Entrepreneurs who want to purchase a property for their company should always pay attention to how they position the property. The reason for this is on the one hand that you should also pay attention to the future sale of the property or the company. Because at this point it is already decided how high the tax on the capital gain is percentage. On the other hand, however, there is also a further, usually hidden aspect, namely a possible threat of operating division. You can buy business real estate without a division, you just have to know how to do it. This is exactly what our blog post informs you about.

Acquire real estate without division of operations – Introduction

Anyone who wants to acquire a property for their own company as an entrepreneur is often faced with the question of how best to do it. This means how the ownership of the acquired property should be regulated after the acquisition. This is important for several reasons. On the one hand, many aspects of current taxation are connected with it. For example, it depends on the amount of depreciation. On the other hand, this initial decision affects how to tax the property in a subsequent sale of the property or company.

Acquire Operational Property: Tax Case Business Split

When we focus on the tax aspects of the future sale of business real estate, there is always a spectre around: the division of operations. This is by no means a legal measure introduced by the legislature to scare entrepreneurs. Rather, this is a so-called judicial law, because the arguments for the taxation of company divisions were made by judges with their judgments based on existing laws. Therefore, in tax laws one can search for the term business division for a long time without ever finding it.

And yet the division of operations is omnipresent. Startups and other still young companies in particular should observe this right, because in our experience, company splits often arise at the beginning of a company. In addition to real estate in business assets, other assets are often affected before inclusion in a business asset, such as trademark rights, patents, technical know-how and other intangible assets.

The tax consequences can be considerable. In fact, many entrepreneurs often only perceive the existence of a division of operations when it is already too late. That is why it is important to us to point out once again at this point that one should acquire operational properties without division of operations.

3. What is a business split?

But before we show you how to buy real estate without a business split, we clarify briefly what a business split is and how it usually arises.

3.1. How a business split is created

Simply stated, a business split is an assumption that is assumed at the latest when taxing a sales proceeds. If you own a company and use goods that you privately own, then the Treasury can assume that the transfer has an entrepreneurial background – and a uniform one. In other words, the assumption applies that a company is created here, the so-called operating company. This is assigned both the originally existing company and the economic goods provided from the private assets, in our case a property. They must be seen as inseparable.

3.2. Criteria of a business split: material and personnel links

There is then both a factual and a personal connection. Both together are characteristic as criteria for a business split. The factual interconnection arises from the operational necessity of transferring the asset to the actual company. This is the case if the transferred asset is an essential component for the management of the company. For example, this can be a factory hall or an office used for production or administration. The human connection, on the other hand, is due to the fact that the entrepreneur can determine both in his own company and on the economic good (in whatever way) provided, without having to rely on the consent of other decision-makers.

3.3 Tax consequences of ending a business split

But if an entrepreneur now sells his actual company, or liquidates it, he detaches it from the connection with the operating company. However, the sales proceeds are included in the operating company, because, for example, its property has contributed to the success of the actual company in the past. So part of the profit from the company sale counts for the share that the property contributed. Its increase in value is also of fiscal importance. Therefore, after a business split, both the actual company and the other goods that the operating company comprises are taxed.

However, since this is only permissible via a valuation according to the Valuation Act, the tax offices usually carry out a very high real estate valuation, so that the tax is usually very high.

Acquire real estate without division of operations for the company

As you can see, avoiding a business split in the simplest case depends on another person acquiring the business property instead of the entrepreneur. Alternatively, the company itself can purchase the properties necessary for its operation. However, tax is then incurred on the later sale of the company or property. The advantage of a private property purchase is that you can carry out the sale tax-free after a ten-year speculative period.

But we want to save taxes, otherwise we would not be tax consultants, but the extended arm of the Treasury. So we let someone else buy the property intended for their own business, without any division of operations. It does not matter whether we act as a sole proprietor or consider the property necessary for a partnership or corporation. It goes without saying that people who fully deserve our trust are approached in this regard.

After the acquisition, our trustee then leases the property to our company. Our company can tax the rental costs as operating expenses. This gives us a tax advantage, which we could not have used if we had only transferred from our own private assets. Although this also means that taxes are incurred on the co-income, but these are usually manageable, because one also sets the depreciation of the acquisition costs in the real estate rental. The ongoing depreciation of the property value and the generally rising property prices create a considerable profit potential over the years. And this can be raised tax-free after the speculative period. So we are dealing with a triple win situation.

Acquire real estate without division of operations – Conclusion