GmbH shareholders can avoid the exit tax in Germany with a foundation in Liechtenstein. But the way to achieve this requires a sophisticated strategy. Because the transfer of the GmbH to the foundation in Liechtenstein by way of a donation or inheritance usually triggers an exit taxation itself. With a transfer of the GmbH to a German foundation, however, this can be avoided. Because for business assets you can get a generous relief discount. After a blocking period of a maximum of seven years, the German foundation can sell the GmbH to the Family Foundation in Liechtenstein. Under corporate tax law, no taxes are incurred. This also remains tax-free in the case of business tax. The reason for this is that the foundation is neither a commercial enterprise nor operates a business.

1st Foundation in Liechtenstein to Avoid Exit Tax – Introduction

Anyone who closely follows our media presence knows that we have already dedicated some contributions to the Family Foundation in Liechtenstein. This is because it has a lot of positive qualities. One of them is that you can avoid the exit tax in Germany with a foundation in Liechtenstein. However, this is by no means an easy undertaking. Therefore, in this article we want to go into more detail than before on a design that makes this possible. This is really exciting, because you can expect a fireworks of creative design ideas that has an answer to all tax incidents. Because at the end of the design, as a GmbH shareholder, you transferred your own GmbH to the foundation in Liechtenstein – tax-free (at least almost) – and, with the right setup, you also saved considerable taxes on many other levels.

Establish 2nd Foundation in Liechtenstein? First a German one!

If we want to transfer a GmbH to a foundation in Liechtenstein (or in another country), we encounter numerous tax hurdles. In particular, we want to avoid the removal tax, which would be incurred in a GmbH transfer abroad in Germany, especially with our design model.

Therefore, as a first step in the context of our tax design to avoid the exit tax through a foundation in Liechtenstein, we are intervening a foundation in Germany. Because when a GmbH is donated to a German foundation, you can apply for an exemption discount of up to 100% on the gift tax according to §§ 13a and 13b ErbStG. There are various prerequisites for this. It is particularly important here that the foundation retains the shares of the GmbH over the entire period of the blocking period. If the gift tax is reduced by 100%, the blocking period is seven years. Only then can a tax-free transfer of the GmbH participation take place.

Avoid Exit Tax: Sell GmbH to Foundation in Liechtenstein

3.1. Tax regulations for the sale of GmbH

Let us now assume that we, as former GmbH shareholders, have successfully completed the transfer of the company shares to the foundation in Germany. Furthermore, we have adhered to the blocking period, so that our foundation can now transfer its participation in turn, without a gift tax. In the meantime, the transfer of the GmbH shares also enabled us to move out of Germany. What is next for our tax optimization?

For this we must know that only the transfer of a GmbH by way of a gift or inheritance triggers the exit taxation. However, a sale is spared. So our German foundation is now selling the GmbH shares to the foundation in Liechtenstein, which we have also built in the meantime. But the question inevitably arises whether the sale triggers German taxes. And the answer is, basically, yes. But ...

Since a foundation is subject to corporate tax as a legal entity in Germany, the provisions of § 8b KStG apply to it. In paragraph 2 of this standard, the legislator grants a tax exemption in principle to a sale of company shares by a corporation. In paragraph 3, the legislature indirectly restricts this freedom with a flat-rate taxation of non-deductible operating expenses. However, a foundation is a corporation that is tax-equal to a natural person in various respects. Unlike a GmbH, AG or cooperative, for example, it can sell real estate tax-free after the expiration of the ten-year speculative period. And also for our considerations, this semi-private property of the foundation has advantages. Because a foundation as a pure administrative unit knows no operating expenses. The above-mentioned flat-rate taxation of 5% is therefore also eliminated.

As far as corporate tax law is concerned. But you also have to be careful when it comes to trade tax. However, here, too, we are delighted with comprehensive tax exemption. After all, the foundation is not a business but a corporation that serves solely for asset management. At this level, the sale to the foundation in Liechtenstein remains tax-free – including exit tax.

3.2. Significance of the purchase price claim at the German Foundation

One more aspect remains that we need to address. The sale of the GmbH to the Foundation in Liechtenstein leads to a purchase price claim. However, interest is due on such a claim. In Germany, this interest is again subject to capital gains tax.

4th to enjoy tax advantages of the Foundation in Liechtenstein without leaving tax

Now that we have reached our target structure, let’s look again at why we prefer this design model. Because simply moving abroad through a foundation in Liechtenstein without an exit tax is only the way; The goal is different.

The goal is abroad. More specifically, it is the tax advantages that you can enjoy compared to the high-tax country Germany abroad. Many GmbH shareholders and other entrepreneurs would like to use this tax freedom of choice. At least in the EU, some countries with outstanding tax advantages are luring, such as Malta or Cyprus. But you know that the removal as a GmbH shareholder requires the removal tax. Especially in highly successful companies, the regulations for determining the exit tax lead to a tax that is at least felt to be disproportionately high. But if you can neutralize the exit tax as in the model presented here, then you can choose where you want to pay taxes.

Conclusion on the Exit Tax and the Foundation in Liechtenstein

As you can see, a largely tax-free transfer of a GmbH to a foundation in Liechtenstein is feasible without an exit tax. Without the tax anchor of a GmbH shareholding, former GmbH shareholders are free of the requirement of a tax unencumberment in Germany. In this way, the Foundation in Liechtenstein helps to avoid the exit tax in Germany.

However, our model also shows that implementing such a design requires a lot of time. A correspondingly long lead phase must therefore be planned. Therefore, our design model is particularly suitable for GmbH shareholders who intend to move abroad for their retirement without having to do without their GmbH and their (indirect) distributions. And above all: without an exit tax.

But you get more than just this privilege of exemption from a tax that is often rightly considered disproportionate or even contrary to EU law. It also avoids the taxation that would arise at the end of each shareholder's existence, whether the transfer is in the form of an inheritance, a gift or a sale. In addition, now that you live abroad and have got rid of the German tax liability, you can optimize the taxation of the Foundation’s grants in Liechtenstein. So there is a whole bundle of advantages for our design model.