholding tax (Abgeltungssteuer) can be avoided by either transferring the private assets into an existing limited liability company or by establishing an asset-managing limited liability company solely for the purpose of asset management.
For every dividend paid on your personal assets, you pay a capital gains tax. However, if your interests in corporations and companies are combined in a holding company, no capital gains tax will be applied for the distribution of profits.
A holding company is a form of organisation in which several companies are structured hierarchically. It consists of one parent and at least one subsidiary. However, the companies exist legally independent of each other. In addition, a holding company can take various forms:
- Financial holding company/asset holding company (Finanzholding/Vermögensholding): In this holding variant, the parent company holds interests in the subsidiaries. However, it has little influence on the subsidiaries. If it primarily manages the assets of the whole group, it acts only as an asset-managing company without any further corporate characteristics.
- Operational holding company (Operative Holding): This is the most common form of holding company. The parent is actively involved in the market and its subsidiaries depend on it structurally, strategically and for personnel.
- Organisational holding company (Organisatorische Holding): This form of holding company is used within a company to manage the internal structure and organisation of individual areas.
- Management holding company (Management Holding): The parent company itself is not active in the market, but is responsible for the strategic planning and management of the subsidiaries.
For asset management, it may be appropriate to start a financial holding company. For example, if you hold shares in several companies with at least 10 per cent of the share capital (Stammkapital), you can use a holding company to group together the investments in the companies.
Asset-managing GmbH: Avoiding trade tax
Reasons for an exemption from trade tax (Gewerbesteuer)
The business purpose of the asset-managing GmbH must be formulated clearly so that an exemption from the trade tax is guaranteed. Is it an exclusively administrative activity or will profits be generated?
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Important: Some magistrates now demand that there be an indication of the pure asset management in addition to the company name of the GmbH. Be sure to clarify these subtleties in advance. Only in this way can you ensure that the income from asset management is exempt from trade tax (Gewerbesteuer). Ultimately, the responsible tax office (Finanzamt) decides whether your application for exemption from trade tax is approved.
As long as you use the asset-managing GmbH solely to manage your private assets, no commercial activity is exercised. Thus, no Gewerbesteuer is due. However, once you use the assets with the intention of generating profits, a tax-obligatory activity has been exercised and the Gewerbesteuer must be paid.
In general, an asset-managing company wishing to earn a profit is not subject to trade taxation unless it has been entered in the commercial register (Handelsregister). Furthermore, prior to entry in the commercial register, no activities may be carried out that go beyond mere preparatory acts; otherwise, the company is subject to Gewerbesteuer. The Gewerbesteuer liability only applies as soon as the entry in the Handelsregister has been completed. However, you shouldn’t wait too long to register your trade to prevent a possible fine due to late registration.
Reasons for a reduction in Gewerbesteuer
If the registration of your corporation has been entered in the commercial register, the income of an asset-managing company is subject to Gewerbesteuer liability. Business tax excludes income from direct investments in private assets. Under certain circumstances, however, there is also a reduced tax burden due to Gewerbesteuer for the income of an asset-managing GmbH:
- According to § 9 no. 1 para. 1 GewStG, a reduction of trade income for real estate income is possible.
- According to § 9 no. 1 p. 2 GewStG, an extended reduction of the trade tax for real estate companies is possible.
- Pursuant to § 9 Nr. 2, 3 GewStG, profits from domestic joint ventures or foreign permanent establishments are reduced when calculating the trade income.
- CEO salaries help to reduce trade income by paying a tax-deductible amount. Since directors are subject to tax liability in accordance with § 19 EStG, the overall tax burden, which depends on the CEO’s salary, must be calculated exactly.
- Rental and debt ratios are also taxed.
- Depending on the location of the asset-managing GmbH, the trade tax rate is different. Since you can freely choose the registered office of your asset-managing company, you have a certain influence on the amount of the due Gewerbesteuer.
Who is the vermögensverwaltende GmbH worthwhile for?
Especially for taxable persons with large capital and real estate assets, the asset-managing GmbHs are particularly advantageous in terms of tax benefits. The advantage consists especially in the permanent reinvestment of the investment income. This means that the profits earned by the company are not distributed, but retained as revenue reserves. These will in turn be used to finance the company.
The contribution of private assets to an asset-managing GmbH is also useful in connection with the planning of long-term asset transfers. This type of asset transfer is easier than a gradual transfer of real estate, stocks or other securities. This form of transfer is mainly used by families who want to transfer their assets to their children or grandchildren in the long term.
In summary: The advantages
Taxable persons who have a lot of private assets may benefit from the asset-managing GmbH in tax terms, if they contribute their private assets or parts thereof into the company.
A contribution of private assets into the company can be particularly useful if an asset transfer to children or grandchildren is planned for the long term. This form of asset transfer is easier than the gradual transfer of real estate, stocks or other securities.
By transferring private assets into the company, the same can be protected at the same time. Should private financial problems arise, the assets or private assets are protected by the GmbH.
The tax advantage is probably the most common reason for the contribution of private assets into a vermögensverwaltende GmbH. In compliance with certain conditions, the withholding tax and the Gewerbesteuer in particular can be avoided, which means a reduction in the tax burden of up to 29 per cent.
In summary: The disadvantages
The contribution of private assets into a GmbH is worthwhile only above a six-figure amount, because the GmbH must cover basic costs such as annual accounts (Jahresabschluss), tax consultation (Steuerberatung), or the like.
From a legal point of view, the contributed capital no longer belongs to you; it becomes part of the business assets. So you must act towards the limited liability company as an uninvolved person, as otherwise, the suspicion of hidden profit distributions or contributions could arise.
If you’ve founded a vermögensverwaltende GmbH, you are no longer considered a private person. They must adhere to entrepreneurial conditions, deduct corresponding contributions to the Chamber of Industry and Commerce (IHK) and can no longer make use of offers such as free depots. This can, in turn, have a negative impact on the rate of return.
In addition, there’s always the risk that there will be a long period between the closing of the notary contract and the entry in the commercial register, in which the limited liability company is considered to be a so-called preliminary company. Should the GmbH exercise asset-managing activities during this time that go beyond the preparatory actions, the GmbH is obliged to pay Gewerbesteuer.
Vermögensverwaltende GmbH & Co. KG or vermögensverwaltende Immobiliengesellschaft?
The asset-managing GmbH (vermögensverwaltende GmbH) is not the only legal form in which you can contribute your private assets or with which it’s possible to have one’s private assets managed. Asset-managing companies (Vermögensverwaltende Gesellschaften) can use all common legal forms. In connection with the administration and the long-term preservation of the family assets, all the legal forms are used, including civil law partnership (GbR), the limited partnership (KG), the GmbH and Co. KG and the GmbH in particular.
If there are no underage persons involved in the company, the GbR is particularly suitable for asset management. With low enforcement costs, the desired civil and tax law effects can be achieved using this legal form.
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Using a vermögensverwaltende GmbH for real estate
The asset-managing real estate company enjoys special popularity. As a rule, these are capital companies (UG, GmbH, AG) or partnerships. If you’re in possession of rental properties, you’re required to tax your rental income with the personal income tax rate. If you include the solidarity surcharge (Solidaritätszuschlag), you can quickly reach a 50-percent tax rate. But if you manage your real estate through a real estate company, you can save on taxes. In this case, only corporation taxes (Körperschaftssteuer) and a 5.5-percent solidarity surcharge apply to you.
The Decisive criteria for deciding on an asset-managing GmbH (vermögensverwaltenden GmbH) are:
- The composition of the taxpayer’s assets
- Which tax rate (Einkommenssteuersatz) the taxpayer (Steuerpflichtige) is currently and in the future subject to
- The specific tax burden on the contribution of the assets to the asset-managing GmbH
- Whether the assets are often reallocated
- Whether real estate should continue to be owned by the family or sold
- Whether the income can be permanently reinvested or whether the taxpayer relies on high profit distributions
Asset-managing GmbHs can be a complex issue and you should always seek advice from your tax consultant.
The information published on our site is all written and checked by experts with the greatest care. Nevertheless, we cannot guarantee the accuracy of this information, as laws and regulations are subject to constant change. Therefore, always consult an expert in a specific case – we would be happy to connect you with the right professional.
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