Many GmbH shareholders are looking for a way to be able to inherit or give away GmbH shares tax-free. Of course, your own children or other family members should usually benefit from this. It should be noted here that the transferring GmbH shareholder holds more than 25% of the shares in the company. This is especially important in a joint family holding in which four or more shareholders are involved in equal parts. This condition can be met by bundling all decisions through a so-called pool contract of several shareholders. In such a case, the amount of the participation is then considered the sum of the interests bundled in the contract. Alternatively, you can set up a double holding structure, whereby a GmbH & Co. KG is superordinated to the Holding GmbH. The advantage here is that the transfer of shares of a GmbH & Co. KG in the event of inheritance or donation can also be tax-free if the shareholding is less than 25%.

In an interview with ISI finance, we discuss various topics such as tax optimization, holding, real estate GmbH, taxes on the sale of a company, inheritance and donation of GmbH shares.

1.Legal basis for inheritance and donation of company shares

Anyone who as an entrepreneur thinks about how to inherit or give away GmbH shares tax-free, for example, has to observe various legal conditions. These are enshrined in the inheritance tax and gift tax law. In particular, §§ 13a, 13b and 13c ErbStG are important. These regulate the transfer of company shares through inheritance and donation.

Inherit or give away participation in a family holding

If a typical family consisting of father, mother and two children are involved in equal percentages in a family holding company in the legal form of a GmbH, this leads to tax consequences in the case of an inheritance or donation. Although a transfer of shareholdings to companies is generally tax-advantageous, in individual cases even tax-free. Also, the transfer to family members primarily, i.e. to the spouse or between parents and children, is also tax-favoured. However, some special features must also be considered.

Therefore, in our article we consider three possibilities with which, in such or similar situations, the condition of a favourable taxation in the case of inheritance or donation of GmbH shares can be made. But we will first explain what one understands as tax-privileged.

2.1.Beneficiary inheritance tax and gift tax in the case of transfer of shareholdings

Tax Beneficiary means that 85% of the transferred asset is tax-free. Thus, inheritance tax or gift tax is only 15 % of the GmbH shares (§ 13a ErbStG). However, this is only relevant if this 15% corresponds to more than EUR 150,000. However, if this amount is above the grace discount of EUR 150,000, then the allowance is reduced by 50% of the amount exceeding the grace discount. In other words, the exemption discount is completely consumed if 15% of the transferred assets equals EUR 450,000.

However, if the allowance deducts the taxable amount, the parents can inherit or give away the GmbH shares tax-free. However, it should be noted that the GmbH meets three important main conditions. Of these, the first criterion in particular is in the foreground in our subsequent considerations.

2.1.1. Criterion 1: Minimum shareholding of more than 25 %

In the context referred to here, a participation rate of more than 25 % must be observed as a condition for inclusion as beneficiary assets. Only then can you favor a GmbH shareholding or even inherit or give away tax-free. This is clear from § 13b (1) no. 3 ErbStG.

2.1.2. Criterion 2: Compliance with the minimum wage amount of the GmbH after inheritance or donation

This condition requires that the sum of all wages paid by the GmbH in the period of five years after the acquisition corresponds to at least 400 % of the average sum of wages in the five years before the transfer. If, for example, in the five years prior to an inheritance or donation, the average annual salary total amounts to EUR 1,000,000 and, after the transfer of the GmbH shares, a salary total of EUR 4,000,001 is paid out within five years, then the condition is met for the transfer of the GmbH shares to be regarded as tax-advantaged assets. Otherwise, a taxation of the GmbH shares must be carried out subsequently. The 85 % rate at which the shares were taxed favourably shall be reduced by the percentage by which the actual wage sum of the required minimum wage sum is less.

By the way, different percentages apply if the number of employees is between 6 and 10 (250%) or between 11 and 15 (300%). However, if the number of employees is below 6, this criterion is considered irrelevant.

2.1.3 Criterion 3: 5 year retention period

In addition, a five-year lock-up period is foreseen, within which no sale of any shareholdings received by inheritance or gift should take place. The task of business operations is also bound by this blocking period. Similarly, in the case of a transfer of a part of the business or of essential operating bases into private assets or for non-business purposes, the procedure must be followed.

2.2. Alternative treatment of tax-advantaged assets

There is an alternative to the previously presented tax procedure and the conditions it requires, with which tax-advantaged assets can also be transferred. The condition is that less than 20 % of the assets to be transferred are administrative assets. Since one can usually assume the opposite in a family holding, this alternative should hardly be relevant for our consideration. Nevertheless, we would like to provide a complete picture, but only briefly go into the interesting points.

2.2.1. Tax-advantaged assets are 100% tax-free

First the good news: In this case, instead of 85%, even 100% of the gift or inheritance is tax-free. A protection discount is therefore insignificant.

2.2.2. Seven-year pay period

Instead of a payroll period of five years, a period of seven years applies here.

2.2.3. Minimum wage amount is 700 %

Accordingly, the minimum wage increases from 400% to 700%, although of course the relevant period increases to seven years.

2.2.4. 7-year retention period

The blocking period also increases from 5 to 7 years. Furthermore, it should also be noted in this case that neither private removals nor other non-purpose uses take place.

In order to give parents the opportunity to inherit or give away their GmbH shares in the family holding to the children tax-free, it can be helpful if each child for example waives 0.1% of his share and transfers it to father or mother. It is best to take this circumstance into account when the company is founded. However, a change in the shareholding structure is also possible at a later date. This can be done, for example, by sale or donation. But also an increase in the share capital by the parents in exchange for a higher percentage participation is conceivable.

However, it should be ensured that this measure avoids the fulfilment of the prerequisites for misuse of design according to § 42 AO. For example, early regulation in this matter is always advisable.

4. GmbH shares tax-free inherit or give away: pool contract

The next option to avoid inheritance tax or gift tax when transferring GmbH shares from parents to their children is via a pool contract. A pool agreement is an agreement between two or more shareholders who undertake to always support the same objectives when making decisions at shareholder level. So the decisions of the contractually bound partners must be made in a uniform manner. Thus, the alternative criterion in § 13b (1) no. 3 sentence 2 ErbStG is fulfilled, so that a beneficiary of the gift or inheritance is also legally approved.

Instead of GmbH shares, GmbH & Co. KG shares inherit or give away

Our third alternative goes one step further and leaves the GmbH behind as a family holding company. For this we create a double-storey holding company with a GmbH & Co. KG instead of a GmbH as the highest holding company. Holding-GmbH & Co. KG will then be the sole shareholder in Holding-GmbH, which in turn will continue to function as the parent company of the operating companies. This has the advantage, among other things, that Holding-GmbH & Co. KG as a partnership is in no way affected by the mentioned restrictions of a Holding-GmbH. The statutory provision, which requires a shareholding of more than 25 % in order to favour the transfer of shares tax-free, is only aimed at companies with share capital. Consequently, the family members who hold less than 25 % of the shares in GmbH & Co. KG as a family holding are able to transfer their shares as beneficiary assets by inheritance or donation.

6. GmbH shares tax-free inherit or give away: our favorite