date | theme

24. August 2018 | UK-Limited and Brexit: Cross-border merger helps!

November 1, 2018 | Consequence of Brexit 2019: Limited no longer recognized in Germany!

4. November 2018 | Merger after share exchange violates lock period at GmbH & Limited

30. November 2018 | Limited conversion to Brexit: Avoid these 5 mistakes!

December 6, 2018 | Short-term solutions: converting Limited into GmbH (6 possibilities) This contribution

29. January 2019 | Limited in Germany no longer recognized after Brexit!

15. March 2019 | Brexit Tax Accompanying Act – Can the UK-Limited still be saved?

11. April 2019 | Brexit extension until 31.10.2019: merger of the Limited to GmbH possible again!

We have specialised in the various possibilities of converting the UK-Limited into a German GmbH. We not only consider cross-border mergers, but also advise on several alternative designs. Due to the current relevance, we have published several contributions on this topic:

1st (return) transfer of the administrative headquarters to the UK

Despite the fact that many participants are not aware of this solution, it is the simplest, fastest and most efficient solution. The English Limited moves its administrative headquarters back to the UK. This requires that the Director/Managing Director of the Limited henceforth make the decisions in connection with the management of the Limited in the UK, i.e. in the country in which the company was founded. This automatically ends the problematic state that an English company is managed in Germany. After the Limited has “retired” to its founding country, it can continue there indefinitely without Brexit having any impact on it.

After that, however, the Limited ceases to make taxable profits in Germany. All hidden reserves in the assets of the Limited are thus to be discovered in accordance with § 11 KStG. For operational limited companies, this results in a tax burden of approximately 30%. However, asset management companies (shareholding companies / holding companies) can in principle claim a tax exemption of 95%. This means that only 5% of the hidden reserves are taxable, with a tax rate of 30%. As a result, a tax burden of only about 1.5% remains.

The classic is the cross-border merger of the Limited into a German GmbH. We have already written an article on our website.

It is important that the Limited shares were not previously transferred to a GmbH, as they would otherwise be subject to a 7-year blocking period. The perfect structure is therefore such that a private person holds both 100% in the Limited and 100% in a new GmbH. Subsequently, the Limited is merged sideways into the Deutsche GmbH. This is basically tax-neutral in German tax law. In English company law, we regularly receive inquiries from the High Court on creditor protection. With the aim of saving time, we prepared a letter on creditor protection written by our law firm at the first court meeting before the High Court, which we present as standard.

2.1. Cost

The costs of such a procedure are not insignificant, after all, a German notary, a German tax office, a UK solicitor and, if applicable, a UK barrister are involved. For a limited company with a balance sheet total of EUR 0.5 million, fees for specialized tax consultants as well as for UK attorneys and notaries of approximately TEUR 20 net should be expected. In addition, there are relatively low fees for translations, register courts and interim balance sheets. With a balance sheet total of EUR 5 million, experience shows that the total amount mentioned above increases to approximately TEUR 40. These fees include a “round-round carefree package”.

2.2 Duration

In addition, this merger procedure in practice takes 5-7 months so far. Currently, however, the court dates at the High Court are available at short notice and are consistently positive. In consultation with our UK lawyer, the deadline can currently be reduced to up to 3-4 months.

2.3.

The question therefore arises whether the merger process can still be started. At least from a legal point of view, the recommendation is yes. The merger can now be initiated, so that there is a chance that the merger process will be completed by Brexit. In addition, there is a chance that the draft bill of the Federal Ministry of Justice will be implemented until Brexit, and thus merger projects that were initiated before Brexit will still be recognized in Germany two years after Brexit. Legally, the merger procedure can be held at any time until successful entry into the German Commercial Register. Economically, however, it should be calculated whether this path is followed. Finally, the merger costs are not insignificant.

Simple solution for investment companies

For investment companies or Holding companies also offer another (simple) design alternative, which has not yet been communicated in the specialist press and on the Internet:

Step 1: Enter

First, the English Limited is transferred to a German GmbH. The limited shares are therefore subject to a lock-up period of seven years and may not be sold, merged or liquidated.

Step 2: Dividend in kind

Subsequently, all assets of the English Limited will be distributed to the new German parent GmbH as part of a non-cash profit distribution. Unlike a normal distribution of profits, no money flows in such cases, but material assets are transferred to the shareholder (GmbH). Alternatively, the assets can also be sold to Mutter GmbH. Both the non-cash dividend and the sale process result in the uncovering of hidden reserves at the level of the Limited. In the case of holding companies, however, 95 % of the hidden reserves are exempt from tax. In addition, the dividend taxation at the level of the parent GmbH is also 95% tax exempt. As a result, the hidden reserves are taxable at 2 x 5 %. The tax rate of 30% then results in a total tax burden of 3%.

In addition, all profit carried forward by the Limited – also 95% tax-free – will be distributed to the Deutsche GmbH. After that, the English Limited is almost empty. Only the share capital (e.g. GBP 100) remains in it.

As a result, all assets are subsequently located in the Deutsche GmbH.

Step 3: Receiving the Limited for 7 years

It should not be forgotten that the Limited Shares are subject to a 7-year blocking period (see Section 3.3). Therefore, the Limited must remain recognised as a corporation for 7 years. However, this is relatively simple, after all, the administrative headquarters can be moved back to England before Brexit. In the case of an empty limited company, there are also not many decisions to be made by the administrative members of the company (director / managing director). In such structures, it is recommended that the managing director flies once a year to the office in England.

Step 4: Dissolution of the Limited

After the expiry of the 7-year blocking period, the Limited can be liquidated.

4th contribution to Tochter-GmbH (holding structure)

An elegant and short-term realizable design is also the integration of the entire business operation of the Limited into a (new) subsidiary GmbH. The contribution can be tax-neutral under the conditions of § 20 UmwStG. Subsequently, the operating business is tax-neutrally transferred to a GmbH. The Limited acts as an intermediate holding company. However, in order for the Limited to be legally maintained, it must relocate its administrative headquarters to the UK before Brexit (see paragraph 1); However, this seems unproblematic, as an empty Limited can also be continued in the UK.

Risks/Problems: