Normally, one tries to convert individual companies tax-neutrally into a GmbH or to transfer them directly into a holding structure – ideally using the option to retroactively affect the beginning of the year. In this article, we now show that you can achieve certain tax advantages if you sell a sole proprietorship to your own holding company instead. Although profit is taxed by paying income tax on it, which is actually not a good recommendation, given the fact that the classical transfer by contribution can be tax-free, we are aiming for much greater and above all long-term benefits: repeated depreciation, high operating expenses and tax-optimized remittances of a family foundation, to name but the most important.

1. Sell individual companies to own holding company – Introduction

As a typical representative of the tax consulting professions, it is of course our concern to help our clients how they can save taxes. For this, we use our fund of tax designs in order to form the right solution individually based on this. However, here we want to show you an example where we have advised our clients to pay taxes voluntarily. Yes, exactly, that is about the most absurd thing a tax consultant can advise his clients. And yet this has created a very good tax advantage. You will be amazed.

2. Sell sole proprietorship to own holding company: starting position

A successful sole proprietor with very good turnover and profit, logically pays a correspondingly high income tax. This is because in this situation you have to completely tax the entire profit of each year. Although you can now also tax profits in a sole proprietorship via a thesaurierungsbegünstigung or option taxation as if you were taxing a corporation, but this is only a sensible way in certain cases. Usually, a conversion into a GmbH is the far better choice to save profits in the company. Often it is even better to set up a holding company at the same time in order to take advantage of its many advantages. In doing so, the individual company is transferred to the subsidiary GmbH of the holding company because this is possible in a tax-neutral manner. And the best time for this is in most cases in the first half of the year.

Here, however, we want to sell a sole proprietorship instead to our own holding structure, which was previously established for this purpose. More specifically, the sale of the sole proprietorship to the subsidiary GmbH of the holding company takes place. And to tell you right away, selling a successful sole proprietorship practically always means that you have to pay income taxes on the capital gain. So why would you do this if you could also take the tax-neutral path?

3. Sole business to own holding company: half tax rate

Well, in our model we paid attention to a special feature of the sole proprietor: his age. Let’s assume that the person has already reached the age of 55. This opens up the option of using half the tax rate. This reduces the personal tax rate to 56% of the regular applicable tax rate. If you were to expect an average tax rate of 30%, for example with a taxable income of EUR 90,000, you would then only have to tax the income with a tax rate of 16.8%. However, there is a lower limit of 14% for half the tax rate. Furthermore, an upper limit applies up to a sales profit of EUR 5 million. A prerequisite for applying half the tax rate is also that this regulation may only be applied once. Who makes the purchase of the company, however, is irrelevant. Therefore, you can also sell a sole proprietorship to your own holding company.

One more word on the background of the half tax rate: With this regulation (§ 34 paragraph 3 EStG), the legislature wanted to give entrepreneurs who want to retire an opportunity to use the profit from the company sale tax-optimized for their retirement protection. This is a very sensible regulation, especially for individual entrepreneurs.

4. Selling individual companies to our own holding company: our design

So now our entrepreneur has founded his own holding company including subsidiary GmbH and sold his sole proprietorship to them. And even if you now have to pay about half of the actually incurred income tax on the sales proceeds, no advantage is achieved yet. But you probably already suspect it, this is only the beginning of our design.

Subsidiary GmbH can now depreciate the assets acquired by purchasing the sole proprietorship for tax purposes. In this way, it can drastically reduce the taxable profit of future years. As I said, we are dealing with a very successful company, so that the future tax savings will be significantly higher than the tax that was previously paid voluntarily. In hindsight, it is therefore wise that we have advised to sell the sole proprietorship to our own holding company.

But it's even better. For this purpose, the former sole proprietor establishes a family foundation. It now purchases the assets of the subsidiary GmbH. The underlying idea is that the foundation will then lease the assets back to the subsidiary GmbH. Here, too, the foundation can write off the acquisition costs for the assets and thus significantly reduce the taxable income from the rental. At the same time, the subsidiary GmbH can deduct the rental costs for tax purposes as operating expenses. It also minimizes its taxable profit in this way. And the former sole proprietor, who is now a destinatary of the foundation, can receive their payments under the capital gains tax at a favorable flat-rate tax rate of 25%. Only church tax and solidarity surcharge can possibly still influence this – fortunately only to a very limited extent.

5. Sell individual companies to their own holding company – Conclusion

In principle, tax arrangements must always be comprehensive. Those who focus only on the short-term success of a measure can miss some other opportunities. Even a temporary disadvantage should be considered if you achieve significantly greater tax advantages in the long term.

This is the case in our example. In the first step, selling a sole proprietorship to its own holding company entails the disadvantage of taxing the capital gains. In addition, a certain transitional period may result in double advance payments, but these can later be partially refunded as part of the assessment. Ultimately, however, this gives you a long-term tax advantage, which will soon have made up for the disadvantage of the original taxation of the sales profit. In addition, the family foundation also offers other advantages in the long term, such as optimized company succession outside of tax law. But this is again a separate topic that can be analyzed.