Are there any tax advantages to forming a GmbH?
October 1, 2022 | 40,00 EUR | answered by Dietrich Hohenadel
Dear tax advisor,
my name is Alexander Hering and I would like to learn more about the tax benefits associated with setting up a GmbH. Currently, I am working as a freelancer and am considering whether it would be beneficial to convert my business into a GmbH.
As a freelancer, I currently pay income tax on my profits. I am wondering if there are tax advantages to transferring my activities to a GmbH. For example, I have heard that the taxation of GmbH profits is different than the taxation of income from self-employment.
Furthermore, I am concerned about the liability in my business. As a freelancer, I am personally liable for any obligations. A GmbH could potentially limit my personal liability. But how does this impact taxes?
I am aware that setting up a GmbH entails costs and ongoing administrative expenses. Therefore, it is important for me to consider whether the tax benefits of establishing a GmbH are worthwhile.
Could you please explain to me in detail what tax advantages I can expect from setting up a GmbH and what aspects I should consider? Thank you in advance for your help.
Sincerely,
Alexander Hering
Dear Mr. Hering,
Thank you for your inquiry regarding the tax benefits of establishing a GmbH compared to your current work as a freelancer. Converting your business to a GmbH can indeed bring various tax advantages that should be considered.
First and foremost, it is important to mention that a GmbH is considered a legal entity and therefore separate from you as the owner. This means that the GmbH is viewed as a separate tax subject, and thus profits and losses are taxed separately from your personal income. As a freelancer, on the other hand, you are self-employed and your income from this activity is taxed as personal income.
By establishing a GmbH, you can benefit from various tax advantages. Firstly, the profits of a GmbH are subject to corporate tax, which is generally lower than the personal income tax rate. Additionally, as the managing director of a GmbH, you can also receive parts of your income as salary, which is also treated more favorably for tax purposes.
Furthermore, a GmbH offers the advantage of limited liability. This means that your personal assets are protected in case of the GmbH's liabilities. As a freelancer, you are personally liable for any debts of your business.
However, it is important to consider that establishing and managing a GmbH involves costs. In addition to the initial setup costs, there are ongoing administrative expenses such as preparing financial statements and tax returns. These costs should be taken into account when making your decision.
Overall, establishing a GmbH can offer tax benefits, especially in terms of profit taxation and liability limitation. It is advisable to seek detailed advice before making a conversion, in order to consider all aspects and evaluate the individual situation.
I hope that this information has been helpful to you. If you have any further questions or would like a more detailed consultation, I am at your disposal.
Sincerely,
Dietrich Hohenadel
