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30. April 2021 | GmbH in Austria – Taxes compared to the German GmbH

May 5, 2021 | GmbH & Co KG in Austria: 25% tax at German bodies! (this contribution)

With a GmbH & Co KG in Austria and an organization in Germany, taxation can be advantageous. The profits of the operating company are then subject to a tax of only 25%. The tax is incurred in Austria because the GmbH & Co KG there is tax transparent as a partnership. In our model, a GmbH in Germany that holds a 100% stake in GmbH & Co KG in Austria bears the tax liability. This GmbH is in turn linked by a profit transfer agreement with a GmbH & Co. KG in Germany. In this way, the German parent company of the GmbH also pays no further taxes on the profit distribution of the subsidiary GmbH. And since GmbH & Co. KG is also tax transparent in Germany, its shareholders can look forward to a tax-free withdrawal of the remaining 75% of the profit.

25% Taxes in Austria: Tax design with medium-sized organizations

We clarify how you pay 25% tax with a GmbH & Co KG in Austria & an organization in Germany.

1st tax design with a GmbH & Co KG in Austria

1.1. Corporate tax law and international tax law combined

Many of our readers know that in addition to pure information on tax and related topics, we also explain our tax design models in our articles. Also in this article we would like to introduce you to a tax design model. It even focuses on a model that has an international reference. In addition to the aspect of corporate taxation, our tax consultancy has also specialized in international tax law. Thus, this contribution is an excellent opportunity to demonstrate our expertise in this combined model. More specifically, it is about the possibility to save taxes by means of a GmbH & Co KG in Austria and an associated organization in Germany. The tax savings should have an effect up to the level of the terminal income tax of a German shareholder.

1.2. Note on the spelling of GmbH & Co KG in Austria

Before we go into detail, however, a note on the use of the abbreviation GmbH & Co KG or GmbH & Co. KG is appropriate. While in Germany the abbreviation for the word Compagnie contained in the name of the company form is abbreviated with a point, in the usual spelling in Austria the point is omitted. So GmbH & Co. KG is a German company and GmbH & Co KG is one in Austria. In this way, the two forms of company can also be distinguished in our article.

Construction of our model with a GmbH & Co KG in Austria

First of all, we would like to describe the structure underlying our design model. Based on the explanation of the structuring of the companies involved, we come to the purpose of this structure in a second step. This is associated with the goal of paying only 25% tax by using a GmbH & Co KG in Austria as an operating company.

2.1. Structure with a GmbH & Co KG in Austria as operating company

So we start at GmbH & Co KG as an operating company in Austria. Regardless of whether GmbH & Co KG in Austria is a commercial company or carries out another activity, in our example it generates the profit that we want to tax as little as possible. However, instead of the usual constellation, we choose an Austrian GmbH as a general partner and a natural person as a limited partner, a different combination. Here, a German GmbH is to be a shareholder with a 100% share in the limited partnership. The limited partner is a German entrepreneur. We will talk about him again later, because in the end he should enjoy the tax advantages of our model.

Furthermore, the German GmbH is to be a subsidiary of a German GmbH & Co. KG. In this case, however, the constellation again corresponds to the classical ensemble. Thus, a GmbH with a participation in the limited partnership of 0 % assumes full liability, while the aforementioned German entrepreneur participates in this case as a shareholder to 100 % in the partnership.

2.2 Organic structure of German companies

This makes Deutsche GmbH & Co. KG a holding company that holds and manages the shareholding in the subsidiary GmbH. In addition, an organization between parent and subsidiary should also be part of the design. Therefore, in our model, the Deutsche GmbH and its parent company agree on a profit transfer agreement. Thus, the GmbH Organgesellschaft and the GmbH & Co. KG are organ carriers in this group of companies.

By creating this body, we strive for a uniform taxation of parent and subsidiary. To this end, we follow the regulations on the taxation of bodies, as stipulated in particular by § 14 KStG.

So now we come to the tax consequences in our approach with a GmbH & Co KG in Austria. The GmbH & Co KG determines its profit taxable in Austria. This profit is now assigned to the respective shareholders. Since we assume a 100 % shareholding in favour of the German company Komplementär-GmbH, it must be regarded as taxable only in the case of taxation. Thus, the Austrian tax administration expects the German GmbH to file a corporate tax return there. Consequently, the Austrian tax administration calculates corporation tax in accordance with the rules applicable there to corporate taxation. This entails a tax of 25 % of the profits generated by GmbH & Co KG in Austria.

3.2. The double taxation agreement between Austria and Germany

Now we turn our attention to taxation in Germany. After all, the GmbH is in our model in Germany unlimited taxable. However, because taxation also takes place in Austria, the bilateral double taxation agreement between the two countries is decisive here. Otherwise, Deutsche GmbH would have to expect a new taxation of the profits already taxed in Austria in Germany. But the double taxation agreement makes this easier. Because in this case Germany waives its privilege to collect the tax. Thus, the profit distribution of GmbH & Co KG in Austria is only tax-relevant there for the German general partner GmbH.

3.3. Taxation in Germany

But the Deutsche GmbH has the obligation by profit transfer agreement to pass on the profit received by it to its parent company. It should also transfer the profit to its shareholders. What does taxation look like in Germany?

Here it is advantageous that an organization exists with the parent company. As a result, taxation takes place at the level of the Deutsche GmbH & Co. KG. And since it is tax transparent as a partnership, we have to ask about the shareholdings of the shareholders involved in it when allocating the profits. In fact, no taxable profits can be used, because the double taxation agreement only limits taxation to Austria. And the German GmbH has already paid its corporate income tax of 25% of the profit there. Therefore, the profit distribution at all levels in Germany remains without further tax effects.

For this reason, we also chose a partnership instead of a corporation as the organ carrier. For example, if, instead of the partnership, a GmbH were to be a parent company, then its shareholders would have to pay capital gains tax on it on a regular basis in the event of a profit distribution.

Tax advantage GmbH & Co KG in Austria?

Finally, we want to briefly analyze the obvious potential of our tax design by means of a GmbH & Co KG in Austria. For comparison, we first consider the tax incurred by a German GmbH as an operating company.

4.1. Taxation at a German GmbH

4.1.1. Corporate income tax, business tax

In Germany, a GmbH pays 15% corporate tax on its operating profits and about the same amount in business tax. Although business tax varies locally in contrast to corporate tax, an approach with a cumulative 30% of taxes is a quite realistic assessment.

You can see that our design model with a GmbH & Co KG in Austria is cheaper than the usual taxation of a German GmbH.

4.1.2 Capital gains tax

We would have already recorded the tax at the GmbH level. However, because we are also aiming for a profit distribution to the terminal shareholders in our tax model with GmbH & Co KG in Austria, we must also include this aspect in our further considerations. Therefore, we also calculate the tax that a GmbH shareholder has to pay when purchasing a profit distribution in Germany. Thus, the 70 % of the GmbH’s profit after tax again represents the flat-rate 25 % of the capital gains tax. We do not take the savings lump sum into account here, because this is hardly important for higher profits, as we usually assume here. Therefore, the distribution of profits to the shareholders accrues a further 17,5 % of capital gains tax.

So we add the 15% of corporate income tax and business tax to the 17.5% of capital gains tax. The result shows a total tax of about 47.5% at the Deutsche GmbH.

4.2. Tax level of our model with a GmbH & Co KG in Austria

In comparison, with our design via a GmbH & Co KG in Austria, we paid only 25% of the profit in taxes. So with our GmbH & Co KG in Austria we save more than 20% points in taxes. Even with a cautious assessment, one may think that the tax advantage is clearly on the side of GmbH & Co KG in Austria.

If you compare the result of the tax analysis of our design model with a GmbH & Co KG in Austria with that of a German GmbH or Immobilien-GmbH, then it is clear: GmbH & Co KG in Austria offers the potential to avoid taxes to a considerable extent. With it you can save almost 50% in taxes. The GmbH & Co KG in Austria also offers other advantages. For example, if you have certain requirements for the location by aligning the company to the German-speaking area, then you should check whether the GmbH & Co KG in Austria is a suitable alternative to a German GmbH.