Many advantages are possible with a holding company. In this post, we list the 11 most important of you and introduce them to you individually. They arise both in the tax context and in tax-optimized investments of profits and in terms of asset protection. For example, you can sell subsidiaries of a holding company with only 1.5% tax on profits. Or you can transfer profit carried forward from the liability envelope of the operating subsidiary to the holding company. This also works with a very low tax of only 1.5%.

1. 11 Features of a Holding – Introduction

You are already familiar with this: Anyone who manages a sole proprietorship sooner or later thinks about a change of legal form into a GmbH. But even those who already manage a GmbH and are involved in it can further optimize this structure. The keyword here is holding.

2. What exactly is a holding company and how to set it up?

A holding company is a purely asset-management company which thus serves the purpose of holding company shares. However, the fact that you should set up an independent company for this is due to the fact that you receive various advantages with a holding company. We will inform you about this in this article.

If you already run an operational company but do not yet have a holding company, you can start it in different ways. The contribution by share exchange is probably the most common method. For this purpose, the existing company is transferred to the newly established holding company by way of a contribution in kind against the granting of new shares. In this way, the operating company becomes a subsidiary of the holding company. If the transfer to book values takes place, this process is even possible in a tax-neutral manner.

However, this is accompanied by a seven-year blocking period. If a sale of the subsidiary takes place during this period, there are retroactive taxes on the hidden reserves existing at the time of the transfer.

3. The 11 advantages of a holding company in detail

11 Advantages of a Holding: Advantage 1 – Tax-Optimized Reinvestments

The first advantage on our agenda is certainly the most important from a tax perspective. Because an operative GmbH, which distributes its profits directly to its shareholders via a holding company without an intermediate step, initiates a capital gains tax on a private level. In addition, there may be church tax and solidarity surcharge.

A GmbH as a holding company is in principle able to receive the dividend of its subsidiary tax-free. Unfortunately, §8b(5) KStG provides, by way of derogation, for a tax of 5 % of profits, because the legislator considers this to be a lump sum for non-deductible operating expenses. This also applies to business tax. Consequently, 5 % of profits are taxed at around 15 % each. In the end, we are talking about a tax of approximately 30% at the level of the subsidiary GmbH and 1.5% at the level of the holding company. This leaves the holding company with approximately 69 % of the original profit. And then she can reinvest it.

In this way, the accumulation of wealth takes place much faster than if the profit were distributed on a private level. Therefore, this is one of the most significant advantages of a holding company.

11 Advantages of a holding company: Advantage 2 – Tax-optimized company sales

A further, but this time long-term tax advantage offers the holding company when selling a subsidiary. While the private sale is realistically subject to the top or even rich tax rate of up to 42 or 45 %, a holding company pays only 1,5 % tax on it. The rest can either be distributed or reinvested by the holding company. Maybe you are building a new startup?

Advantages of a holding company: Advantage 3 – Hiding the financial circumstances of the subsidiary

Through the company register, anyone interested can get insight into the financial situation of a GmbH. This is relevant for potential customers who are currently in negotiations with a GmbH. If the GmbH is financially well, for example, you can deduce that you can achieve a higher margin there than if it is a GmbH in a financially shaky situation. Incidentally, the same applies to the own employees who are preparing for negotiations on a salary increase. In other cases, too, it can be a disadvantage if you can take a high profit reserve from the balance sheet.

One of the advantages of the holding now is that the operating subsidiary regularly distributes its profits to them. At first glance, no profits within the subsidiary are apparent. Interested third parties could also consult the balance sheet of the holding company, as these are also available in the company register. In most cases, however, it remains solely in the interrogation of the balance sheets of the operating company. Therefore, the financial indicators of the corporate structure are relatively well protected.

3.4. 11 Advantages of a Holding: Advantage 4 – Asset Protection

In a similar direction, the next aspect moves, which we would like to introduce to the various advantages of a GmbH. If the holding company accepts the profit of the operating subsidiary, then in the event of insolvency or liability to third parties, the latter is liable only with its remaining assets. The profits are already in the holding company.

11 Advantages of a Holding: Advantage 5 – Asset Management with Real Estate

Also with great potential is a holding company that invests its accumulated profits in real estate. It can of course rent these to third parties. However, it can also purchase them for the purpose of renting to its own subsidiary. Either way, on her rental income she pays only 15% corporation tax. The fact that there is no business tax is due to the fact that she can submit an application for extended property reduction.

However, the lease to its own subsidiary provides the combined advantage that operative GmbH can deduct the rental expense as operating expense, which means a tax relief of 30 %. The 15 % difference in taxation of the co-revenue at the level of the parent company is thus one of the special tax advantages of the holding company.

3.6. 11 Advantages of a holding company: Advantage 6 – Recovery of capital gains tax

If dividends are distributed by a GmbH, it is obliged to withhold capital gains tax. Finally, the capital gains tax is a withholding tax. It is irrelevant whether the recipient of the dividend is a natural person, a partnership or another corporation. However, if a holding company regularly receives profit distributions from its subsidiary, you can apply to the tax office for permanent overpayers. This relieves the subsidiary GmbH of the retention of capital gains tax. This saves administrative burdens.

3.7. 11 Advantages of a holding company: Advantage 7 – Granting of loans to shareholders

Now one may also ask oneself how one as a shareholder can approach the profit that lies in the holding company as tax-free as possible. Finally, a distribution of profits is accompanied by a tax of at least 25 %. But there is also a solution to this.

For this purpose, the holding company simply grants a loan to the shareholder. However, you have to pay attention to the conditions that they are foreign usual. Otherwise, the probability is high that the tax office recognizes a hidden profit distributions at favorable conditions. But if you pay attention to these details, the loan is a very good option to avoid the capital gains tax and still get access to the money. But you should use the loan exclusively to build assets on a private level. After all, it is one of the foreign customary conditions that a loan is repaid at some point.

3.8. 11 Benefits of a Holding: Advantage 8 – Tax-Optimized Dividends

Nevertheless, at some point it may be the case that you want to distribute the profits from the holding company. This is conceivable, for example, if you go into retirement and want to allow yourself a life in prosperity from the fruits of hard-working years. The prospect of having to pay 25% of capital gains tax each is anything but pleasing. Fortunately, there is an alternative to capital gains tax. Of course, we are talking about the partial income procedure. This leaves 40% of the dividend tax-free. Only the remaining 60% are subject to income taxation, but then at the personal tax rate. This means that you should only pay off a moderately high amount as a dividend. This is because the tax progression requires that the average tax rate is below the flat-rate tax rate of the capital gains tax. Ideal would be a dividend of EUR 120,000.

Advantages of a holding company: Advantage 9 – Sale of real estate from private assets to the holding company

Another option to transfer profits from the holding company to the private level is possible by selling real estate. For this purpose, as a shareholder of the holding company, you establish a GbR together with another trustworthy person. With this GbR you then acquire a property early. After the ten-year speculative period has expired, the GbR is then sold to the holding company as part of a share deal with the property, which may have experienced an increase in value in the meantime. If you transfer a maximum of 89.9% of the GbR shares, the sale takes place even without the property transfer tax.

3.10. 11 Benefits of a Holding: Advantage 10 – Tax-free Dividends Abroad

In order to distribute profits in the holding company tax-optimized, you can move abroad for a short time. This means that you stay abroad for a maximum of seven years, because you can avoid the exit taxation. While you are taxable abroad, you can make the profit distribution from the holding company. One should benefit from the fact that the tax rate on this distribution is low in the elected state of residence, but at the same time that a double taxation agreement with Germany exists. Because then the process remains taxable only in the tax cheaper abroad.

However, a certain condition must be met. The dividend must not exceed 25 % of the company’s value. But if you first find good reasons for a relatively high valuation of the company, you can also make relatively high profit distributions abroad tax-optimized.

3.11. 11 Advantages of a holding company: Advantage 11 – Using a strategic requirement for tax optimization

If a company is transferred to a holding GmbH, the equity capital that is transferred with the company can be offset as a claim against the holding company. Such a claim can justify a reimbursement of the liability by the holding company in the future. Since this is a tax-free process, you can pay out parts of the accumulated profit without capital gains tax to the private level.

However, a number of specific features must also be considered in this context. According to § 20 UmwStG, among other things, the market value of the transferred company may not exceed 25% of the book value or be a maximum of EUR 500,000.

4. 11 Benefits of a Holding – Conclusion

With a holding company you can use a whole spectrum of advantages. However, the prerequisite is that a solid strategic orientation has been made in advance. Because many of the 11 advantages of a holding company presented here can only be realized in the long term. Although it may also seem advantageous in certain situations to implement only some of the advantages explained here, ideally one uses as many of these advantages as possible.

So if you are also interested in starting a holding company for your company, contact us. This also applies if you already have a holding company. Here, too, one or the other advantage can be achieved. Either way, we are happy to support you in the optimization of your company structure.