Legal form of the developer when building a residential and commercial building
June 1, 2013 | 50,00 EUR | answered by Dipl.-Kfm. Frank-Olaf Illiges
We are planning to build a residential/commercial building and are looking for an approach to the legal form of the developers.
Developers: B and C, managing directors and shareholders with 12.6% each in Company A
Company A: GmbH, shareholders B+C each 12.6%, shareholder D is a third-party GmbH with 74.8%. B+C have contractually the right to acquire additional shares in the future.
Residential and commercial building: 1/4 privately owned by developer B, 1/2 commercially owned by Company A, 1/4 commercial reserve (could be leased to a third party).
Capital: 35% equity from B, rest in loans.
How could the merger of B and C be structured so that the property does not become business assets? Input tax? Ownership structure?
Thank you very much.
Dear inquirer,
Thank you for your inquiry, which I will gladly answer, taking into account your contribution as well as the rules of this platform.
Please note that my explanation is based on the facts presented, and that adding, omitting, changing the information, or the ambiguity of the information can change the tax result.
Builders B and C could join together to form a civil law partnership (GbR) for the construction and subsequent rental of the residential and commercial building on an equal basis. The rental of the commercial building would then be an asset management activity of the GbR, which would generate rental and leasing income from the rental of the commercial building (§ 21 Income Tax Act (EStG)). A later sale proceeds of the residential and commercial building would then be tax-free if more than 10 years have passed between the purchase and sale of the property (§ 23 (1) No. 1 EStG).
In principle, the rental and leasing of a property is exempt from value added tax (§ 4 No. 12 a Value Added Tax Act (UStG)), so you are not allowed to claim the value added tax that the craftsmen charge you in connection with the construction of the residential and commercial building as input tax (§ 15 (2) No. 1 UStG). However, you can waive the exemption from value added tax on rental income if you rent to other entrepreneurs for their business (e.g. A-GmbH) and these entrepreneurs only generate turnover that does not exclude input tax deduction (§ 9 (1) and (2) UStG). The waiver of the exemption from value added tax must be declared in the notarial purchase contract (§ 9 (3) UStG).
Finally, it is always important to ensure that Builders B and C do not hold a majority stake in A-GmbH (not even indirectly through D-GmbH). Because then a so-called tax-legal operational split between the GbR and A-GmbH arises, with the consequence that the rental income of the GbR becomes commercial. This means that the GbR would then generate taxable income and trade tax-liable income from business operations in the form of all rental income (§ 15 No. 1 EStG). Furthermore, any later sale proceeds of the property would definitely be subject to income and trade tax. Trade tax is largely credited against the income tax of Builders B and C (§ 35 EStG).
Sincerely,
Dipl.-Kfm. Frank-Olaf Illiges
Tax consultant
Am Wieksbach 55
33378 Rheda-Wiedenbrück
Phone: 05242/4055666
Fax: 05242/4055677
e-mail: office@illiges-steuerberatung.de
Website: www.illiges-steuerberatung.de
