A German GmbH can move its administrative headquarters abroad. In terms of taxation, however, there are many differences between the transfer of the seat to an EU country and the transfer of the seat to a third country. We show these differences in the United Kingdom, as the transfer to the UK can be assessed both as a departure to an EU country (before Brexit) and as a departure to a third country (after Brexit).

In the video, we explain to you what taxes you will incur if you move abroad as a GmbH shareholder and also move the company headquarters abroad.

1. Transfer of statutory seat or administrative seat

A corporation may transfer its statutory seat or the administrative seat, although the transfer of the statutory seat is not possible under present German law. [1] If the corporation moves its statutory seat to Great Britain, the corporation loses its legal capacity, is deleted in the German Commercial Register and entered in the British Company Register. [] 2]

2. Transfer of the statutory seat only within the European Union by merger

Until now, the transfer of the registered office was only tax neutral at book values due to the possibility of merger within the meaning of § 11 ff. UmwStG or the transfer acc. § 20 UmwStG, as long as the right of the Federal Republic of Germany with regard to the taxation of the profit from the sale of the transferred business assets is not restricted or excluded, § 11 para. 2 No. 2 UmwStG; § 20 para 2 No. 3 UmwStG, possible. This is regularly the case insofar as the assets are attributable to the domestic permanent establishment on the basis of the personnel function. [3] The assets attributable to British society become the common value acc. § 12 Abs. 1 KStG. [] 4]

By the withdrawal of Great Britain from the European Union, the requirements of § 1 para. 2 S. 1 No. 1 UmwStG is no longer fulfilled, whereby the application of § 11ff. UmwStG and § 20 UmwStG are no longer possible.

The corporation is mostly liquidated and is subject to the liquidation taxation of § 11 KStG.[5] If the corporation is not liquidated, it continues to live as a partnership in the sense of commercial law and is subject to § 12 para. 3 S. 1 KStG nevertheless the liquidation taxation of § 11 KStG, since the unlimited tax liability of § 1 Abs. 1 no. 1 KStG is lost. [] 6]

In this case it is a new establishment in the UK. Even if the newly established British limited company is subject to unlimited tax liability because of a permanent establishment located in Germany, nothing changes in the taxation of the liquidation of the original company. [7]

3.2 Taxation of hidden reserves

The statutory transfer of the registered office of a corporation to Great Britain will in future always lead to a taxation of the hidden reserves with the common value. It is no longer possible to resort to tax-neutral arrangements in the form of transfer to book values from the Conversion Tax Act, provided that the German limited liability company wishes to continue to operate in the legal form of a limited liability company.

4. transfer of administrative headquarters within the EU or the EEA

4.1 Legal personality is retained

If not the statutory seat is transferred, but only the headquarters of the management (administrative seat) within the European Union or in a country to which the regulations of the European Economic Area apply, the corporation remains taxable in Germany without restriction. [8] After the withdrawal of Great Britain and the resulting legal status as a third country, the unlimited tax liability according to § 12 para. 3 p. 1 exist, since the corporation continues to operate a permanent establishment in Germany, which according to § 1 para. 1 KStG remains unrestrictedly taxable. [9] However, by relocating the headquarters of the management, the limited company will also be taxed unrestrictedly in the UK, so that in theory double taxation would take place.[10] However, the double tax liability is not sufficient for the application of the liquidation taxation according to § 12 para. 3 sentence 1 KStG.[11]

4.2 Loss of German tax law threatens at GmbH level

However, by relocating the place of management, the limited liability company applies in accordance with Article 4 para. 3 DBA with UK as resident in England. After the withdrawal of the UK from the European Union, the limited liability company would be deemed to be domiciled in a third country, whereby the liquidation taxation according to § 12 para. 3 p. 2 KStG. [] 12]

Admittedly, the profits of the German establishment would continue under Article 7 para. 1 in conjunction with para. 2 of the DTA with Great Britain are taxed in Germany, but the application of the liquidation taxation according to § 11 KStG takes place independently of any loss of the taxation right of the Federal Republic of Germany. [13] The right to tax the assets remains, as they remain in the German company and only the place of management is relocated.

As a result of the liquidation taxation, however, these assets are taxed at the common value, so that a fictitious liquidation with subsequent new establishment is imaginary. [14] If the book values in the limited company were to continue, there would inevitably be double taxation, so that the assets should be valued at the common values in the tax balance sheet, even if the market values were not to be disclosed under commercial law, and subjected to depreciation at the common value for tax purposes. [] 15)

4.3 But usually no loss of taxation right at shareholder level

The shares of the shareholder may not be taxed in accordance with § 17 para. 4 EStG, since the fictitious liquidation at the shareholder no asset inflow acc. § 17 Abs. 4 p. 2 EStG. [16] Furthermore, Germany retains the right to tax the sale of shares in a domestic shareholder even after the transfer of registered office acc. Article 13 para 5 of the DTA with Great Britain,[17] so that at the level of the shareholder no sale of the shares within the meaning of § 17 para. 5 EStG. If the shareholder is a person not resident in Germany, Germany would usually have no taxation right in the shares before and even after the transfer of the registered office. [18] The taxation right in the shares of the non-resident shareholder would only be lost if the taxation right acc. a DBA is based on the residence of the limited liability company and not of the shareholder in the event of a sale or there is no DBA with the State of the shareholder. [19] In this case, the transfer of the registered office would probably be in accordance with § 17 Abs. 1 EStG as profit on sale in the amount of the sale of the shares at the common value lead to income from business operations which are subject to income tax.