Half a tax rate is colloquially referred to as a one-time tax break, the entrepreneurs from the age of 55. can receive the age of life when they sell or abandon their business. In this way, the financial protection of the old age is to be made easier for tax purposes. With this intention of the legislator in mind, we are developing a design model for freelancers, with which you can continue to work despite the use of half the tax rate, but at the same time high depreciation is set in order to minimize the income tax over several years. This is how you enter the exit.

Anyone who has worked as an entrepreneur for a lifetime faces the question at the end of this career what should become of the company when you retire. Usually it comes to one or another form of company succession. However, this is only possible through a termination or transfer of the company. And as you know, it's taxed. But since the sales proceeds in particular should simultaneously contribute a part to the financial retirement provision, the legislator has come up with something special. In general, it is called half tax rate. In other words, those who sell their own company before retirement due to age only have to pay half the tax.

Before we take a closer look at how half a tax rate is actually applied in practice, we want to refer to the relevant legal regulations. For this we read in § 34 paragraph 3 EStG all the details that are necessary for this. On the one hand, the age of taxpayers who want to use half the tax rate is 55 years. Alternatively, half the tax rate also applies to taxable persons who are permanently incapacitated under social security law.

Another requirement is that half the tax rate is applicable only to a single capital gain or loss. Therefore, if several such transfers of business are subject to taxation, the taxable person must actively decide which of the profits should be subject to half the tax rate. So half the tax rate is a tax privilege that you can only use once in a lifetime.

Furthermore, it should be mentioned that the designation half tax rate is a little inaccurate because it is obsolete. In fact, half the tax rate is currently 56 % of the average applicable tax rate, but at least 14 %. And there is now an upper limit to the profit level, which can be reduced with half the tax rate. It is EUR 5,000,000. Last, not least, a half tax rate is only available on request from the tax office.

To quote the legal bases very precisely, one must also refer to § 16 EStG. Because here the taxation of the profit from the sale of a business is regulated. Thus, the correct provision regarding half the tax rate refers to § 16 in conjunction with § 34(3) EStG.

With this background knowledge, we are well equipped to venture a design model in which half the tax rate plays the key role. For this we best take a freelancer, because for these entrepreneurs, half the tax rate in our model is particularly worthwhile. Later, however, we will also explain how businesses can use this model for themselves, albeit with a lower potential for advantage.

So let’s say that Mrs. Bau is an architect and just became 55 years young. As a freelancer, she runs her own architecture firm, which she wants to sell before retirement. However, she plans to continue working for several years. For this purpose, we recommend Ms. Bau to sell her architectural office to a GmbH she had previously founded for this purpose. Indeed, the selling price should be reasonable, which means that third parties would also set the same price when acquiring their architectural office.

Since Ms. Bau fulfils all the requirements for obtaining half the tax rate, she can now submit the application according to § 34 (3) sentence 1 EStG to the tax office. Let’s just assume that Ms. Bau manages to set the maximum profit of EUR 5,000,000, which can be optimized with half the tax rate. Normally, the tax office would set a personal tax rate of 45 % on this. The tax would then amount to EUR 2,250,000. However, based on Ms. Bau’s request, we now correct the amount to EUR 1.260,000.

This tax may seem absurd at first glance, because we are taxing a kind of profit at this point that could have been delayed. But let’s see why it is tax-advantageous to already use half the tax rate.

Because now the newly founded GmbH can write off the acquisition costs year after year for tax purposes. Since it is the acquisition of a freelance office, the GmbH can write off the purchase price in the course of only three to five years. And this is an enormous tax advantage, because depreciation reduces current profits so much that virtually no taxes are incurred during this period.

The same design model can also be applied to professionals who meet the legal requirements according to § 34 (3) EStG. However, in this case, the acquired company value is written off over a period of 15 years. So, considering that the taxable person uses this model at age 55, then the depreciation has paid off in full only when the person turns 70. Therefore, it is rather unlikely that commercial entrepreneurs use this design model.

Notwithstanding this, even for them half the tax rate as a tax privilege is very attractive, even if only in the way originally envisaged by the legislature.

The design model, which is based on the half-rate approach, can ideally be followed by another design option. So you can set the purchase price for the company as a loan to your own GmbH, so that the GmbH makes a purchase price liability. Instead of distributing their profits annually to the taxable person, the profits can now serve to repay this liability. The tax advantage here is that repayment payments have no tax consequences; They are tax-free. In this way, shareholders receive tax-free payments from their company for years. If, on the other hand, they had continued their freelance or otherwise independent business, income tax would still have been incurred annually. But now we have converted the profits into tax-free repayment benefits.

A sound design consultancy can sometimes lead to enormous tax advantages. In this example, we were able to impressively demonstrate that, as a tax consultancy, we can apply tax laws to the benefit of our clients in many ways. We are always aware of the risk posed by design abuse. Consequently, we always set up our designs with a solid foundation, with which we already eliminate design abuse in the beginning. After all, it is in the interest of our clients that their investments in an equally expert and practical design consultancy are actually financially worthwhile.

So if you are also interested in such or another tax design, then choose one of the different ways to get in touch with us now. We are happy to arrange an initial consultation appointment in order to explore the possibilities of further tax optimizations with you.