date | theme

28. May 2021 | Profit on sale: tariff concession according to § 34 EStG (this contribution)

2 April 2021 | Individual companies and partnerships tax neutral according to § 6 para. 3 EStG transferred

21. October 2020 | Selling company to children instead of giving away or inheriting saves taxes!

20. February 2019 | Profit on sale: Holding vs. private person in the GmbH sale

You are an entrepreneur and want to leave your company in the future. Consequently, you can either abandon the operation, transfer it free of charge or sell it. If you decide for the latter variant, i.e. the sale of business, you are entitled to certain advantages. These also include the preferential tariff treatment under § 34(3) EStG or the tax reduction under § 34(1) EStG, the so-called fifth rule. We explain the conditions and the effects. We also outline what you need to look at.

Company Sale: Who Pays Which Taxes? – EU, GmbH & Co. KG, GmbH, Holding

1. favourable tariff treatment of § 34 (3) EStG

§ 34 paragraph 3 constitutes a tariff concession for operational tasks and sales. The standard allows the use of half the average tax rate for the profits from a business sale. The purpose of this scheme is therefore to facilitate the provision of old-age pensions for entrepreneurs who leave work.

2. Conditions of favourable tariff treatment

The preferential tariff treatment is granted only if certain conditions are met. First, the advantage applies only to an individual capital gain within the meaning of § 34(2)(1) EStG. Furthermore, it is only granted for capital gains up to EUR 5.000.000. Furthermore, the taxpayer must apply for the tariff advantage and the 55. at the time of disposal or permanently incapacitated under social security law.

Furthermore, the taxpayer can claim the tariff advantage only once in a lifetime. However, prior benefits within the meaning of § 34 (1) EStG shall not be taken into account. This means that even if the taxpayer has already received a benefit within the meaning of § 34 (1) EStG, he can still apply for the tariff benefit. In addition, the possibility of availing itself is not yet exhausted by the fact that the tax office grants the taxpayer the benefit without his request for profits which indisputably do not constitute capital gains within the meaning of § 34 (2) no. 1 EStG. In addition, the advantage cannot be claimed if § 6b or § 6c EStG or the recovery advantage have already been applied to the capital gain.

Furthermore, it is necessary that capital gains are achieved within the meaning of § 34 (2) no. 1 EStG. For this purpose, all hidden reserves (positive deviations of the actual market value from the book value) must be dissolved in a uniform operation. Furthermore, capital gains within the meaning of §§ 14, 14a (1), §§ 16 and 18 (3) EStG should be present. Capital gains within the meaning of § 16 EStG include the sale of the entire business or branch. Those within the meaning of § 14 EStG thus concern the sale of an agricultural and forestry enterprise or part of an enterprise. On the other hand, those according to § 18 EStG concern self-employment.

2.2. Tariff advantage for capital gains up to 5 million Euro

In addition, the limit of EUR 5.000.000 must not be exceeded. If the taxpayer simultaneously obtains capital gains from several business sales or tasks, he may only claim the benefit of § 34 (3) EStG for one profit. This also applies if the total capital gain does not exceed EUR 5.000.000. Therefore, it may be appropriate to merge the individual companies into one before the operation is disposed of. If, however, the relinquishment profit of an individual company falls into two different assessment periods, the benefit of the tariff may only be granted up to a maximum of EUR 5.000.000 in both assessment periods. In addition, if profit shares are determined separately in a uniform manner, the limit for the preferential tariff of EUR 5.000.000 must be examined separately for each shareholder. Consequently, spouses who are jointly assessed may also individually benefit from the tariff reduction pursuant to § 34 (3) EStG.

3. Consequences of favourable tariff treatment

As a result of the favourable tariff treatment provided for in § 34(3) EStG, a reduction in the tax rate for a profit of up to EUR 5.000.000 is required. Therefore, the tax rate is only 56 % of the average tax rate that would result if the tariff income tax were to be based on the total taxable income. Section 34(3), second sentence. Half-sentence EStG, however, regulates the minimum taxation. As a result, if the input tax rate falls below this threshold, at least the input tax rate (now 14 %) should be applied instead of half the average tax rate.

4th fifth regulation

§34 (1) EStG provides that for so-called extraordinary income within the meaning of paragraph 2 the fifth rule applies. According to § 34 (1) no. 1 EStG, such extraordinary income is also capital gains. Consequently, this income is taxed at the rate that would result if only 1/5 of the extraordinary income had been earned during the assessment period. This is intended to distribute the aggregated profits over a period of five years. The tax on extraordinary income is calculated as follows: