If you want to start a holding company, you should also keep an eye on when the first profit distribution of its subsidiary should take place. Because if this is intended in the year of the establishment of the holding company, trade tax applies. So if you want to set up a holding company and pay no trade tax on your first dividend, then this will only happen from 2025, if you still set up in 2024. We describe here why this is so and why the timetable is so important.

1. Establishing a holding company by 2025 – Introduction

One of the most common consulting services that clients use in the field of design consulting for the tax optimization of their companies is undoubtedly consulting on the subject of holding companies. Many know, for example from our video or blog posts, that a holding company can boast various tax and other advantages that are otherwise hardly achievable. So it is obvious that you would also like to use these for your own company. But there are also certain hurdles and catches. Thus, a holding company often only makes sense from a certain company size.

We would like to enlighten about another special feature in this article. Because the time when the subsidiary of the holding company makes its first profit distribution is tax relevant. So no one should expect the logical thing, namely that you set up a holding company and decide on a profit distribution to them on the same day, without this, as otherwise, being largely tax-free. Therefore, we now describe why one should set up a holding company in 2024 (if one already intends to do so anyway) instead of waiting until 2025, because we suspect that they would not want to pay trade tax on the dividend this year, if this would also be tax-free next year.

Set up holding company, tax dividend – Legal bases

In the beginning was the word called tax law. Consequently, we are guided by this when we set up and tax a holding company. Therefore, a look into this law is especially recommended.

As we have already opened, this article is actually about trade tax. According to § 2 GewStG, it applies to all corporations. If we assume the normal case, then most entrepreneurs set up their holding company in the legal form of the GmbH. This is why the GmbH also applies: it pays trade tax. However, since the taxation of profits takes place both at the level of operative GmbH and at that of its holding company as a parent company, which is then also a GmbH, the legislature has decided in order to avoid such double taxation to exempt the taxation of the dividend at the level of the holding company in principle. For this purpose, the standard in § 9 number 2a GewStG was created. Incidentally, for the same reason, there is a comparable exception in corporate tax law, there in § 8b KStG.

However, there are also some requirements that you have to consider in order to get the tax exemption. The exemption applies only if the holding company holds at least 15 % of its shares in the subsidiary (the limit for corporate tax is 10 %). And then another important point is relevant especially for the time of the establishment of the holding company. The exemption only applies if the holding company can already show the required shareholding in the subsidiary at the beginning of the year.

3. 2025 do not pay business tax at holding level

That is why it is important to set up the holding company, but only the following year, or later, to make the first profit distribution of its subsidiary. We will go through this in detail for a holding company that we will establish in 2024.

Until the end of the year, there are still a few months in which such a project can be implemented. We therefore establish the holding company by the end of 2024 and can then pay the dividend to it as early as January 2025, whereby we do not have to pay trade tax, because the holding company then has the participation ratio of 15 % required in § 9 no. 2a sentence 1 GewStG at the beginning of 2025. Also in the following years, the condition of the required minimum participation on 1.1. is fulfilled. In other words, never pay business tax!

The situation is different, however, if we establish the holding company by 31.12.2024 and also make the profit distribution by the end of the year. Because then the tax office will check whether the holding company already existed on 1.1.2024. Only this fact is relevant for the tax exemption from business tax. And thus the tax office comes to the conclusion that this condition is unfulfilled. Consequently, a tax notice is issued imposing business tax on the profits of the holding company. And this is exactly the one it received by the profit distribution of its subsidiary in 2024. And this is only because we have no patience to wait for the end of the year. Because if we make the profit distribution on 1.1.2025, all conditions would be met and the dividend tax-free.

A third scenario shows something similar. We miss the establishment of the holding company in 2024, so that it is not created until 2025. But here, too, we are impatient because, at the beginning of 2025, we have no patience to wait until 2026 with the profit distribution of the subsidiary. Here, too, we are faced with a tax ruling on business tax, which would have been avoidable.

Set up Holding Now and Pay No Business Tax in 2025 Conclusion

So it is clear: anyone who wants to set up a holding company for his or her operating companies this year and does not want to pay trade tax on the first profit distribution should hurry to do so before 2025. Because if the process drags on into the following year, you will probably have to wait a good year with the tax-free dividend payment. On the other hand, since the preparations for the establishment of a holding company take some time, one should now take action. If, on the other hand, you hesitate until the end of November or even into December, so that the holding company can only be founded in 2025, you either have to have a lot of patience or pay the trade tax on the first profit distribution in 2025. Neither one nor the other is tempting.

In addition, anyone who wants to save a sound tax consultancy on such a project and tries to set up a holding company without it can also run the risk of having to pay a higher tax than is actually necessary in the end. Better rely on experts who set up and supervise such corporate structures every day. Experts, like ours. Nobody goes to the baker to have a pizza there, just because the buns there are cheaper than the pizza in the pizzeria.