If you set up a family foundation in Liechtenstein to avoid the removal tax, then you must also make sure that the future profits of the Deutsche GmbH do not incur capital gains tax. Because the legislator has introduced strict rules, should a German GmbH dividends to a foreign corporation or asset. In practice, therefore, such taxation almost always occurs.

Here we offer four design models with which a family foundation in Liechtenstein can avoid capital gains tax. On the one hand, this is possible through a GmbH & Co. KG as a holding company. Another option is the assignment of the GmbH shareholding to a newly established establishment in Germany. The third option provides for the sale of the GmbH to a holding company newly founded by the family foundation, whereby the latter pays off the purchase price via the profits of the GmbH. And fourth, the Family Foundation in Liechtenstein can enter into an atypical silent participation with its GmbH in order to avoid capital gains tax.

We have already shown in many contributions that you as a GmbH shareholder pay removal tax when moving out of Germany. This is a tax that Germany levies if the national taxation law for tax substrate generated in Germany threatens or occurs. This means the taxation of hidden reserves contained in a GmbH or other corporations. Usually taxes accrue once these hidden reserves are revealed as profit. However, if a GmbH shareholder lives abroad and is only taxable there, Germany lacks the legal basis to tax this profit. So the German foreign tax law fabricates that GmbH shareholders make a fictitious company sale when leaving Germany and receive the market value for their company. In this way, Germany can secure its share of the fictitious profit at the last second, when a GmbH shareholder is still taxable in Germany.

It is clear that this is a decisive measure for GmbH shareholders, because it means that they have to tax a purely fake profit calculated purely according to legal requirements. As a tax consultancy firm with a specialization in international tax law, we therefore offer many clients to avoid the exit tax. That is why we have in the past also pointed to a model that helps to avoid the exit tax through a family foundation in Liechtenstein.

So let’s assume that a GmbH shareholder sets up a family foundation in Liechtenstein to avoid the exit tax. Although the project succeeds as planned, there is a further tax risk if the GmbH pays profit distributions to the foundation. Because then she pays 25% capital gains tax in Germany, although she would have to pay no taxes in Liechtenstein. So how do we avoid capital gains tax in addition to the exit tax? For this purpose, we describe four design models.

In the first step, we refer to the legal bases that govern the exit tax. For this purpose, we first consult § 6 AStG, the law that defines the exit tax. In particular, the point is relevant that the exit tax is subject to certain conditions, to which we already referred in the previous section.

In addition to avoiding the exit tax, however, the fact that the profits of the GmbH will in future be subject to the provisions of § 50d paragraph 3 EStG must also be observed. Because if you pay these profits directly to a foreign foundation, capital gains taxes are incurred in Germany. Although the law allows a refund of this capital gains tax, it makes it subject to certain conditions. However, these conditions are hardly feasible in practice, so that there is usually a retention of 25 % capital gains tax. But since we also want to loosen our bond with German tax law by moving abroad, we also need a design model for a solution for this.

So if we avoid the exit tax with a family foundation in Liechtenstein, we also have to make provisions in order not to have to pay capital gains tax in Germany for dividends received. We propose the following four alternatives.

The first proposal basically sets the tone for all other alternatives. If we want to avoid the capital gains tax, then we must ensure that it is not capital gains that go to the Family Foundation in Liechtenstein.

So our first proposal: operative GmbH, whose shareholder will be the family foundation in Liechtenstein in the future, will receive a holding company. For this purpose, we deliberately choose a GmbH & Co. KG as a legal form, because this is a partnership. A partnership is not subject to capital gains tax when it distributes its profits. Instead, one speaks of withdrawals that their shareholders make from it. And there is no mention of withdrawals in § 50d EStG. Therefore, the Family Foundation in Liechtenstein can easily avoid the capital gains tax by receiving the profits of operative GmbH as withdrawals from the GmbH & Co. KG Holding.

If you follow this general approach, then the establishment of a company in Germany by the Family Foundation in Liechtenstein as an alternative to the holding company comes into question. Because if you assign the participation in the GmbH to the German permanent establishment, you can avoid the capital gains tax in Germany. Although the permanent establishment initially pays the capital gains tax, it can get it back much easier than the family foundation in Liechtenstein.

Let’s get a little more creative in design number 3. First, the Family Foundation in Liechtenstein in Germany establishes a new GmbH. She then sells her operative GmbH to the new GmbH, which now functions as a holding company. It is agreed that the new holding company will gradually pay off the purchase price. It finances the repayment of the purchase price via the current profit of its now acquired subsidiary. And since there is no capital gains tax for repayment services, this variant for transferring the GmbH profits to the Liechtenstein Family Foundation in Germany remains tax-free.

This may work for a while as intended, but at some point the purchase price is fully paid off; A period of 15 years is realistic. What then? Quite simply: you merge the operating subsidiary GmbH with its holding company, found a new GmbH and then, as described in the previous paragraph, sell the operating GmbH merged with the old holding company to the new holding company, subject to the new holding company repaying the purchase price in turn. In this way, too, one can ensure that the Family Foundation in Liechtenstein can avoid the capital gains tax in Germany.

Even more fantastic may seem our fourth design model. For this purpose, the Family Foundation in Liechtenstein participates atypically silently in operative GmbH in Germany. In this way, the previously capital gains taxable profits of the GmbH now become profits attributable to the special business assets of the family foundation. And these are tax-free when they are removed. Thus, the Family Foundation in Liechtenstein can also avoid the capital gains tax in Germany.