Taxation of the transfer of business assets is a central issue in German tax law. It is particularly important for business owners wishing to sell or transfer business assets to understand the tax implications of these transfers. This article explains the basic principles of taxation of business assets transfers and deals with practical aspects of tax treatment.

1. What does “transfer of business assets” mean?

The transfer of business assets is understood as the transfer of assets belonging to the operation of a company to another owner or to another business asset of the same taxable person. This can be done by sale, gift or inheritance. Operating assets include both tangible assets, such as machinery and buildings, and intangible assets, such as patents or rights. The tax treatment of these transfers is complex and depends on various factors, including the nature of the transfer and the assets involved.

2. Tax principles for the taxation of the transfer of business assets

The tax treatment of the transfer of business assets is usually carried out in accordance with the provisions of the Income Tax Act (EStG), in particular § 6 EStG. In principle, the tax burden does not fall due immediately when transferring business assets. Instead, the taxpayer can postpone the tax payment to a later date. In particular, this is intended to promote the business continuity of the business and to prevent an immediate tax burden from arising on each transfer.

It is essential here that hidden reserves contained in the transferred operating assets are initially not taxed. Instead, these are taxed on a later sale of the assets. The tax advantage of this scheme is particularly important for successors or heirs, since they can defer the tax burden in the long term.

3. The free transfer of an establishment, part of an establishment or part of an undertaking

In essence, the provision § 6 (3) EStG enables an income tax-neutral transfer of operating units to another tax law entity. This is done by breaking the otherwise applicable subject tax principle. In concrete terms, this means that an entrepreneur can transfer his business, a branch of business or his share in a partnership (co-entrepreneur share) free of charge, without this transfer of business assets resulting in a realisation of profit and thus taxation. The highlight of this regulation lies in the so-called book value continuation. The transferee – be it a family member or another beneficiary – simply continues the transferor’s book values. This does not reveal hidden reserves that could otherwise lead to a considerable tax burden. This makes the scheme particularly attractive for family businesses that are planning a cross-generational succession. A prerequisite for this is that the taxation of hidden reserves is guaranteed. This means that if the company is sold in the future, Germany will still have the right to tax.

When transferring co-entrepreneur shares, there are some special features to consider. Such a share includes not only the share of the total assets of the partnership, but also the so-called special assets. It is also interesting that the assumption of pro rata operating liabilities does not qualify as consideration for consideration and therefore gratuitousness is not affected. As so often in tax law, there are also some exceptions and special regulations here. Thus, according to § 6 (3) sentence 2 EStG, it is possible to retain individual assets. However, this leads to a five-year blocking period. Functionally insignificant special operating assets can be retained even without complying with this blocking period.

4. The transfer and transfer of individual assets

§ 6 (5) EStG regulates the tax-neutral transfer and transfer of individual assets of the company assets. This provision allows entrepreneurs and co-entrepreneurs to carry out operational restructuring without having to uncover hidden reserves. The paragraph distinguishes between transfers without change of entity (sentences 1 and 2) and transfers with change of entity (sentence 3). § 6 (5) no. 1 EStG allows the transfer of an economic good from an operating asset to the operating assets of a partnership against the granting of company rights. Point 2 permits the transfer between a sole proprietorship and the special business assets of a partnership. Point 3 governs the transfer between different special assets of the same partnership.

The annual tax law 2024 also included the number 4. As a result, it is now possible to transfer assets free of charge between the total assets of various joint ventures (partnerships). The prerequisite for this is that the co-entrepreneurships are identical to the shareholders, i.e. the same co-entrepreneurs with the same share in the partnerships. These are also known as sister partnerships.

5. Taxation of the transfer of business assets – Conclusion

Taxation of the transfer of business assets is a complex issue that poses challenges to entrepreneurs in planned business sales, inheritances or gifts. In-depth knowledge of tax regulations and targeted tax planning are essential to optimize the tax burden and avoid possible tax disadvantages. Entrepreneurs should therefore deal in good time with the tax aspects of the business asset transfer and, where appropriate, seek expert advice.

Through the correct tax design of the transfer of business assets, entrepreneurs can both minimize the tax burden and ensure the continuation of the company and successfully implement the entrepreneurial succession.