For GmbH shareholders who have the desire to move abroad, the exit tax is a considerable obstacle. After all, this taxation amounts to paying taxes on a purely fictitious profit. This means that you have to pay this tax from your own private assets. Some entrepreneurs are dependent on a deferral. Despite the current BFH ruling, this solution is anything but safe. With our design, however, we manage to easily avoid the exit tax with a holding company.

1. Avoid withholding tax – Introduction

The exit tax is rightly a very frequent topic in our law firm. In hardly any other area do entrepreneurs feel that their personal development is restricted by taxes to a similar extent than in the case of tax easing, which also includes the exit tax. Therefore, we thought about how to tax defuse the exit tax for GmbH shareholders willing to emigrate. We proudly present our result, namely, how to avoid the exit tax with a holding company.

2. Why should you avoid the exit tax with a holding company?

Yes, exactly, this is a legitimate question. After all, the holding company is usually also a GmbH. Consequently, the exit tax would then be incurred instead of the operative GmbH on the participation of the entrepreneurs in their holding GmbH. So why are we talking about being able to avoid the exit tax with a holding company? Do not worry, what may seem paradoxical at first glance will dissolve into pleasure in the course of the article. Be curious!

3. Avoiding Exit Tax with Holding – Our Design

So let's get straight to the point. We assume that a fictitious GmbH shareholder – let’s call her Ms. Fernrausch – simply owns a successful GmbH. She is also the sole shareholder.

On our recommendation, it now establishes a holding structure as the first measure. For this purpose, Ms. Fernrausch first founds a GmbH, which will be the future Holding GmbH. Shortly thereafter, it will contribute its GmbH to Holding-GmbH by exchanging shares. Of course, it carries out this conversion process in a control-neutral manner. This means that it makes the contribution at the book value of its GmbH. Thus, the basic structure already exists which will allow Mrs Fernrausch to emigrate without an exit tax.

However, some steps still have to be taken so that the holding company actually makes it possible to avoid the exit tax. Initially, the holding booked the access of its subsidiary GmbH in its trade balance. On the asset side, her GmbH participation appears and on the passive side, she shows a profit. This profit logically corresponds to the market value of the GmbH share in fixed assets. On this basis, Ms. Fernrausch can distribute this profit to herself in a shareholder resolution. However, since the profit in practice is only an accounting value and is therefore not based on any liquid funds, the payment from the holding company to Ms Fernrausch does not take place. Instead, Ms. Fernrausch receives a claim against her holding company. For the holding company, this in turn means a liability to its shareholder. If this is now taken into account with the aim of determining the value of the holding company, there is a balance between the investment value of the shareholding in the subsidiary GmbH and the liabilities towards Ms Fernrausch.

It is precisely this balance that we are now making use of. Because now Mrs. Fernrausch can emigrate abroad without having to pay exit tax. After all, we avoid the exit tax by the fact that the holding company is now worth EUR 0. With such a value, there is simply no exit tax.

4. Avoid withholding tax: Taxation of dividends

Anyone who is familiar with tax law may object at this point that the tax office still taxes the profit distribution. And yes, actually this would be provided for under § 44 paragraph 2 EStG. However, we are referring to a regulation that is barely noticed and which fits exactly our situation. Because here § 44a paragraph 5 EStG stipulates that in the case of a deferral of the profit distribution, as in our case, no direct taxation takes place. Only when the dividend is actually paid does capital gains tax apply. The scheme applies to both unlimited and limited taxpayers. For Ms Fernrausch, this means that she can already stay abroad at the time of dividend payment. And so it only remains for us to wish her good luck – wherever she may go in the wide world.

5. Avoiding the exit tax with a holding company – Conclusion

“To catch a thief with a thief” is an expression for which one knows in German as the equivalent the saying “fight fire with fire”. In view of our design, the English version may seem more obvious to some and some affected, because the intervention of the German Treasury with its exit tax on a purely fictitious profit means that one is obliged to pay an arbitrary tax from net overtaxed assets. After all, neither a sale of a company has taken place nor any inflow of money. The fact that with our design of a GmbH (the holding company) helps to avoid the exit tax is certainly ironic of fate. As soon as the legislator becomes aware of this annoyance, however, one must probably expect that he will close the gap.