date | theme

03. May 2019 | Real Estate GmbH Advantages for renting land (this contribution)

05. July 2019 | Founding a real estate company & children participating in real estate

10. July 2019 | Selling property to children: Saving income and inheritance tax

Anyone thinking about acquiring a property for the purpose of renting or leasing should also know the possibilities that a Immobilien-GmbH offers. With this article we inform you which tax advantages such a vermögensvermanagementde GmbH can offer you. Furthermore, our article highlights the prerequisites and other aspects that result from the creation of a real estate company. We also show you how the current taxation of Immobilien-GmbH is composed and what tax burden arises at the GmbH shareholder. The tax effects of the possible sale of the property by the GmbH are also part of our considerations.

We explain the advantages & disadvantages that a real estate acquisition as a real estate GmbH offers: trade tax, corporate tax, depreciation.

Investment in a property

Acquiring a property for investment should be planned in advance and advised accordingly. The taxation of real estate income associated with the acquisition and subsequent rental or lease should be included in the decision-making process before the start of the investment. Although this requires a certain amount of preliminary advice, all parameters of such an investment must be evaluated. Because from the financing and the acquisition via the rental or lease to the circumstances that will be included in the sale of the property, all aspects are also relevant in the taxation.

Of course, this also applies to the form in which the company is to be operated. This article deals in particular with the legal form of the GmbH. In order to illustrate the advantages of such a real estate GmbH, we draw a comparison with the situation of a private rental or lease in selected aspects.

2. acquisition of real estate by a Immobilien-GmbH

The acquisition of a property by an asset management company must be considered in a differentiated manner. In principle, two different variants are possible. On the one hand, the GmbH can be founded with a high share capital in order to provide it with sufficient financial resources to acquire real estate. As a GmbH shareholder, however, you can also start with a small share capital and then provide the GmbH with the capital necessary for the acquisition of a property as a loan.

A third possibility is participation as a silent society. Legally, it may also be possible, but there may be tax-detrimental implications if the silent partner is also managing director of the GmbH. Therefore, we ignore this special case in the further discourse.

2.1. Acquisition of the property by means of GmbH equity

If you equip Immobilien-GmbH with a sufficiently high share capital to enable it to buy a property, there are therefore no financing costs. They will thus be irrelevant when considering profit determination later.

2.2. Acquisition of the property by means of shareholder loans to Immobilien-GmbH

If the GmbH shareholder takes the route of a loan transfer to the company, the shareholder should ensure that an interest on the loan is agreed in the contract, which is done on market terms. However, if a much higher interest rate is made, in particular to reduce the profit of the GmbH, the tax office will regard this as a so-called hidden profit distribution (vGA). In this case, the profit of the GmbH is adjusted upwards in the determination of the corporate tax in accordance with the amount of the vGA. If, on the other hand, no interest is provided, this can still lead to an increase in corporate tax in the form of a statutory discount.

2.3. Acquisition of real estate by the GmbH through external capital from third parties

Another interesting alternative is the use of external capital by third parties. The big difference to the previous example is the avoidance of a vGA to a shareholder. However, it must also be carefully checked here that all conditions are correct, because a vGA also exists if the beneficiary is not himself a shareholder, but is in a personal relationship with a shareholder.

The taxation of rental income and rental interest of a real estate GmbH follows different rules than for a private person. In the case of a rental or lease by a Immobilien-GmbH, the municipality involved is entitled to trade tax. In contrast, there is no business tax on a private rental or lease of a property.

Advantage 1: Increased depreciation for commercial use

If a Immobilien-GmbH rents or leases a property, then basically two cases must be distinguished: the rental for residential purposes versus the rental for commercial purposes.

3.1.1 Rental for residential use

In principle, the rental of real estate for residential purposes is exempt from VAT. This also applies to rental by a Immobilien-GmbH. However, this also precludes the deduction of input controls. In addition, the depreciation (AfA) is calculated over the 2% of the acquisition costs (AK), as it is also applicable to a private rental.

3.1.2. Rental for commercial purposes

An advantage of this variant is the different handling of the AfA. When renting for commercial purposes, the law provides, under certain conditions, a rate of 3% of the acquisition costs. Thus, the depreciation is half higher than when renting for residential purposes. The annual amount, which makes up the difference of 1% of the acquisition costs for a larger investment in a property, is therefore of great importance in the taxation of Immobilien-GmbH. After all, the acquisition costs of such a property, which is intended to serve commercial purposes, are usually also significantly higher than for a property that serves only residential purposes. The repayment plan can be designed correspondingly advantageously during financing.

Let us briefly mention the requirements for the 3% AfA: The property rented/rented for commercial purposes must be part of the operating assets, with the building application being made after 31.05.1985. As you can quickly see, these conditions are easy to meet at a Immobilien-GmbH. In contrast, it is impossible for a private person to meet this condition, since he operates instead of a commercial only a private rental or lease. Thus, it lacks the basis to meet the condition regarding the business assets, because the property is in this case part of the private assets of the person.

3.3 Advantage 2: Trade tax at vermögensverwaltenden GmbH

3.3.1. Standard taxation

Since the rental/rental by a Immobilien-GmbH is commercial income, trade tax also applies. As already mentioned, municipalities collect business tax. The municipality in which the rented/rented property is located is entitled to collect the property. Since each municipality determines the amount of the trade tax levy under its own direction, our article can only give a certain framework. The law stipulates a lower limit of 200%. On the other hand, Oberhausen has one of the highest lifting rates in Germany with 550%. On average, the trade tax is about 15% of the annual turnover.

3.3.2. Extended land reduction

But there is a way out with which the trade tax in the case of commercial rental / lease can be significantly reduced. At the request of Immobilien-GmbH, a so-called extended property reduction – also extended trade tax reduction – can be claimed according to § 9 No. 1 sentence 2 GewStG. Thus, the trade tax can even be completely eliminated. At best, it still applies to interest income, but these are usually low. However, certain conditions must be met. This special reduction in trade tax is only granted if the GmbH deals exclusively with the management of its own real estate. Other business areas are therefore harmful.

3.3.3. Requirements for using the trade tax reduction for real estate

In practice, however, this also means that no furnishings may be rented together with the property. If, for example, a department store is to be rented, then escalators, elevators or lifts must not be part of the property to be rented. In the lease agreement, this must therefore be stated accordingly. However, such assets may not be rented differently via the same Immobilien-GmbH, because this would mean that the GmbH also carries out activities other than the mere administration of its real estate.

Fortunately, this restriction can be elegantly circumvented. You simply transfer ownership of all components of a property to which this regulation applies to a second GmbH. This is then entrusted with the rental of these assets, whereby the resulting trade tax is significantly lower than if the property were rented out completely.

Advantage 3: As a result, only 15% corporate tax

The corporate income tax of vermögensverwaltenden GmbH is based on the annual profit generated. The tax rate is uniformly 15%. Equally uniform is also considered the type of income of a GmbH. It is actually income from business. What you should also know: The trade tax payable by the GmbH is not taken into account in the corporate tax as an expense. As a result, vermögensververwaltungtende Immobilien-GmbH pays only 15 % corporation tax on rental profits.

4. amount of income tax at the GmbH shareholder

4.1. Taxation of income from capital assets

The income tax of the GmbH shareholder is based on the so-called income from capital assets. In addition to interest, this also includes profit distributions by corporations in which there is a participation. These incomes are usually charged with 25% withholding tax. Advertising costs are not taken into account.

4.2. Alternative taxation of income from capital assets: The Parts Income Procedure

Apart from the withholding tax, the so-called partial income procedure may be more relevant for the shareholder of a real estate GmbH we are considering. This procedure is applied to a shareholder who holds at least 25% of a GmbH or who holds at least 1% of a GmbH and holds a management function in the company. The effect here is that only 60% of income from capital assets is subject to taxation. A further advantage is that the actual associated advertising costs can also be used. However, it should be remembered that this is only possible on request and only once for each participation. If one revokes an application already granted by the tax office for the application of the partial income procedure, no new application for this participation can be made later.

4.3. Interest income of the shareholder for loans to the GmbH

If the shareholder leaves a loan to Immobilien-GmbH, then interest is due. This interest again constitutes income from capital assets. Normally, interest is paid by withholding tax of lump sum 25% deducting the savings lump sum. However, if the lender and the borrower are related persons, the entitlement to the lump-sum savings allowance is waived. In other words, interest accruing to close persons is fully taxable. Now the question arises how a natural person can maintain a close relationship with a GmbH. The answer lies in the legal view that a corporation as a legal person can also be a related party.

Of course, it may be surprising at this point that when considering the purchase of a property, its possible sale should also play a role. After all, a property usually represents a long-term investment. Their sale therefore seems to be still a long way off at the time of purchase. Nevertheless, the circumstances that determine the acquisition of the property also have a varied tax impact on their future sale.

5.1. Sale of a property by a Immobilien-GmbH

5.1.1. Taxation of profit on the sale of a property

Although the GmbH may be considered a legal person when it comes to the sale of a property, it is treated differently from a natural person for tax purposes. The privilege of the tax-free sale of a property after a 10-year speculative period, which is due to a natural person, is excluded for the GmbH. Thus, the profit generated by the sale of a property in the GmbH property is subject to corporate tax in full. If one observes the general trend of an increase in the value of real estate, it follows that the eventual sale will make a profit.

5.1.2. reserve according to § 6b EStG

There is a way to avoid the profit from the sale of a GmbH property – at least temporarily. One can use the possibility of forming a reserve according to § 6b EStG, whereby the profit is not taxed. Instead, the profit is transferred to the reserve. The reserve is in turn estimated for reinvestment in a new property. Certain conditions and rules must be observed, the full explanation of which is reserved for a separate presentation of the reserve according to § 6b EStG.

Private entrepreneur vs. GmbH: Advantages and disadvantages in comparison

6.1. When is it worth establishing a GmbH?

Now we come to the direct comparison between the private rental/rental and the commercial rental/rental by a Immobilien-GmbH. In principle, the expense of founding and managing a GmbH for the underlying purpose here is only worthwhile for larger capital (investment from about 3 million EUR). For smaller investment amounts, however, the private way is recommended. If the financing is made with a larger share of debt capital, Immobilien-GmbH is the better choice.

6.2 Effects of current taxation

In direct comparison, the percentage tax burden for the real estate GmbH variant is cheaper for the shareholder than for a private person. Even within the GmbH variant, there are several possibilities for tax design. Thus, the avoidance of business tax through the extended land reduction is certainly one of the most attractive options. Depending on the location of the property, this measure alone can save a lot of money in taxes. And since business tax is not taken into account in corporate tax anyway, its abolition does not create any disadvantage in corporate tax.

Incidentally, it is irrelevant whether the property leased/rented by Immobilien-GmbH is burdened with external capital or free of it. For the shareholder, this remains the tax cheaper option. The same applies to the question of depreciation. Even if the property is already completely depreciated, the GmbH variant represents the greater tax advantage.

6.3 Effects of transferring a property

But at some point the ownership of a property passes to a new owner. Be it through sale, gift or inheritance, all kinds of transfer basically entail tax effects. How high the tax burden is can already be determined at the time of purchase. The private person enjoys a clear advantage over the GmbH, because the sale of a property is tax-free for them, provided they observe the 10-year speculative period. The consideration of tax aspects in the gift or inheritance of a property find, due to the extensive topic, recognition elsewhere, but are also of great financial importance.