An asset management GmbH with shares offers a significant tax advantage when trading growth shares. Because there are very low taxes at the level of society. This then means that vermögensvermanagementende GmbH can transfer a higher share of profits into the reinvestment. For an investment strategy in value shares, however, a private asset management is more tax-advantageous. However, in addition to tax advantages, there is also the advantage of limitation of liability for a vermögensvermanagementende GmbH.

If you want to either build up or expand your assets with shares, you can use various long-term strategies. The obvious approach to this, which most private investors follow in the approach, is the private purchase and the most profitable sale of shares. In addition, you can also target the purchase of particularly high-yield shares that regularly pay dividends. Since one differentiates here, one can also provide the associated shares with different designations. The securities optimized for a sales profit are therefore called growth stocks. In contrast, the term value stocks describes those who regularly pay high dividends. Associated with this, the investment strategy also differs, with value stocks being particularly suitable for long-term investments. In contrast, the sale of growth stocks allows you to pursue the strategy by quickly generating sales profits and reinvesting them to increase the investment volume as quickly as possible.

No matter which of the two strategies you advocate, for tax considerations, the profits earned remain income from capital assets. Accordingly, their taxation falls under the income tax. Because these are taxed as capital gains taxes with a flat rate of 25%. In addition, other taxes possibly incurred (solidarity surcharge and church tax) can also be added. There is only a flat rate deduction of EUR 801 per person (for jointly assessed spouses, a total of EUR 1,602 is used). But in addition to private investment in shares, there is another strategy with which tax optimization can also be achieved, namely vermögensverwaltende GmbH with shares.

As already mentioned, the main purpose of vermögensverwaltendende GmbH with shares is tax optimization. But with such a structure you can also use other advantages. For example, in the case of an asset management GmbH with shares, you can also design private liability to your own advantage. In addition, we want to show in our article how a GmbH with shares best implements the two investment strategies with growth and value shares.

In order to start a GmbH with shares, the general regulations regarding the establishment of a GmbH must be observed. In particular, they are contained in § 5 GmbHG. The share capital contributed to the newly founded company can then be invested in the purchase of shares. Or you transfer already previously privately acquired shares to the newly founded GmbH. This is possible in a tax neutral manner.

3.1.1. Nature of the activity

A GmbH with shares that invests in growth shares trades through the continuous purchase and sale of shares. Although one can also distinguish here with regard to the profit-making strategy in principle according to the holding period, but this is only a detail question. After all, when selling shares, it is about achieving a selling price that exceeds the acquisition costs including all ancillary costs. This is the profit. In order to do this, however, we must also consider certain aspects relating to taxation.

3.1.2. Valuation principles

On the one hand, you can sell shares of a listed company that you have bought at different times and prices according to the principle first in, first out (FIFO). You sell those shares that you bought first, also first. On the other hand, you can also apply the last in, first out principle (LIFO), in which the shares bought last are recorded at the next sale. In both cases, their share value is therefore always fixed at the time of their acquisition. However, the question of which of the two acquisition dates can achieve the greater price gain is not taken into account. For this purpose, a GmbH with shares can choose two other implementations, namely the highest in, first out (HIFO) and the lowest in, time out (LOFO). Especially the latter approach usually delivers the highest profits.

However, only the LIFO method for the valuation of shares applies to tax balance sheets (§ 6 (1) no. 2a EStG). And since a GmbH with shares as a corporation is obliged to prepare balance sheets, this requirement also applies here. Because the LIFO procedure is used for a valuation of the shares of a GmbH managing assets, the date and the associated price value must be documented for each purchase of shares. Because in a sale you have to use this as a basis for tax profit determination.

3.1.3. Taxation of profits

Incidentally, a general tax exemption in the Corporate Income Tax Act (§ 8b (1) KStG in conjunction with § 20 EStG) applies to the profits of a vermögensverwaltendende GmbH resulting from the sale of shares. However, this is only true to a certain extent. Because the legislator considers 5% of the profit as a flat-rate expense, which is related to the management of the shares. However, costs actually incurred in this context (e.g. custodial fees) remain unrecognised.

The same applies to trade tax if a vermögensverwaltende GmbH trades in shares. Here, too, only 5% of taxes are incurred. However, the effective tax rate also depends on the lifting rate of the lifting municipality. This is the municipality in which a vermögensverwaltende GmbH has its registered office. However, since in the German average this effective tax rate is also about 15 %, one can also calculate for the trade tax with an effective tax rate of 0.75%.

This results in a total tax of 1.5%, which is incurred on the profit of sold shares.

Because you also sell value shares at some point, you have to take into account the previously made comments on the purchase and sale of shares also at a vermögensververwaltungten GmbH, which relies on value shares.

3.2.1. Nature of the activity

Apart from that, the implementation of the investment strategy with value stocks is relatively simple. After investing in value stocks, you only have to wait for the profit distribution. The amount of the distribution and its timing shall be documented. Of course, vermögensverwaltende GmbH must also tax these profits with shares as part of its corporate tax assessment. Business tax also applies regularly.

3.2.2. Taxation of profits

For the sake of completeness, we would point out here that a GmbH with shares only has to pay tax on its profits if it holds less than 10% of a company from which it receives a dividend. However, in such a context, a share of 5 % of the profit received as flat-rate administrative costs is excluded from the tax exemption pursuant to § 8b KStG (see section 3.1.3.). Therefore, a tax at a fixed rate of 15 % is only 0,75 % of corporation tax.

A similar tax exemption also provides for the Trade Tax Act. However, the lower limit is a participation rate of 15%. A further requirement here is that vermögensverwaltende GmbH must hold the shares in the distributing company at the beginning of the calendar year to be invested in order to be able to claim the tax exemption for itself. If you can meet all these requirements, then you should buy growth shares with an asset management GmbH if possible in such a way that the next profit distribution does not take place until the following calendar year.

However, a shareholding in listed companies in the range of 10% or even 15% is usually unrealistic for a GmbH with shares. However, if you want to invest early and to a large extent in young, successful startups, then this difference in taxation can prove quite relevant.

As already mentioned, a GmbH managing assets with shares that receives its profits primarily from profit distributions sooner or later also comes into contact with the sale of the value shares. Therefore, the question arises here whether a vermögensverwaltende GmbH can trade with shares of any kind. In fact, this is quite possible. Indeed, it is advisable to a certain extent, because it can spread the risks associated with asset management of this kind.

But whether this argument proves to be decisive when one is faced with the decision whether one should set up an asset management GmbH with the purpose of making profits with shares, we only clarify at the end. First of all, we consider whether vermögensverwaltende GmbH can use significant tax advantages with its shares.

As we have been able to see so far, various taxes are incurred at a GmbH with shares. Therefore, the question may be justified whether such a company is actually privileged over a natural person. In addition, the management of an asset management GmbH with shares also requires its own costs. To anticipate, the answer is that vermögensverwaltende GmbH can actually use at least one tax advantage indirectly.

While taxable natural persons pay a flat rate of 25 % in taxes (we leave out the solidarity surcharge and church tax), a vermögensverwaltende GmbH pays only 0.75% in corporate tax and about 0.75% in business tax on profits from trading in shares. However, if one adds the capital gains tax paid by a shareholder of the vermögensverwaltenden GmbH on a dividend paid by it, then approximately 26 % of total taxes are incurred. However, it should be mentioned that the profits can also be smuggled out of the vermögensverwaltenden GmbH in another way, without a capital gains tax being incurred. This is, for example, through a silent society.

When receiving dividends, however, this tax advantage is missing. Because as already mentioned above, the regular taxes are usually incurred in full on paid dividends.

Another tax advantage can be exploited by applying a reasonably high managing director salary. Because the vermögensverwaltende GmbH with shares can set the general salary of a shareholder-managing director as operating expense. In this way, it reduces its taxable profit. But you have to make sure that the amount of the managing director's salary is very precisely balanced, so that neither on the part of the vermögensverwaltenden GmbH nor on the private level of the shareholder-managing director an excessive tax is incurred. Because only if the managing director salary is available in a generally considered appropriate amount, one can avoid a hidden profit distribution with its tax consequences.

another advantage can be claimed by vermögensverwaltende GmbH with shares in the area of limitation of liability. Because if the vermögensvermanagementende GmbH should fall into financial difficulties, then it is only liable with its assets. Since you often set up a GmbH with the statutory minimum share capital of EUR 25,000, the loss is usually relatively manageable. If, however, there are larger assets in the vermögensverwaltenden GmbH, these would also be affected. Therefore, the establishment of a holding company, which is superior to the vermögensverwaltenden GmbH and receives its distributed profits, is quite interesting as a further safeguard.

However, there is another point that should be noted. Because a GmbH with shares can not use any possible losses to offset them with other profits. In a natural person, this is different. If a loss arises from the sale of shares, then it is possible for them to offset losses with other profits of the same kind. This means that stock losses can only reduce gains from stock sales. Either the offsetting in the year of the investment, in the previous investment period or the loss carry forward is open.

However, this discussion is of little interest for value stocks because value stocks are sold at a much lower frequency than when trading growth stocks. Nevertheless, there is a further advantage of a private asset management of value shares compared to an asset management GmbH.

Another disadvantage that vermögensverwaltende GmbH has with shares compared to a natural taxable person is the possibility of forming a tax-saving reserve. The provisions for this are contained in § 6b EStG, which is why it is often simply referred to as 6b reserves. If you look at these paragraphs, you find that it includes the possibility of creating tax-neutral reserves, which exempt certain profits from immediate taxation. An important prerequisite for this is that you reinvest the untaxed profit.

Now you may think that this is an excellent opportunity to invest the share profits of a vermögensververwaltungten GmbH in new investment objects without taxes. However, corporations and other entities are excluded from this option. For individuals or partnerships, however, this option already comes into consideration. However, no corporations may participate in partnerships if they wish to use a 6b reserve.

What at first glance may appear to be a further disadvantage for an asset management GmbH with shares, but is only partially relevant in an investment strategy with growth shares. Because if the vermögensvermanagementende GmbH does not decide to pay out profits with shares, but reinvests its profits, then despite the taxation of the profits, a comparatively larger amount can still flow into the reinvestment than if one would try the same as a private person without using the 6b reserve.

In addition, the law provides that after the establishment of a 6b reserve, only four years remain to reinvest the provisionally untaxed amount. The reinvestment has to go into the acquisition of similar assets, i.e. shares. A change of investment strategy, for example to art objects, antiques or classic cars, is therefore excluded within the framework of a 6b reserve.

Let us imagine that a GmbH managing assets is so successful in its activity in connection with the holding and management of shares that its dividends enable its shareholder to emigrate abroad. However, this would result in the departure tax. From 2022, stricter rules will apply, which provide for installment payment of the taxation of the notional capital gain over seven years. It does not matter whether you are moving to a contracting state of the European Union or to a third country. The essential point here is that the exit tax on the basis of the valuation under the Valuation Act is usually very high without an actual liquidity inflow having taken place. Therefore, the prospect of taxing fictitious capital gains should hardly spur the willingness to emigrate.

However, if vermögensverwaltende GmbH has hardly made any profits with shares in the last three years, then the valuation of the company, which the Treasury uses for the determination of the exit tax, is only a small amount. If you already know that after a three-year period with relatively low profits, vermögensvermanagementende GmbH will make considerable profits trading shares in the near future, then a move to a country with low taxes can be worthwhile despite the move tax. In this respect, the departure of such a GmbH shareholder abroad can even mean a tax advantage under these circumstances.

So we find that an asset management GmbH can use a significant tax advantage when trading shares. When holding and managing value shares, on the other hand, increased taxes are to be expected compared to private asset management. For this reason, a GmbH with shares is particularly suitable if it focuses its investment strategy primarily on growth shares.

The advantage is basically that vermögensvermanagementende GmbH can reinvest a larger share of its profits due to the lower overall taxation. So the key word here is compounding effect. Because of a higher turnover in trading shares, the vermögensvermanagementende GmbH can also generate much more profits. However, it must ensure that as far as possible no losses occur.

What may be a general conclusion for all transactions in listed securities is often a bit more complex in practice. Because in addition to the pure share prices, one must also include in these calculations all associated additional costs. In addition to the acquisition costs for the purchase of the shares, this also includes custodial costs, the costs of ongoing tax advice and costs incurred for the sale of the shares. This aspect is also so important for an asset management GmbH with shares because it cannot offset losses.

On the other hand, as a natural person you can also use certain tax advantages if you want to generate profits with shares. However, the benefits on this side are more related to the achievement of dividends and thus with value stocks. In addition, it is by no means possible to minimize the liability risks that are quite related to holding and managing shares.