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Asset Management GmbH: Appropriate Salary for the Managing Director

Have you decided to set up an Asset Management GmbH and be the managing director yourself? That’s an excellent decision. But how can the managing director’s salary of your asset-managing GmbH help you gain tax advantages?

What salary is appropriate for a managing director?

To begin with, the following question arises: what salary is actually appropriate for a managing director? The entire topic naturally applies not only to the special form of the asset-managing GmbH, but also to any other form of company.

An important point is to find out what the average salary is in the respective sector before setting the remuneration. The fixed managing director’s salary should definitely be within this range, as the tax office may become skeptical if it is above average. Consequently, a concealed profit distribution is assumed and the amount exceeding the average is deemed to be a capital gain. An additional tax payment is then unavoidable.

What is the minimum salary that must be paid to the managing director?

Basically, it can be said that in the case of an employed managing director, the Minimum Wage Act applies. However, this only applies to employees and not to service employees, which would be the case for an external managing director. The minimum wage only has to be paid if the activities of the managing director are similar to those of an employee.

This refers to acting in accordance with instructions without any scope for decision-making. If, on the other hand, you act completely independently as a managing director of a GmbH, you even have the option of being employed without a salary and only receiving a share of the company’s profits.

How much can a managing partner earn?

There is no upper limit to the salary of a managing director of an asset-managing GmbH. Of course, the assessment basis depends on various factors such as the industry, company size, annual turnover and the company’s earning power.

Salary or profit distribution – which makes more sense?

As the managing director of your GmbH, you have two different ways of being remunerated.

  1. Profit distribution

    In this case, the entire profit of the GmbH must of course be taxed and is then distributed to you. Finally, you decide whether you want to pay tax on this using capital gains tax or the partial income method.

  2. The asset-managing GmbH pays you a salary as managing director

    In the second scenario, you receive a salary from your GmbH, but the profit distribution is waived. The salary is treated as an expense in the GmbH. The amount to be taxed by the GmbH is therefore lower by the amount of the salary. Assuming that the managing director’s salary is as high as the net profit for the year, the GmbH does not have to pay any tax at all. You as the managing director, on the other hand, must pay income tax on the salary you receive.

But which of the two options makes more sense from a tax perspective?

Let’s take a look at comparative example calculations. We assume an annual GmbH profit of EUR 150,000. You are the only shareholder and also the managing director.

No managing director’s salary, but profit distribution

CT: €150,000 x 15% = 22,500€
Soli: €22,500 x 5.5% = €1,237.50
VAT x assessment rate: €150,000 x 3.5% x 450% = €23,625
Profit after tax €150,000 -€22,500 -1,237.50 -€23,625 = €102,637.50

*Corporation tax, solidarity surcharge and trade tax (with realistic assessment rate of 450%); VAT is generally not payable by the asset-managing GmbH

No profit distribution, but managing director’s salary

To simplify matters, the following example does not include factors that are significant in reality, such as the receipt of taxable benefits in kind, non-cash benefits or income-related expenses.

Average tax rate: 33%
ESt: €150,000 x 33% = 49,500€
Soli: €49,500 x 5.5% = €2,722.50
Net income: €150,000 – €52,222.50 = €97,777.50
Top tax rate: 42%
ESt: €150,000 x 42% = €63,000
Soli: €63,000 x 5.5% = €3,465
Net income: €150,000 – €66,465 = €83,535

Even if the above calculations are simplified models, it is clear that the managing director’s salary is preferable to the profit distribution from a purely tax perspective.