With a holding company you invest tax-optimized. There are several options. On the one hand, you can purchase real estate with a holding company and then rent it to a subsidiary without incurring trade tax. Furthermore, investments in shares and other securities with a holding company are particularly favorable for tax purposes. Even with an exit, the holding company is the right design. Equally interesting is the establishment of other subsidiaries offering services to both sister companies and other companies.

1. Investing with Holding – Introduction

A number of aspects depend on the legal form of a company. One of the most important factors is the liability of the shareholders. For startups, however, it may be rather the tax-optimized exit that the founders already have in mind at the beginning. Especially young people who have many entrepreneurial ideas are in favor of solutions that allow the next idea to be realized from a tax-optimized capital gain. Following on from this idea, we come to the aspect of investing with a holding company. What good reasons speak for this and how best to pursue this goal, we discuss in this article.

2. Establishment of a holding company

For most of our faithful readers, the basic idea of a holding company should now be known. Nevertheless, the short presentation also belongs to this place for everyone else among you who is still unknown this structure.

A holding company is a company that primarily serves to hold and manage corporate investments. As a rule, this is a parent-subsidiary company structure in which both companies operate in the legal form of a GmbH. The tax advantage of such a business constellation is that the subsidiary can distribute its profits to the holding company almost tax-free. If there were no holding company and the shareholders of operative GmbH wanted to distribute the profits to their private level instead, they would have to expect 25 % capital gains tax. It is only 1.5% at holding level.

In any case, it is clear that investing with a holding company is much more advantageous than if you wanted to reinvest the significantly higher taxed dividend as a GmbH shareholder. But how exactly should you then invest with a holding company in order to generate the optimal advantage?

3. Tax-optimized investing with a holding company

You can distinguish different options right at the beginning of this chapter. Depending on the asset class in which you want to invest with a holding company, different opportunities and risks can arise.

3.1. Investing with a holding in real estate

A very obvious possibility is to invest the profit accrued in a holding company in undeveloped or built-up land. This option has a decisive advantage over other alternatives. Because when renting real estate by a GmbH you can make use of the extended land shortening according to § 9 no. 1 sentence 2 GewStG. This means that the trade tax is eliminated. So you pay practically only half the tax that a purely commercial GmbH would pay (only about 15 % instead of 30 %).

But there is still more to be gained: if the holding company leases the property to its own subsidiary, then the rental costs at its level mean a deduction of the profit and thus 30% less tax, although the holding parent only has to tax the rental income at 15% thanks to the extended land reduction.

3.2. Investing in stocks and other securities with a holding

From a tax point of view, it is even more advantageous to invest the dividends of a holding company in securities. If a holding company invests its money in shares, for example, the profits that flow from such investments are also tax-privileged. Because then the profit is only corporation and business tax with a combined 1.5%.

3.3. Optimize an exit with a holding company

We have already briefly indicated this aspect. Indeed, reinvesting profit after an exit is one of the most important aspects of using a holding company. There are many ways forward. But here we want to concentrate on the idea that you can build new business ideas with the profit distributed tax-advantageously to the holding company. On the one hand, you can use the entire capital to found a new GmbH. On the other hand, you can also set up a new subsidiary GmbH with the minimum share capital of EUR 25,000 and then receive the necessary rest for starting the company via a loan from the parent company. This has the advantage that financing costs arise at the level of the subsidiary, which can be used for tax purposes. Under certain circumstances, these financing costs can even lead to a loss carry forward, which is quite common for young companies.

3.4. Diversify with a holding company

Another advantage of investing with a holding company is if certain activities are bundled into independent subsidiaries. Because then you can offer these services in addition to your own operating companies also external companies. This is particularly useful in the area of administrative activities, such as accounting, marketing or human resources. Although hardly any tax advantages are possible (unlike when renting real estate to a sister company), but since this can also generate profits, this option should also be considered.

4. How multiple shareholders can invest with one holding company

A GmbH is often the first step into self-employment. Often you go this way alone. But there is also the option to start a company with several partners. In this case, the question of establishing a holding company is logically somewhat more complex than for an individual shareholder. Therefore, we now want to see whether this can also be implemented in such a constellation.

So if several shareholders are involved in a GmbH, you have to decide whether you want to establish a joint holding company, whether each shareholder prefers its own. If you choose a single holding company for all shareholders, the establishment is relatively easy to implement. With a holding company for each shareholder, it looks different. In order to carry out the conversion operation in a tax-neutral manner, each shareholder would have to contribute more than 50 % of the shares to the holding company. Since this is already impossible for a GmbH with only two shareholders, we have to resort to creative means.

One possibility is that you can also make a sale instead of a contribution. However, this only makes sense if you only expect a small profit in this share deal. By the way, this also avoids the seven-year blocking period that arises after a submission.

But the sale has another advantage. Because the purchase of the shares creates a purchase price demand on the part of the shareholder. Instead of making a profit distribution later, the holding company can easily offset its liability to its shareholder. And since this is not a taxable process, the profit accrued in the holding company can be taken tax-free in this way.

5. Investing with a holding company – Conclusion

In many ways, a holding company is a good addition to an operative GmbH. Their central advantage lies in the tax-optimized distribution of profits of their subsidiaries. As a result, significantly higher profits can be reinvested than from the private level. In this way, the accumulation of wealth takes place much faster.

There are various possibilities where you can invest tax-advantageously with a holding company. In particular, it makes sense to invest in real estate, since when renting to the subsidiaries, the business tax has no meaning, while in the case of the subsidiaries, the rental expenses represent full operating costs. But investments in stocks and other securities are also accompanied by tax advantages. And when a subsidiary exits, a holding company also shines with very low taxes, so that almost all profit can flow into new investments.

A holding company is usually itself a limited liability company, so it can simply act as a savings box. It thus takes advantage of taxation under the principle of separation which it enjoys as a limited liability company compared with a partnership. While the accumulated profits at the level of an operating subsidiary are subject to the constant risk of third-party liability claims, the profit distribution to the holding company has a shielding effect.