If you no longer want to continue your business, you need to think about how best to do it. Above all, you should keep an eye on the tax consequences. In particular, you can abandon your business. In addition, it is also possible that you lease the business or sell it. The business lease has different tax consequences than the business task. We will explain to you which and why these legal consequences occur. Furthermore, we explain possible arrangements for keeping the tax burden low when leaving the commercial activity.

The business lease regularly leads to the cessation of business operations while continuing to lease the entire business. An operating lease exists if no explicit declaration of tasks has been submitted to the tax office and the essential operating objects of the leasing company that characterize the operation are leased. It is important that these should not be transferred to the new operator. In addition, the intention of the lessor to resume operations as such is necessary. It is therefore necessary that the lessee does not restructure the ‘new’ operation to such an extent that the continuation of the original operation is no longer possible.

It shall be clarified which items constitute the essential operating items. Essential are the economic goods that give the operation its imprint. In the case of a lease of land only, the decisive factor is whether the land constitutes the sole essential operating basis. According to the BFH, this is regularly assumed by wholesale and retail companies as well as hotel and restaurant companies. In the manufacturing industry, however, this should not be assumed.

The intention to resume and continue the business is presumed if the taxable person can objectively resume the business as he has leased it and does not claim otherwise. Therefore, only the possibility of continuation of the lease without significant changes is relevant. Furthermore, it cannot make any difference whether the farmer retains the holding until the continuation of use or whether he leases it in the meantime. Therefore, it is also possible to lease to a company outside the industry.

The operational task must be qualified as a total removal. Consequently, this is the case when all the essential operating bases of a whole or part of a business are sold or transferred in a single operation in such a way that the business ceases to exist as an independent economic entity. Therefore, the operation is taxed as a disposal. The capital gains thus constitute commercial income within the meaning of § 16 I EStG. The gain on sale is the sale price minus the cost of sale minus the value of the operating assets. The value of the operating assets is measured according to the book value, i.e. the value which can be determined from the reference to §§ 5 I, 4 I EStG. In the case of an operating task, § 16 III 7 EStG provides that the sale price is replaced by the market value of the operating assets. Therefore, the capital gain is the market value of the assets minus the book value of the assets.

Furthermore, a look at the legal consequences of the operating task must be taken. The return on tax is considerably favoured. The reason for this is that the taxpayer suddenly achieves significant combined profits through the abandonment of the company. However, these are rather the result of a longer process and should serve regularly for retirement provision. Therefore, the performance of the taxable person is not sufficiently taken into account if one were to tax the relinquishment profit in one fell swoop.

2.2.1. § 16 IV EStG

§ 16 IV EStG grants the taxpayer an allowance of € 45,000 if he has reached the age of 55.

2.2.2. § 34 EStG

In addition, § 34 EStG grants a special tax rate for such so-called extraordinary income. Then the fifth rule of § 34 I 2 EStG can apply. Alternatively, the tax rate of slightly more than half (56%) of the average tax rate may apply.

Since operating leases are usually used to discontinue operations, this regularly indicates an operating task. However, this leads to considerable unreasonableness. The taxpayer then transfers the entire business assets in order to be able to carry out the lease activity into his private assets. Consequently, all hidden reserves which have regularly been created by depreciation on the assets or by increases in value are realised in a profit-raising manner. Accordingly, BFH assumes that the taxpayer is in principle entitled to a right of choice. In case of doubt, however, the operating task should only be accepted with an unequivocal operating task declaration to the tax office. In the case of the operating task, the task profit is then first taxed at the taxpayer. From then on, the taxpayer will earn income from renting and leasing.

In contrast to the operational task, an operational dissolution takes place over a certain period of time. Therefore, in this case, the taxable person does not realise all the hidden reserves of his business assets at once. Rather, the process is slow. Consequently, for this process also not such significant tax advantages as for the operation.

The operating lease is therefore also delimited by the time criterion. The operation is leased out in one fell swoop, while this process continues over a longer period of time when the operation is closed.

In order to prevent the above-mentioned inconveniences, in particular the realisation of hidden reserves in the case of operating leases, BFH has modified the consequences of operating leases. It is assumed that the income generated by the lease results from the use of the operating assets. Therefore, the hidden reserves are not to be realised at the time of the lease. Consequently, they are not subject to tax either. Furthermore, the rental income must be qualified as commercial income within the meaning of § 15 II EStG. In addition, the lease income should not be subject to business tax, since the lease does not participate in the general economic traffic in the sense of an advertising commercial activity.

If you only want to lease your business, a thoughtful design of the lease contract is necessary. Therefore, particular care should be taken that the lessee may make only minor changes to the property. Such contractual arrangements significantly facilitate the demonstration of the intention to continue. Furthermore, it is crucial that the essential operating objects are leased. The question of whether an essential operating object is present must be assessed according to the circumstances of the individual case.