tax treatment of severance pay/profit distribution
October 27, 2012 | 50,00 EUR | answered by Dr. Yanqiong Bolik
Good day.
We are three shareholders with each 33 percent ownership in a GmbH. All three persons are employed as managing directors with taxable salary.
I now want to resign from both positions.
According to an agreement between the shareholders, I am entitled to a payment (severance payment? or profit distribution?) of 160,000 euros.
I am married, my wife is still employed.
Question:
I could receive the amount as a one-time payment or over two years as a monthly salary payment without any function/work performance.
What is the more favorable choice from a tax perspective, considering an average tax rate of approximately 33% and joint taxation?
Thank you.
Dear inquirer,
Thank you for your inquiry, which I am happy to answer taking into account your contribution and the rules of this platform.
Please note that my explanation is based on the presented facts, and that adding, omitting, changing information, or the ambiguity of the information can change the tax result.
- 160,000 EUR as a severance payment
If other conditions are met and the severance payment is paid as compensation for loss of employment, the application of the "Fünftel-Regelung" (fifth-part rule) may be considered. With an average tax rate of 33%, the marginal tax rate is 42%. There is little difference whether the severance payment is taxed at the standard tax rate or through the "Fünftel-Regelung." In this case, you should consider whether separate assessment for the spouses is more advantageous than joint assessment.
- Distributing 160,000 EUR over two years as salary
Since the payment does not occur within one assessment period, the application of the "Fünftel-Regelung" is not applicable. It will be taxed at the standard tax rate. With an annual income of 80,000 EUR, the average tax rate is approximately 33% and the marginal tax rate is 42%.
- 160,000 EUR as dividend
The dividend payment results in income from capital assets. The income tax for income from capital assets, which do not fall under § 20 paragraph 8 (e.g. if the shares are held in business assets), is 25%. Compared to the average tax rate of 33% and the marginal tax rate of 42%, the withholding tax is more favorable.
You mentioned that you do not intend to continue your role as a shareholder. In this case, it may be worth examining whether there are capital gains from the sale of shares in corporations within the meaning of §17 EStG. There are special regulations for income calculation in this regard.
In general, the process you have described has various implications for the tax burden at the company and shareholder levels. It is advisable to involve a tax advisor in the planning process. It is a worthwhile investment. I am happy to assist you if you decide to engage my services.
I hope I was able to assist you.
If you have any further questions, please feel free to use the follow-up function.
Best regards,
Dr. Yanqiong Bolik
Tax Advisor
Bildstöckle 6, 70567 Stuttgart
Tel: +49 (0)711 / 2132 1815
Email: info@zdbz.de
www.steuerberatung.zdbz.de
