Companies in Germany are subject to taxation when transferred by way of inheritance or gift. This can be tax relief, if it is a beneficiary property. However, there are limits to which you can transfer a company tax-free in Germany. Other conditions must also be considered here. However, if the company value is so high that the assets are completely subject to taxation, and there is no chance to receive another spare as an alternative, there is still another way out. Because by moving abroad you can also avoid the tax. But here, too, there are conditions that you have to observe before you can transfer the company tax-free. This applies, for example, with regard to German citizenship and the associated extended limited tax liability as well as the limited tax liability of domestic business assets.

1st company transfer tax-free – Introduction

As a successful German entrepreneur, one day you are faced with the realization that your own company based in Germany will eventually be transferred to a successor. Of course, our own children come to mind first. This is ideal in Germany mainly because children can use very cheap allowances in the inheritance and gift tax.

In fact, you can transfer a company in Germany even tax-free. This is because tax concessions are provided for operating assets (§ 13a ErbStG). This is also called favored property. On the other hand, if you transfer a holding company, inheritance or gift tax may still apply. Nevertheless, holding structures are widespread – and for many good reasons. So, according to the above findings, one is faced with the question of how to optimize the inheritance or gift tax when transferring a German holding company.

Transferring large companies tax-free: legal options

Under certain circumstances, companies can also be transferred tax-free under German law. However, the tax advantage on beneficiary operating assets applies only up to an asset of EUR 26 million. If the value of the business assets is above this amount, two other tax alternatives can be examined.

2.1. Compensation discount for large acquisitions

On the one hand, an exemption discount for large acquisitions according to § 13c ErbStG is available. The key point here is that the percentage relief discount decreases with increasing asset. For every EUR 750,000, the percentage of business assets spared from inheritance or gift tax falls by 1%. So you can quickly calculate that at the latest from an operating assets of EUR 101 million (EUR 26,000,000 + EUR 75,000,000) no spare discount takes place.

2.2. Environmental requirements test

On the other hand, there is also the option of protection requirements testing. This is about the fact that recipients of spare business assets can be forgiven the inheritance or gift tax if they can prove that they can not pay the taxes from their own resources. But the hurdles in this path are understandably quite high.

Either way, the two legal possibilities with which companies of a certain size can be transferred tax-free are either associated with taxes or with effort in implementation. Really tax-free looks different.

Transferring companies tax-free: Option to move abroad

3.1. Foreign tax regime without inheritance or gift tax

So if you want to transfer your own company as tax-free as possible with high business assets, you probably have to look for options outside the national borders. Because abroad there are many tax regimes that know neither inheritance tax nor gift tax. For example, this is the case in Austria or Sweden. If you were taxed there, the transfer of the company by inheritance or gift would remain in principle tax-free. But for this, as a German entrepreneur or as a German entrepreneur, you would have to completely remove the German tax liability.

But this also applies to the person who is to receive the company. Because their tax liability in Germany is also decisive for the accumulation of an inheritance or gift tax.

3.2. Attention, Exit tax!

Despite the fact of moving abroad, this option should be considered. Because once you live abroad, you can transfer the German company tax-free. For this purpose, the exit tax must be observed, which arises when the German tax liability ceases. So anyone who moves abroad as a GmbH shareholder and leaves no tax connecting points in Germany must take into account an early, lump-sum taxation of a fictitious capital gain. But that too can be avoided. We will be happy to help you.

3.3 Beware of the extended limited tax liability

Suppose both entrepreneurs and future successors have left Germany and now live in a country without inheritance or gift tax. Then they still have to wait until they can make the transfer of the German company tax-free. Because here citizenship plays an exceptional role in German tax law. It is only after five years abroad that German nationals who have previously been subject to unlimited taxation with their income in Germany for at least ten years become subject to German tax liability under inheritance and gift tax law. This regulation, which is referred to as extended limited tax liability, is codified in § 4 AStG. Although this period can be shortened by exchanging German citizenship for another, in practice this is rarely an option.

Transfer German company abroad tax-free

It would be nice now that one could say that after all these preparations the German inheritance and gift tax has been cleaned up. However, companies based in Germany have a limited tax liability in the case of transfers between persons abroad. But even this circumstance can be avoided.

For this purpose, you use another holding company, which you then set up in the country that does not collect inheritance or gift tax. This foreign holding company then holds a stake in the German holding company in this double-storey holding structure. This gives us the advantage that instead of a transfer of shares of a German company, the transfer of foreign assets takes place. And for this there is neither inheritance nor gift tax in the foreign country recommended by us. In this way, one also escapes the last tax hurdle in Germany, namely the limited tax liability for domestic assets.

Transfer companies tax-free? Conclusion: Best abroad!

So as you can see, avoiding a German inheritance or gift tax is quite feasible when transferring German companies. While it takes a bit of effort, as well as patience and a willingness to move abroad, the tax advantage of the sizes of companies we look at is ultimately enormous. For companies up to a value of EUR 26 million, however, the existing legal possibilities can be used to transfer them tax-free. However, all conditions, such as the share of administrative assets and the holding periods, must also be observed.