Conversion of GmbH into a sole proprietorship
June 28, 2011 | 80,00 EUR | answered by StB Manuela Ponikwar
Situation:
I am the managing director of the company, with a turnover of 400k EUR. We have no profits, do not pay income tax or trade tax. I am also a shareholder with 49% and person2 with 51%. According to the notary, person2 would transfer his shares to me and the company would be dissolved in the same notary session. The register court will carry this out and inform the tax office.
Questions: Will there be any costs from the tax office for me or the company with the end of the company (balance sheet) or with the revival of the sole proprietorship (income statement) in my name?
What about the timing, is it advantageous to carry out the transformation in the first half of the year?
I am available for further questions. Thank you.
Dear Inquirer,
Thank you for your inquiry, which I would like to answer in the context of an initial consultation considering the appropriate fee as follows:
1) General Information
When converting a corporation into a sole proprietorship, it is considered a true conversion under sections 3 to 9, 18 of the Reorganization Tax Act (UmwStG). The corporation is merged into you as a natural person if you are the sole managing director (which you are after transferring the shares in the 1st step). It is then a merger by absorption, for which a notarial merger agreement is required. Since you represent both sides (GmbH and sole proprietorship), a waiver of §181 BGB is also required.
2) Treatment of the Corporation
For tax purposes, I assume that the assets of the corporation are to become business assets in your sole proprietorship, as you intend to continue the business in this way. According to §3(1) and 2 UmwStG, the corporation must either continue the book values or optionally disclose (and tax) the hidden reserves in whole or in part in the final balance sheet. Since you need to prepare a final balance sheet for this, it is advisable to choose a time for the transfer when you would already be preparing a balance sheet. The resulting transfer gain from the disclosure of hidden reserves is reflected in the final balance sheet and is fully subject to corporation tax and trade tax.
3) Treatment of the Acquiring Shareholder / Sole Proprietorship
You must take over the values contained in the tax final balance sheet of the transferring corporation (§4(1) UmwStG). With this 'book value linkage', it is ensured that any remaining hidden reserves will be taxed later on in your case. The merger is recorded in the sole proprietorship as a contribution. You comprehensively assume the tax legal position of the transferring corporation, especially regarding valuation, depreciation, etc. However, offsettable losses of the corporation (corporation tax, trade tax) will be lost.
Upon taking over, you will incur a gain or loss equal to the difference between the book value of the shares and the fair value of the transferred assets. This gain is generally subject to the partial income procedure for you, or in the case of shares in private assets, also partially subject to capital gains tax.
4) Miscellaneous
Whether you can actually switch to the simplified accounting method (EÜR) with the sole proprietorship would need to be examined. On the one hand, you have no profit but a very high turnover, and it would need to be assessed whether the size of your business requires an established economic business operation. This includes financing, employees, complexity, and the number of business transactions. Additionally, you must register as a merchant in the commercial register if your corporation operated a registration-obligatory business (§122 UmwG). This would generally include you in accounting, but you can potentially be exempted based on the size criteria according to §241a HGB.
The assessment of the individual case and tax optimization in conversion processes should be entrusted to a tax advisor due to the complexity; a general initial consultation via the portal is not sufficient in this case. There are numerous special cases to consider, especially in valuation, such as pension provisions for shareholders, etc.
In addition to the loss of tax loss carryforwards, as well as costs for notaries and tax advisors and fees at the registry court, there are generally no further costs from the tax authorities. As mentioned earlier, I recommend choosing a "cost-oriented" time, as far as it is economically feasible.
I hope this information is helpful to you.
Best regards,
Manuela Ponikwar
Tax Advisor
www.ponikwar.de
