How can I, as a partner in a partnership, avoid corporate tax?
January 30, 2022 | 45,00 EUR | answered by Ulrike Voigt
Dear tax advisor,
I am Ben Köhler and a partner in a partnership. Lately, I have been dealing intensively with the topic of corporation tax and wondering if there are ways to avoid it. Currently, the partnership pays corporation tax on its profits before distributing them as profit shares to the partners. This means that as a partner, I also have to pay income tax on my share of the profits.
My concern is that the double taxation on both the business and partner levels results in a significant portion of the profits being lost. Therefore, I am looking for ways as a partner to avoid corporation tax in order to reduce my tax burden and keep more of the profits earned.
I have considered converting the partnership into a corporation to benefit from the lower corporation tax rate of a GmbH. However, I am not sure if this is the right solution for my concern and what the tax consequences of a conversion would be.
Can you show me possible ways as a partner of a partnership to avoid corporation tax without violating tax laws? I would greatly appreciate your professional advice and support on this matter.
Thank you in advance.
Sincerely,
Ben Köhler
Dear Mr. Köhler,
Thank you for your inquiry regarding corporation tax. It is understandable that you are thinking about how you, as a shareholder of a partnership, can avoid corporation tax in order to reduce your tax burden.
Firstly, it is important to understand that corporation tax is a tax levied on the profits of corporations. Partnerships, on the other hand, are usually not subject to corporation tax, and profits are taxed directly on the shareholders. In your case, the partnership is already paying corporation tax on its profits before they are distributed to the shareholders.
One way to avoid corporation tax would indeed be to convert the partnership into a corporation, such as a GmbH. As a shareholder of a GmbH, you would then benefit from the lower corporation tax. However, a conversion is associated with tax consequences that should be carefully examined. It is advisable to seek advice from a tax advisor or lawyer to find the best solution for your situation.
Another way to avoid corporation tax would be to restructure your partnership, for example through a new establishment or the use of tax planning opportunities. Again, professional advice is essential to ensure compliance with all tax regulations.
It is important to emphasize that there is no one-size-fits-all solution to avoiding corporation tax, as it always depends on the individual circumstances and goals of the company. I recommend contacting an experienced tax advisor who can provide comprehensive advice and assist you in optimizing your tax situation.
I hope this information helps you and I am available for further questions. Thank you for your trust and inquiry.
Best regards,
Ulrike Voigt, Tax Advisor
