With a GmbH with several shareholders, you can usually only set up a holding company for individual shareholders if you pay taxes on the conversion process. The conversion tax law provides for a corresponding taxation if the shares are transferred by shareholders who hold less than 51 % of the voting rights. Therefore, in the following article, we show how to set up the holding company tax-free. For this purpose, we present four tax-neutral designs.

Set up holding company tax-free – Introduction

Many entrepreneurs in Germany start their business alone. The GmbH is particularly attractive because, unlike most partnerships, it can be founded without further partners. And yet it is also widespread that two or more people join forces to found a GmbH together. Because in addition to the advantage that you can also found a GmbH alone, of course also a whole series of other advantages play a role in this decision. Of these, the limitation of liability on corporate assets is certainly the most important feature of a GmbH. Because in this way you can avoid a liability with the private assets in an emergency – and thus a potential private insolvency.

But what if a GmbH now has several shareholders and they each want to start their own holding company? Is this easily possible? Above all, can you set up a holding company tax-free? This is the question we are devoting to this contribution. But this much is already betrayed at this point: for more than one shareholder, the establishment of two or more holding companies is actually associated with taxes at least once – actually...

Setting up holding company tax-free: legal bases

But before we react with the “but” to the end of the last sentence, let us first look into the law. Because there are strict rules for conversion processes in which you bring your own GmbH shares into a newly founded holding company. Thus, this conversion process, a share exchange, is only tax-neutral if you as a shareholder have more than 50 % of the voting rights (§ 20 (1) sentence 2 UmwStG).

Four models to set up a holding company tax-free

But now:

3.1. Transfer voting rights to set up a holding company tax-free

Our first design model is probably the most logical approach. If you have less than 50% of the voting rights in order to set up a holding company tax-free, then we simply change this situation. Thus, the GmbH shareholders can agree in advance that one of them assigns at least part of his or her voting rights. The result should be that the other GmbH shareholder then combines more than 50% of the voting rights. Because he can then set up the holding company tax-free by way of a share exchange. Subsequently, a sufficiently long shame period is observed and so many voting rights are transferred to the other GmbH shareholder that he now has more than 50%. He is now also able to set up his own holding company tax-free.

Surely the tax office is also likely to become suspicious in such a castle of voting rights with subsequent tax-free holding companies. Finally, there are also the provisions of § 42 AO, which address the misuse of design. Therefore, one must strive for a further, extra-tax declaration on these transactions in advance. But you should trust that the respective tax consultant knows remedy.

An advantage here is that you only need to transfer the voting rights, but the GmbH shares remain unaffected. Thus, the profit distribution continues to take place in relation to the existing shareholding structure.

3.2. Design with atypical silent participation

An entirely different approach provides for the establishment of an atypically silent society. Each of the GmbH partners establishes this with the GmbH. This requires little more than a small contribution as well as some clauses in the social contract that give the GmbH shareholder the status of co-entrepreneur. Because as a co-entrepreneur of an atypically silent company, you now participate in a partnership instead of in a capital company. And none of the provisions of § 20 UmwStG apply to them. It is convenient for them that the atypical silent participation and the GmbH participation are in any case automatically combined into one participation. And this can then be transferred to the Holding GmbH, which thus holds 50% of the shares in the GmbH, without the proportion of voting rights having any effect. In this way, the GmbH shareholders can set up their own holding company tax-free.

3.3. Design with a GmbH & Co. KG as Holding

We use a similar lever as in the previous design model in our third design. Here we want to set up a holding company in the legal form of a GmbH tax-free by also taking the detour via a partnership. The GmbH shareholders first found a GmbH & Co. KG. They then transfer their GmbH shareholding to this partnership. Thus, a holding company already exists, which holds the GmbH shares. If the original GmbH shareholders, who are now only indirectly involved in the GmbH, want their holding company to assume the legal form of a GmbH, the GmbH & Co. KG can later be converted into a GmbH quite simply and tax-free.

3.4 Design for the case that a partnership exists instead of a GmbH

Admittedly, the last approach now described deviates from the assumed starting position in an important point. Because here we want to assume that no GmbH with several shareholders exists yet. Instead, there should be a partnership, which one intends to convert into a GmbH at a later date. Before initiating this step, as a shareholder you should already set up a holding company, because this is, unlike with a GmbH, tax-free at a partnership. If all shareholders have now founded their own holding GmbH, the partnership can also be converted into a GmbH in a tax-neutral manner.

4. GmbH with several shareholders: Set up holding company tax-free? Conclusion

As you can see, there are different ways to set up a holding company tax-free, although this is actually excluded from the law. It is striking that the detour via a partnership offers very simple and direct solutions. Apparently, the legislator has left a gap here, perhaps also in the belief that the financial authorities intervene here with the objection of the misuse of design. Nevertheless, the designs are completely legal in their approach. Whether there is actually misuse of design can still be discussed individually in individual cases.

But good tax advice should be able to do more. From the outset, we point out the risks that a design model can contain, for example when it comes to the risk of design abuse. As a tax consultancy firm experienced in the field of tax design, we naturally also offer the appropriate solutions for these eventualities.

At least in the first presented design model, you have to have a good portion of patience and enough trust in the other co-partners. Because the transfer of voting rights with the result that one can be overruled is certainly a delicate project. Therefore, the framework of application here is best given in well-established relationships of trust, for example in families.