Is it possible to achieve better asset protection with structures abroad than at home? Based on this question, we compare an asset management company in Germany with one abroad. As a third element, we include a family foundation abroad in our analysis. In particular, we consider the factors of taxes and liability risks. But asset succession is also an aspect that we take into account. After all, asset protection in Germany as well as abroad should protect assets permanently and thus as far as possible across generations.

As I said, risks that threaten assets are many. Therefore, when discussing whether asset protection abroad can be useful, we should only discuss a few selected examples. Finally, the scope of this contribution should remain clear.

For this purpose, we go into three alternatives. On the one hand, we want to consider the asset protection of an asset management company in Germany. On the other hand, we want to contrast it with a capital company managing assets abroad. As a third option, we include the establishment of a foundation abroad in our analysis.

Asset Protection takes place in the same way for these three options. The fact that they do not engage in any operational business means that they do not take any such risks. Instead, they merely manage the assets entrusted to them. For example, they try to minimize the risks that threaten assets in different ways depending on asset classes by spreading them.

At the same time, however, they are also the starting point on which the asset succession builds. Therefore, asset succession should always be taken into account in asset protection.

The structure of our article is now aligned with these three alternatives. On the one hand, we present the possibilities for asset protection offered by these variants for asset management. From the comparison of the aspects put forward, we then draw our quintessence. One focus is specifically on the tax factor. Because taxes are always a big risk when it comes to maintaining assets. As a supplement in this regard, we also look at asset succession. This is also heavily affected by tax influences. Thus, asset protection with regard to foreign countries should be an exciting question for many of our readers.

In this country, one basically only knows the GmbH in the role of the asset management capital company. As such, it holds the assets contributed by its shareholders and manages them in accordance with the statutes laid down by its shareholders. These can be different types of assets under this management. On the one hand, it can be real estate. If real estate is the only asset form, but one speaks rather of a real estate GmbH. The situation is similar if vermögensverwaltende GmbH only manages company shares. Because then there is a holding company. However, a GmbH managing assets can also manage liquid funds, securities or other assets.

In any case, the point that vermögensverwaltende GmbH does not engage in any commercial activity is of particular value with regard to its taxation. In this case, a pure real estate GmbH can apply to the tax administration for an extended land shortening in order to avoid taxation within the framework of trade tax. In this way, the levy is only 15 % corporation tax.

However, a profit distribution by vermögensverwaltende GmbH adds further taxation at the level of its shareholders. As a rule, 25 % is a flat-rate capital gains tax.

Another advantage of vermögensverwaltenden GmbH in the context of asset protection is the risk minimization at the level of the shareholders. Since the company acts as a legal person, in principle only it is liable for its business. However, its shareholders are only liable with their nominal capital. However, this also means that especially in the case of an asset management GmbH, which by definition has a high asset portfolio, the liability mass at this level is very high. This in turn increases their potential risk. However, objectively speaking, there is no increased risk in this respect compared to asset management in private assets or otherwise.

A final risk to which shareholder-managing directors are exposed is intervention liability. Should shareholder-managing directors be liable for their wrong decisions, they are also liable with their private assets.

No risk, but nevertheless an important factor, is the asset succession at vermögensverwaltenden GmbH. A transfer of the shares in the GmbH is regularly taxable. Since in this case also a relief needs test is largely excluded, because we develop asset management instead of operational activity, in most cases a considerable tax is to be expected.

Here we now distinguish the two variants: the asset management corporation and the family foundation abroad. In both cases, there is no difference to the German asset management GmbH in terms of the size of the asset classes to be managed.

In principle, there is no serious difference between an asset management company in Germany and abroad. In both cases, the company generates further profits from the assets entrusted to it, which it distributes to its shareholders. However, it also depends on where the shareholders are taxable and what taxes the capital company managing assets has to pay abroad.

If the shareholders receive dividends from their foreign capital company, they are subject to German additional taxation. Therefore, although the administrative expenses for the preparation of technically correct income tax returns increase enormously, the taxes to be paid add up to the same amount that one would have to pay with a German asset management GmbH.

However, if you manage to avoid additional taxation through suitable design models, you may benefit from lower tax rates when taxing companies abroad. It is not necessary to establish a tax structure in a distant tax haven, because even here in Europe there are tax regimes that levy corporate taxes at comparatively favorable tax rates.

Apart from this, there is also the same risk distribution with regard to the shareholders, which we have already mentioned about vermögensvermanagementden GmbH in Germany. This also applies to liability cases in which shareholder-managing directors are subject to intervention liability. Thus, foreign countries do not offer a significantly different shielding effect than that of vermögensverwaltenden GmbH in Germany.

With regard to asset succession, on the other hand, the taxation circumstances of an asset management company abroad can be serious. Depending on the tax regime, if there is no double taxation agreement covering inheritance and gift tax, double taxation can even take place at home and abroad. In fact, only a small number of countries have such a double taxation agreement with Germany. This requires considerable advice in advance.

The second alternative to asset protection abroad is the family foundation. It also serves asset management, regardless of which asset classes you equip it with. But in order to build it, an initial gift is needed. This may not cause taxes abroad (for example in Austria), but if the founders are taxable in Germany, then the foundation business is still subject to the gift tax. In addition, one should also consider that a family foundation in Germany is subject to the inheritance taxation every 30 years. If you choose the foreign country where you want to build the family foundation as an alternative, you can at least rule out future taxation of this kind.

A further advantage of a family foundation abroad could be present if the income generated by it in the context of its asset management remains tax-free, but at least is subject to a more favorable corporate taxation than in Germany. Also in this way you can operate asset protection abroad.

In contrast to the variants using a capital company managing assets, however, the family foundation has the advantage that there is no risk of private liability for the destinataries. After all, a foundation is an ownerless special-purpose asset, so that the question of liability is at best relevant for the members of the foundation bodies.

We now want to make two comparisons. On the one hand, we want to examine the advantages and disadvantages of a capital company managing assets at home and abroad. Apart from the fact that a capital company managing assets abroad may contribute to the fact that less taxes are incurred there – as long as the additional taxation in Germany can be excluded – there are no significant differences to those in Germany. In any case, there is no difference in the area of liability risks. In such a case, liability shall apply to the shareholders undeterred as to whether their company is located at home or abroad. But what makes a difference is the effort you have to make when filing the tax returns, especially in Germany and possibly also abroad. Therefore, it may be questionable whether an asset management company abroad is suitable for asset protection. At least one should always check the individual case.

On the other hand, we want to compare the asset management companies in Germany and abroad collectively with the family foundation abroad. Since this comparison also depends heavily on the choice of the respective foreign country, we take the Family Foundation in Liechtenstein as a reference. Firstly, there is no second gift tax in Liechtenstein for the foundation business, secondly, the profits generated there are subject to a tax of 12.5% and thirdly, the foundation law in Liechtenstein offers many freedoms to draft the statutes. In this comparison, the advantages of the Family Foundation in Liechtenstein outweigh those that the asset management companies can claim for themselves. Only on the question of possible liability does the family foundation excel, regardless of the location of its headquarters. In addition, destinataries of a foundation, unlike shareholders of a corporation, can emigrate without an exit tax.

Therefore, our final conclusion is that a family foundation abroad in general and in Liechtenstein in particular is generally superior to asset protection companies. This applies in particular with regard to asset succession. Due to the fact that the assets remain in the foundation, the asset succession is permanently regulated and secured. Neither a gift nor an inheritance is now necessary to grant the family members financial freedoms that they would otherwise receive only through direct transfer of assets.

If you are also interested in individual advice on one of these alternatives, we look forward to being your competent contact. Make a consultation appointment by calling us right now.