If you combine a holding with a foundation, you can significantly reduce the taxes of the holding through royalties for the provision of intangible assets. A second advantage of the combination of holding and foundation is the tax-free sale of the intangible assets after a speculative period of ten years. If the holding company buys the intangible assets from the foundation, it can even write off the acquisition costs. One can assume that the intangible assets that the foundation holds until sale will increase in value over the years. This even increases the potential to save taxes.

A holding company is usually an asset management company. It basically only holds shares in one or more subsidiaries. These subsidiaries then generally carry out the actual business activities. Therefore, it is also called Operating Company, or OpCo for short. However, a holding company can also run a real estate company as a subsidiary. The Commission notes that OpCo's shareholders' contributions to OpCo's shareholders' contributions to OpCo's shareholders' contributions to OpCo's shareholders' contributions to OpCo's shareholders' contributions to OpCo's shareholders' contributions to OpCo's shareholders' contributions to OpCo's shareholders' contributions to the shareholders' contributions. Their taxation is about 30% of their profits. On the other hand, the real estate company pays only 15 % on its rental income using the extended land reduction. So you save 50% on taxes with this combination.

In terms of asset management, however, the foundation is also an option. The way in which it makes profits from the assets it manages is quite comparable to that of a holding company. The main differences are, of course, in the legal form. Because the foundation represents its own legal form, while a holding company can exist in different legal forms, although in most cases the choice falls on a GmbH. However, this is also due to differences in taxation. This can be used by combining holding with foundation. How this leads to three major tax advantages, will explain to you in this article.

Before we show you how to combine a holding company with a foundation in a tax-advantageous manner, we should shed some light on the different taxation of the two asset management companies. Although both companies usually pay taxes under the Corporate Income Tax Act, there is a small but subtle difference here, which can be played out by a combination of holding and foundation.

As already mentioned, most holding structures have the GmbH as a legal form. As a GmbH, the holding company is a commercial company. Therefore, within the meaning of the Corporate Income Tax Act, it is in principle a commercial enterprise, although it basically only operates asset management. Therefore, all income accrues as commercial income at the holding company. Other types of income are thus excluded for a holding company in the legal form of a GmbH. Thus, a holding company usually pays both corporation tax and business tax on its profits.

The situation is similar if the holding company is in a different legal form. Even then, the holding company must be regarded as a commercial undertaking, so that its income is always classifiable as commercial. So in the further course of our discussions we consider the holding company in the legal form of the GmbH.

Why have we explicitly pointed out the possible types of income of a GmbH holding company? Well, because here lies the big, small difference to the foundation. Because the foundation is its own legal form, which is outside the strict rules of the Commercial Code. In other words, it is by no means limited to the production of commercial income. Rather, it can also earn a whole series of other incomes within the meaning of the Income Tax Act, even if some also remain closed to it, income from non-self-employed work, for example. Nevertheless, as a legal person under private law, it remains subject to the Corporate Tax Act for taxation. Therefore, a foundation can, among other things, also cite income from renting and leasing or other income on the one hand in the context of the corporate tax return. On the other hand, it applies the rules of income tax law to this.

But this also means that the foundation does not have to pay trade tax if it does not develop any commercial activity. Only for commercial income is a foundation subject to trade tax.

What should our design model for the holding company look like in combination with a foundation? For this purpose, we assume that the holding company also has intangible assets in addition to various subsidiaries that act as OpCos. These can be, for example, patents, trademarks, source codes as well as personal rights or intellectual property. A self-created company value, on the other hand, is excluded. Through a foundation business, the holding company now transfers these intangible assets to the newly established foundation. Who the holding company uses as a destinataire is irrelevant for our considerations. This means that the shareholders of the holding company can freely determine the purpose of the foundation.

In any case, the foundation now has the intangible assets that it leases to the OpCos of the holding company. OpCos use these transferred rights in their economic activities to generate profits. For this they pay the foundation a reasonable fee. For the profits that the foundation generates via the license fees, it then pays regular corporate tax. However, it may also recognise all expenditure relating to the transfer of the intangible assets for tax purposes. However, since this is rental income, there is no business tax on it.

The first advantage thus relates to the possibility of granting licenses for the use of certain rights. However, for the transfer of rights, the subsidiaries of the holding company must also pay a license fee to the foundation. This profit, which the foundation earns from the transfer of its intangible rights, is taxable on its part. At the same time, however, this also means that the subsidiaries may recognise these licence fees as operating costs for tax purposes. This approach reduces their taxable profit. Thus, the royalties that the foundation levies on the subsidiaries of the holding help to significantly reduce the taxes of the subsidiaries. This is because OpCos can cite the assignment fees as profit-reducing expenses both in their corporate tax declaration and in their business tax declaration. Thus, a tax saving of around 30% is possible for the subsidiaries.

At the same time, the foundation taxes its rental income with only 15% corporation tax. Unlike a holding GmbH, the foundation does not need to pay any trade tax on the rental income. Overall, this represents a tax savings of 50%, because when combining holding and foundation, you only have to pay 15% instead of 30% in taxes.

The second aspect resulting from the fact that we combine holding and foundation is the possibility of tax-free sales of the intangible assets. Because the foundation is subject to the classic rules of income tax law, which applies to private sales transactions. In fact, the law generally allows a tax-free sale of assets from private assets if the holding period is at least one year. However, if economic goods are used to generate revenue, the holding period for tax-free disposal is extended to ten years. However, since the foundation actually generates such revenue with the intangible assets, namely via the license fees, you have to wait at least ten years for the tax-free sale of the intangible rights. But at least you can make tax-free profits here.

It is often the case that intangible assets increase in value. If the holding company has acquired the intangible assets itself, then the acquisition costs are relevant for the calculation of the profit. If the holding company has created these rights itself, then the profit is even greater, because then we do not have to deduct acquisition costs in the calculation of the profit.

Of course, when selling the intangible assets, the foundation is free to decide to whom it sells them to. Therefore, in addition to a sale to third parties, a sale to the holding company can also be considered. This offers another advantage. In this case, the holding company can depreciate the assets for tax purposes. And this even to a higher value approach than at the time of acquisition or creation before! Because over the years, the values of intangible assets are likely to have increased further. So now the holding company can write off the intangible assets acquired by the foundation at the new acquisition costs and even save heavily on taxes.

The proposed model, which we design by combining a holding company with a foundation, offers three significant tax benefits. These are both tax advantages that are applied annually and tax benefits that only arise from the tenth year of implementation. The nice thing is that all three tax advantages have the property that they can be set again and again. In doing so, we have even ignored the tax and other advantages of a holding and a foundation. For example, one can cite the aspect of asset protection by the holding company. These advantages would actually have to be added. However, caution is advised for donations that a GmbH addresses to a foundation associated with it. Because these are usually hidden profit distributions.