In order to realize tax-free profit distributions, two different tax designs have to be combined. On the one hand, the profit distribution is carried out by part income method. Thus, 40% of the profit distribution remains tax-free. We reduce the rest by using an investment deduction amount (IAB) of 60% of the taxable profit. For this purpose, we purchase photovoltaic systems because as a commercial enterprise they meet the conditions of § 7g EStG for granting the IAB.

1. Tax-free distributions of profits – Introduction

A GmbH is particularly advantageous because it provides advantages in several respects. The most essential for many entrepreneurs is certainly the limitation of liability. For example, only the company’s assets are subject to any claims by third parties. The private assets of the shareholders are thus largely protected from external access. The second significant advantage of a GmbH is then already a tax. Thus, the profits of the GmbH must first be taxed at company level. In addition, there is currently 15% corporate tax and about the same amount of business tax. So let us expect a total corporate tax of 30%. If we were instead to make a profit from a partnership, we would have to tax it at private level with income tax. In this progressive taxation, the highest rate is 45 %. So who wants to reinvest the profit in their own company, is much better advised with a GmbH.

But if one day the profit from the GmbH is to be distributed, capital gains tax is incurred on a private level. This is a flat rate of 25%, with additional church tax and solidarity surcharge. Together with the corporation tax of the GmbH, we are therefore also at a total tax of approximately 50%. And yet we manage to make the profit distribution completely without taxes. For this we need two tax approaches.

2. Tax-free distributions of profits through partial income schemes

The first is that we make profit distribution without capital gains tax. Now, laymen in the tax sector may be wondering how this should be done, since a few lines ago we referred to the absolute need for this. In fact, with the so-called partial income procedure, there is an alternative to capital gains tax enshrined in income tax law. The procedure is that only 60% of the profit distribution is taxable. This part of the profit distribution is subject to regular income taxation. Thus, the highest tax rate can be applied for large amounts, so that a total tax of about 50 % can also be expected. So we need another lever to get off this top taxation.

3. Tax-free profit distributions thanks to investment deduction amount

In order to achieve tax-free profit distributions overall, we must therefore eliminate the remaining 60% taxable profit share. We succeed in this by investing in a commercial enterprise. Because if we make such an investment, then we can, under certain conditions, deduct part of it for tax purposes. The technical term for this is investment deduction amount (short IAB).

With the IAB you can deduct up to three years in advance investments to a large extent from the current income. The fact that the investments only take place in the future is the key for us to achieve tax-free profit distributions. Because in our model, the amount of the IAB corresponds to the amount that is actually taxable in the partial income procedure (60 % of the profit distribution). In this way, we generate practically tax-free profit distributions.

4. Pay out profits tax-free – Conclusion