Keep company shares privately or through a holding company?
August 26, 2009 | 20,00 EUR | answered by Oliver Burchardt
Hello,
I am married, my wife currently has no income of her own and I have a carryforward loss of approximately 227,000 euros. Recently, I have acquired shares in 4 companies (1 AG, 2 GmbHs, 1 UG). I would like to only partially consume my share of the profits and reinvest the majority back into new projects in the same and new companies.
Now I am thinking of setting up a venture capital company in the form of a UG (for higher liquidity) to take over the company shares, in order to keep the losses lower through taxes before reinvesting the profits.
Do you think this plan is successful or do you recommend something else?
Best regards.
Dear inquirer,
Thank you for your response, which I would be happy to address as part of an initial consultation.
Based on the information provided by you, I assume that you currently hold the shares in your private assets. If this is not the case, other implications may arise.
The profitability of the structure you have proposed depends on several factors.
In general, distributions from corporations to other corporations are not subject to tax according to § 8b of the Corporation Tax Act. However, 5% of the distributions are considered non-deductible business expenses, so that a tax exemption of only 95% effectively occurs.
If you hold the shares in your private assets, the distributions are subject to flat-rate tax according to § 20 para. 1 No. 1 of the Income Tax Act from the year 2009, resulting in a tax burden of 25% plus solidarity surcharge.
Since you intend to reinvest the distributions primarily, choosing a UG structure will provide you with a higher amount of money. Only when you decide to distribute profits from the participating company will flat-rate tax be levied on them.
Furthermore, structuring through a participating company in the form of a corporation also has the additional advantage that any profits from the sale of the contributed shares are also tax-free. If the shares are held in private assets, any realized value increases from the sale are also subject to flat-rate tax according to § 20 para. 2 No. 1 of the Income Tax Act.
However, these tax advantages are offset by the question of the tax consequences of contributing the shares to the UG. The provisions of the Transformation Tax Act (especially § 22) must be considered, which provide for taxation in the event that you sell the shares in the UG within 7 years. Additionally, you may need to consider §§ 17 and 23 of the Income Tax Act, which apply especially if you transfer the shares to the UG by means of a so-called hidden contribution.
The profitability of the structure you are considering ultimately depends on how you carry out the contribution of the shares to the companies in the participating company.
I recommend that you first consult with a lawyer regarding the optimal contract design of the articles of association, and then clarify the tax consequences of the contribution with a tax advisor, so that the potential benefits of the tax exemption of the distributions are not offset by the tax consequences of the contribution. The question of loss carryforwards should also be taken into account. Additionally, it should be clarified whether establishing a GmbH might be more appropriate, as a contribution in kind is not permitted for a UG according to § 5a para. 2 sentence 2 of the GmbH Act. In the formation of a GmbH, you can contribute the shares as share capital, while in the formation of a UG, you must provide sufficient financial resources to enable the shares to be held by the UG. Otherwise, you may face hidden contributions with possible tax consequences.
If you have any further questions, please feel free to contact me at Oliver.Burchardt@gmx.de.
Best regards,
Oliver Burchardt
Tax advisor
