When transferring a sole proprietorship to a GmbH and when transferring a GmbH to a holding company, a blocking period must be observed when selling. Because if you sell the participation in the GmbH within the seven-year blocking period, then you have to tax the contribution retroactively as contribution profit. The tax is reduced by one-seventh for each year that has passed after conversion. But you can avoid the 7 year blocking period. To do this, you either take an investor who puts money in the amount of the goodwill in the GmbH. Or you set up a subsidiary and put the business operation there with the goodwill. In this way, the parent company generates a profit under commercial law. But under tax law you can keep the contribution tax neutral, so that no taxable profit arises.

7 years blocking period: tax-free GmbH sale after contribution

1st Background to the seven-year blocking period for contribution and exchange of shares

1.1. Taxes on the sale of companies

If you sell a sole proprietorship as an entrepreneur, then you have to tax the profit with the personal tax rate. The profit is in principle 100% taxable. In such a case, the sale of a successful and thus valuable individual company is correspondingly high.

At a GmbH, it looks quite different. Because in this case, only 60% of the profit is considered taxable. However, the remaining 40 % of the profit from the sale is tax-free. Thus, the sale of a GmbH is already significantly cheaper from a tax point of view compared to the sale of a sole proprietorship. So it makes sense that as a willing individual entrepreneur you first bring your company into a newly founded GmbH in order to then sell it tax-advantageously.

But the sale of the GmbH can also be optimized for tax purposes. Because if instead of a natural person a corporation sells the participation in the GmbH, then this is virtually tax-free. Only 5 % of the profit is subject to taxation with 15 % of the corporate tax. In other words, the tax on a GmbH sale from a holding company is only 1.5% of the profit.

1.2 Considerations from the point of view of the financial administration and the resulting legal measures

This makes it clear that entrepreneurs would definitely take these measures before selling their sole proprietorship. After all, this saves up to 98.5% in taxes. But this can hardly accommodate the Treasury, because it escapes the tax, which he would have originally received. On the other hand, one would also like to maintain the granted tax privileges for GmbH sales. So what to do?

Well, the answer to this is the introduction of a 7-year lock-up period, which should be adhered to after the conversion in order to benefit from these tax privileges. Because in this way you simulate in a sense that you make the conversion for other than tax reasons. And that is quite legitimate from the point of view of the legislator.

It can be described as extremely fair how the laws were formulated. Because for every year that passes after the contribution or the share exchange, the tax is reduced by one seventh. So you can also make a sale within the blocking period without having to pay the original tax amount. Then you simply adjust it in time.

Avoid 7 years of blocking period – one goal, two methods

Now this may be a pleasing side effect of the related laws – we are talking about § 22 UmwStG – but we want to assume that we still intend to sell a GmbH within the blocking period. Our experts have developed two approaches to avoid the 7-year blocking period. It does not matter whether we originally bring a GmbH into a holding company and then sell it tax-deferred from there, or whether the GmbH itself was initially still a sole proprietorship, which is converted into a corporation in a first step. In both cases, the blocking period of 7 years starts again.

Although there is no addition of a first with a further blocking period. But if, for example, after the transfer of a sole proprietorship to a GmbH five years ago, the GmbH is now transferred to a holding company, then the renewed application of § 22 UmwStG amounts to an actual blocking period of 12 years in total. And we want to avoid that now.

Expert advice at the

Company Sale?

Avoid a 7-year lock-up period – Model 1

In order to present our design models to you, we go over one example each due to the complexity of the models. In both cases, the basic requirement is to focus on a GmbH that founded its shareholder with a share capital of EUR 25,000, but is now worth a sales price of EUR 5,000,000. At the time of the envisaged sale, the shareholding is either privately owned or held by a holding company. However, in order to keep the use of language as simple as possible, we limit ourselves here to the transfer of the GmbH shares from the private ownership of the shareholder.

3.1. Avoid 7 years lock-up period: Admission of an investor by capital increase

This introduces us to our first design model, with which we want to avoid the 7-year blocking period. For this purpose, the shareholder of the GmbH agrees with a prospective buyer that he will join the company as an investor instead of paying a purchase price. This involves the contribution of an amount of EUR 5,000,000 as part of a capital increase. As a result, the investor receives new shares in the GmbH.

Where the original shareholder was 100 % in his GmbH, he is now involved at a significantly lower rate, namely 50 %. Because the amount that the investor pays into the capital reserve of the GmbH corresponds to the actual company value. At the same time, however, the original GmbH shareholder also held an enterprise value of EUR 5,000,000 over his previous shares. as a result of the capital increase, this has then increased to twice the value, so that it is only fair that the investor receives an equal shareholding for his contribution.

3.2. What to Consider Here

Although an investor has been involved in the GmbH in this way, possibly even a significant share in it, the original GmbH shareholder is still involved in it. At a later date, after the expiry of the blocking period, he can still sell his shares largely tax-free to the new investor or other interested parties. But we have achieved the goal of selling the company in the broadest sense and avoiding the 7-year blocking period with this model.

Asset Deal & Share Deal: Taking advantage of tax advantages when buying & selling GmbH!

Avoid a 7-year lock-up period – Model 2

So now the second design, with which you can still make a GmbH sale if there is an existing blocking period according to § 22 UmwStG.

4.1. Avoid 7 years of blocking period: Establishment of a subsidiary GmbH

In order to be able to sell sperrfristhaftte GmbH according to the regular, tax-favoured rules, it founded a subsidiary GmbH. In it, the parent company transfers all its assets that make up its business. Of course, this is also the scope of what the buyer of the GmbH intends to acquire. Of course, in return for the transfer of assets to the subsidiary, the parent company also receives something. It receives shares in the subsidiary in exchange for the assets transferred there.

However, when the assets are taken up, the subsidiary can also uncover the hidden reserves in its opening balance sheet, which have also been transferred to it in this way. This is done as part of their bookings of the opening balance according to the Commercial Act. Thus, the assets transferred are recorded under assets and the share capital under liabilities with EUR 5,000,000 each.

Now we look again at the balance sheet of the parent company. What do we have to book here? On the one hand, the liabilities include the original share capital of EUR 25,000. The assets transferred to the subsidiary, which were originally in the books with the lower partial value and therefore also had a value of EUR 25,000, must now be written off. Instead, the shares in the subsidiary GmbH are now booked on the assets side – with EUR 4,975,000. What do you book on the passive side? Well, there is then a commercial profit of also EUR 4.975.000 to book.

This is how we sold the company. At the same time, however, we have also been able to avoid the 7-year blocking period.

4.2 Analysis of the procedure with this design model

Here too, a detour leads to the fact that you can avoid the 7-year blocking period and still sell the company tax-advantageous. But as in the previous model, it is also strictly speaking another GmbH that you sell. However, the real trick here is different. Because the transfer of the assets to the subsidiary can on the one hand, as described above, be carried out according to commercial law requirements. For tax matters, however, one takes a different approach. Because the conversion tax law allows the transfer of assets in a tax-neutral manner. And we make use of this in order to avoid the otherwise incurred taxes during the GmbH sale within the 7 year blocking period.