A successfully operating GmbH generates many a profit over the years. How to use the profits thus accumulated, we want to introduce you in this article on the basis of eleven design models. This includes such simple options as an agreement to pay a managing director’s salary, the acquisition and rental of real estate and the establishment of a family foundation in Liechtenstein.

1. How to use accumulated profits – Introduction

They say that many roads lead to Rome. No wonder, the eternal city was for a long time the center of Europe, what many Europeans for just as long considered the center of the civilized world. Although it seems that the slogan could have lasted for thousands of years, but today it seems somewhat misplaced, it very aptly illustrates that there are often several solutions to challenges.

In this article we want to take account of this simple as well as ingenious insight, to which we rarely pay the appropriate attention in our everyday life. In doing so, we examine various options in order to use the accumulated profits of a GmbH as advantageously as possible. For this purpose, we present you with eleven exemplary design models. In fact, the choice is far greater. And those who follow our blog attentively know that we are very inventive for this.

Use thesaurized profits: why do they arise at all?

But before we explain our design models in detail, we would like to briefly discuss the phenomenon of accumulated profits. GmbH shareholders can freely decide whether their GmbH pays its profits as a dividend or whether it leaves the profit in the profit carry forward. In the second case, the GmbH has capital available for further investments. Another reason why shareholders leave at least part of the profit in their GmbH is that the distribution of the profits is taxable at the shareholder level. Although this is strictly speaking tax-free in the case of a holding company as the parent company of an operating subsidiary GmbH, the legislature sets a lump sum of 5 % of the profit distribution in the case of the operating expense deduction of the holding company via § 8b(3) KStG, for which no deduction is allowed. Indirectly, this means that 0,75 % corporation tax and about the same amount of business tax is incurred by the holding company.

However, if a natural person receives a distribution of profits from his or her GmbH as a shareholder, income tax is normally incurred at a private level. As a rule, the capital gains tax, which is designed as a flat-rate withholding tax, is applied. Under certain conditions, however, the parts income method can also be chosen as an alternative. Here you only tax 60% of the profit, the rest remains tax-free. If you are still confronted with the top tax rate, you get a little cheaper with the capital gains tax.

That is why many GmbH shareholders leave profits in their GmbH and look for ways to extract or use them tax-optimized. Here we show some of these options.

Use thesaurated profits – our 11 designs

3.1. The tax-optimized executive salary

The first variant aims at an agreement to pay a managing director salary. Here, however, one must pay attention to some framework conditions. In the case of an operational test, this can lead to complaints by the inspectors if the design is improper. Above all, the level of the executive salary should be appropriate in terms of amount. In addition, ex post agreements lead to the deprivation of tax effectiveness. If this is ignored, auditors regularly assume that there is a hidden profit distribution here and subsequently count the paid share as profit of the GmbH, which leads to further corporate and business tax. Here you should inform yourself particularly thoroughly in advance in order to use the accumulated profits really tax-optimized.

3.2. Rent real estate to GmbH

Suppose a GmbH shareholder has a property that he can let his GmbH for operational purposes. Then you can use the salvaged profits of the GmbH to pay the rent. The advantage here is that you can deduct advertising costs on a private level for the rental of the property, so that the rent is only subject to a small part of the income tax. This method of using accumulated profits is particularly suitable if the personal tax rate is well below the top tax rate of 42 %.

3.3. Interest on a loan to your own GmbH

You can proceed similarly if you transfer another economic asset to your own GmbH instead of a property. Same with a loan. Because the interest on this can also be paid tax favorably. However, since interest rates are usually relatively low, one should look at whether a cheaper examination leads to the fact that instead of the flat-rate tax rate of 25%, the more favorable personal tax rate is applied in the capital gains tax.

Interesting is this variant, with which we use the accumulated profits from a GmbH, because the interest payments at the level of the GmbH lead to operating expenses. This is how taxes are reduced, at least at this level. But here, too, you have to take care that this constellation meets the strict requirements of external custom and satisfies the auditors.

3.4. Distribution of profits versus income from parts

We have already briefly talked about the parts income procedure. If you have to expect the top tax rate as a GmbH shareholder, this taxation is without advantage (and only a minor disadvantage). But if you are well below the top tax rate, the Parts Income Procedure is a simple and tax-advantageous way to distribute accrued profits from a GmbH.

3.5. Sale of a property to your own GmbH

Again, we use real estate to extract tax-optimized profits from a GmbH. For this purpose, we start the sale of a property to the GmbH. The reason for this is that the resulting purchase price claim can be paid tax-free to the shareholder via the accumulated profit. However, this is only tax-free if certain blocking periods are observed.

And one more circumstance must be considered: there must be no division of operations. Therefore, it is advisable to own the property together with another person beforehand. For example, a real estate OHG or another partnership can be considered, in particular a GbR. The partner must of course not be a GmbH shareholder, otherwise the division of operations would also affect him or her. For this, the amount of the partner's participation in the partnership is of no great importance as long as it is above 0%.

3.6 Use thesaurated profits to buy real estate with the GmbH

Already in the previous case the own GmbH bought real estate, albeit from its own shareholder. She can also purchase real estate from third parties with her accumulated profit. The advantage here is that rents remain exempt from trade tax under certain conditions. However, the GmbH then has to make do without commercial income, because the tax exemption due to the extended land reduction according to § 9 sentence 2 GewStG applies only to a vermögensverwaltende GmbH.

3.7. Granting loans from the GmbH to the shareholders for the purpose of purchasing real estate

Conversely, the GmbH can also pay out a loan to its shareholder. The purpose of this is that this loan serves as equity when acquiring a property in the private assets of the shareholder. This way you can avoid the interest on a bank loan.

But also here you have to make sure that the loan is designed in such a way that it withstands an external comparison of the auditors.

3.8.Lending of the GmbH for participation in a startup

In the same way, you can also use a loan from your own GmbH to invest in a startup or in other companies. Also here you should be aware that the loan should be foreign usual. This also includes interest. Therefore, this variant, in order to use the accumulated profits, only really makes sense if you are sure that the investment actually yields a return.

3.9. move abroad with subsequent profit distribution

We offer a more daring design with our next model. Here you move as a GmbH shareholder for a short time abroad. Of course, this triggers the exit tax, but in this case you are happy to pay it. First of all, we use our unlimited tax liability abroad by moving away: we distribute them. Of course, we are choosing a state to tax such income particularly favourably. As soon as we have collected and taxed the profits from the GmbH on a private level, we can return to Germany. After this short-term stay abroad, it is possible to get the previously paid exit tax refunded. As a result, the exit control per se does not constitute a significant obstacle in this case.

3.10. Use thesaurated profits through a foundation

It is now even more interesting to use the profits accumulated in the GmbH through a foundation. We are thinking primarily of a family foundation. But this design is also suitable for a charitable foundation. It does not matter whether the foundation is located in Germany or abroad. In terms of taxation, this design model can certainly be implemented most advantageously with a family foundation in Liechtenstein, while at the same time you move abroad as a former GmbH shareholder in order to benefit from low tax rates there. The simultaneous advantage here is that the transfer of the GmbH shares to a foundation also avoids the removal tax.

3.11. Conversion of the GmbH into a GmbH & Co. KG

Even more exciting is our final proposal to use the accumulated profits. We convert the GmbH into a GmbH & Co. KG. However, this change of legal form requires a distribution of profits brought about by legislation, so that the dividend is automatically subject to capital gains tax. But we want to avoid them in order to save taxes.

One possibility is if our GmbH buys a subsidiary with the accrued profit before the change of form. Subsequently, we merge the recently acquired subsidiary GmbH into our mother GmbH. As a result, we eliminate the profit carry forward of Mutter-GmbH in accounting.

Use thesaurated profits of a GmbH – Conclusion