Dividends, levies and net amounts

tax type/dividend | EUR

Dividend JP Taxi-AG | 1,000,00

Corporate Tax | – 150,00

Solidarity surcharge | – 8.25

Business tax | – 150,00

Dividend Urs Toro-Holding | 691,75

Capital gains tax | – 172,94

Solidarity surcharge | – 9.51

Net dividend | 509.30

Both an individual and a holding company pay taxes on share dividends. However, in both cases, taxes are incurred at different levels. In the case of a natural person who holds value shares in his private securities account, dividends distributed are subject to 25 % capital gains tax. At best, about 73% remains as a net dividend. However, if a natural person holds shares through a holding value, only a net amount of about 51 % remains after a distribution by the holding. This is due to the fact that a vermögensverwaltende GmbH as a holding company usually pays both corporate tax and trade tax as well as a solidarity surcharge on the share dividend. Because in most cases such a share holding is far less than 1% in well-known public companies. As a result, it cannot be exempted from dividend taxation. This requires a participation of at least 10% in corporate tax and 15% in business tax.

To get to the bottom of this question, we would like to give an example of calculation. For this, we look at Urs Toro, an imaginary shareholder who asks himself the same question. Therefore, he founds a Holding GmbH with which he wants to invest in value shares that regularly pay dividends. He opts for the also fictitious JP Taxi-AG, of which he buys 100 shares with his holding company at a price of EUR 250. This corresponds to a 0.1% shareholding in JP Taxi-AG. At the same time, however, he also buys the same number of these shares privately and keeps them in his securities account from now on.

On this basis, we now calculate the taxes on the share dividends that Urs Toro will soon receive – once for his holding company and once privately. In the end, we compare the taxes on the share dividends and determine which of the two variants is more tax-advantageous. In addition, of course, we are also looking into the reasons for the difference in tax.

First, we look at what taxes Urs Toro pays on stock dividends as a private individual. We assume that the dividend is EUR 1,000. This represents 25 % capital gains tax. The EUR 250 capital gains tax will then be subject to a further 5.5% solidarity surcharge, leaving EUR 736.25 net of the original gross dividend. This corresponds to an effective tax rate of 26.375 %.

Now we calculate what taxes on share dividends Urs Toro has to pay as part of his holding company. Of course, we also assume a dividend of EUR 1,000. On the one hand, a corporate tax of 15 %, which amounts to EUR 150. On this amount, the holding company pays a further 5.5% or EUR 8.25 as a solidarity surcharge.

In the case of trade tax, we assume that the lifting rate of the municipality in which Urs Toros Holding pays the tax also leads to a realistic tax burden of 15%. So there is another EUR 150 in trade tax. This leaves the holding company with EUR 691,75 as a net dividend.

In order to be able to compare the comparison with the taxes on the share dividends at the private level, we also have to take into account what happens when the holding company now distributes its profit to its shareholder.

In any case, there is also a capital gains tax of 25%. This therefore amounts to a tax of EUR 172,94 on an amount of EUR 691,75. Here too, the solidarity surcharge of 5.5%, which is attributable to this tax, must be expected. Consequently, a further EUR 9.51 in levies is added.

In order to be able to provide a clear presentation of the total taxes incurred on the share dividends of the holding company, we use a table:

This leaves only EUR 509.30 of the original EUR 1,000 dividend received by Urs Toro through his holding company.

Let us now come to our summary. A quick analysis can already show that the taxes on share dividends of shares held in the private securities custodian are significantly lower than for an asset management GmbH. In comparison, our example contrasts net dividends of EUR 736.25 to EUR 509.30. Based on the gross dividend of EUR 1,000, this makes an effective difference of almost 22.7 percentage points.

The question now is why such an enormous difference can come about between the two cases. To understand this, we need to look more closely at the taxation of corporations.

Certainly many of our readers know that an asset management company, especially a holding company, offers various advantages. There are also incentives in tax terms that make the establishment of a holding company sound. When taxing the profit distributions of an operating subsidiary, a holding company as a parent company pays only 1.5% in taxes. However, this is also due to the amount of the participation in the company distributing the dividend. Thus, a holding company can only benefit from this favourable taxation in the case of corporate tax if it holds at least 10 % of the shares in the subsidiary (§ 8b KStG). And in the case of trade tax, it must even be at least 15% (§ 9 GewStG). In the case of an own operating subsidiary, this is usually the case anyway, because here the shareholding is usually 100%.

But if, as in our example, you acquire shares of larger companies traded on the stock exchange with a vermögensverfuhrtenden GmbH in order to achieve dividend returns, then the company shareholding based on this certainly moves in a completely different order of magnitude. Here you can often be happy if you hold 0.01% of the shares of such a company. Finally, there are many well-known international companies that issue stocks in the range of between 100,000 and a few billion. This also excludes the use of favorable taxation by vermögensverwaltende GmbH. So their taxes accrue on stock dividends in full.

There is a consolation pavement for this at the end. If you hold growth shares instead of value shares by means of an asset management GmbH and thus only achieve a return by selling the shares, then you can always take full advantage of the favorable taxation.