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Asset Management GmbH: Managing property through a company

Knowing that your assets are well managed is probably one of the things that lets you sleep better at night. The more diversified your assets are, the more important it is to find the right “storage option”. One interesting option is the asset-managing GmbH. But what is it and who is it suitable for? The asset management GmbH is a special form of asset management and there are basically two different variants.

A distinction must be made as to whether private assets or direct shareholdings of the shareholders are brought in and merged. In plain language, this means that an asset-managing GmbH can be useful when it comes to private assets (real estate, shares, securities, bonds, ETFs, etc.) that have already been acquired over the years and now exist.

Anyone who is at the beginning or in the prime of their entrepreneurial activity and wants to make maximum use of various investments and their profit distributions and protect them from high taxation can also use this special form of GmbH to their own advantage.

What is the basic idea behind an asset-managing GmbH?

For taxpayers with high capital and real estate assets in particular, such a limited company pays off in terms of tax benefits. Who wouldn’t want to save taxes? The focus here is on the permanent retention of investment income.

The tax savings resulting from the avoidance of profit distributions have a positive effect on liquidity and enable new investments to be made and liabilities to be repaid more quickly. The main focus is entirely on the further and long-term accumulation of assets. Colloquially, this capital company is also often referred to as a “savings can GmbH”.

What is an asset-managing GmbH allowed to do?

This depends on the exact form and the purpose of the corporation. A real estate GmbH, for example, is subject to stricter requirements and restrictions than a general asset management company. Here is an example: the latter may also carry out an operating business, such as a sports shoe store. At the very least, these conditions apply as long as tax savings are the aim of the real estate GmbH.

As the name suggests, the main task of an asset-managing GmbH is management. It is precisely this requirement that is indispensable. As soon as the GmbH conducts normal business, its tax privileges are lost. However, driving a company car as managing director of an asset-managing GmbH is permissible, just like in any conventional GmbH.

When does an asset-managing GmbH make sense and for whom is it suitable? Setting up a VV GmbH can be very interesting from a tax perspective, especially for people with high capital and real estate assets. However, this tax saving can only be exploited under certain conditions.

The transfer of assets to children and grandchildren can also be a motive for setting up an asset management company, as this also offers tax advantages in the event of inheritance. For real estate investments in particular, setting up a real estate company can be a smart decision in order to benefit from tax advantages. An asset management company can also make sense in other areas of asset accumulation.

Forms of the asset-managing GmbH

In principle, there are various forms of asset-managing GmbH:

  • A GmbH specially designed for real estate investments
  • A GmbH specially designed for equity investments
  • A GmbH specially created for equity investments

Special form: real estate GmbH

For every real estate investor, the following questions arise, especially as property ownership increases: what to do with the rental income or sales proceeds in order to keep the tax burden as low as possible and benefit as much as possible from the profit generated by the property? The aim is to reinvest the resulting tax savings wisely. This is particularly important for high-income properties.

What is an asset-managing real estate GmbH allowed to do?

A real estate GmbH may only manage and use real estate assets. In addition, it is legally permitted to manage its own capital assets (e.g. shares), manage residential buildings and build and sell houses or condominiums:

  • Main task: Management of income from renting and leasing residential property
  • No commercial real estate trading
  • The purchase and resale of three or more properties within 5 years is considered commercial trading
  • No commercial activities in the GmbH

How tax relief can be achieved for the real estate GmbH

1. the extended property reduction

The real estate GmbH can be exempted from trade tax through the extended property reduction. This legal regulation provides tax relief for asset-managing companies. The letting of their real estate is classified as an asset management activity and therefore precisely this profit is waived when calculating trade tax. The welcome consequence: trade tax on rental income is waived under these conditions:

  • Your activity must be limited to the management of rental income and under no circumstances may it be classified as commercial property trading
  • This regulation offers a wonderful opportunity to optimize profits, especially for high-income properties!
  • Disadvantage: capital gains on real estate owned by the GmbH are subject to tax, even after the ten-year period has expired (unlike the sale of privately owned real estate)
Taxation of income from letting & leasing Taxation of capital gains
Immobilien GmbH Exempt from trade tax Fully taxable
Privately held property Taxation in accordance with the Income Tax Act Complete tax exemption after 10 years
Sale as a private individual Taxation of capital gains
Holding period < 10 years Private tax rate Limited liability company tax rate
Holding period > 10 years tax-free Tax rate GmbH

2. 6b reserve

As mentioned, care must be taken to avoid being classified as a commercial property trader; the 6b reserve is an important factor here. It makes it possible to reduce the taxable profit and thus achieve tax savings.

  • Reserves are a type of profit appropriation
  • Strictly speaking: Tax deferral until disclosed hidden reserves can no longer be processed into a tax-free reserve

The 6b reserve can be helpful if:

  • a property of the GmbH is to be sold tax-free
  • the limit of a maximum of three purchases/sales in five years has been exceeded
  • or there is an intention to do so

The proceeds can therefore be used in full to finance new investments. The liquidity situation remains stable and considerable capital benefits can be generated through smart investment decisions.

Taxes in the asset-managing real estate GmbH

Within an asset-managing GmbH, the total tax rate on income is made up of…

  • Corporate income tax (15%)
  • Solidarity surcharge on the amount of corporation tax (5.5%)
  • Trade tax (15%)

In the special form described above, there is no trade tax thanks to the use of the “extended property reduction”.

When does a real estate GmbH start to pay off?

The more real estate assets there are, the higher the notional tax rate on the shareholders’ private assets and the greater the advantage of a real estate GmbH. If long-term reserves are to be created through the sale of real estate in order to reinvest and further build up assets, the consistently low tax rate of a real estate company has a positive effect. Always provided that the activities of the real estate GmbH are not classified as commercial property trading by the tax office.

Special form of asset-managing GmbH for share investments

The asset-managing GmbH also offers interesting tax advantages with regard to trading in shares, ETFs or other securities. A basic distinction should be made between capital gains and dividends / profit distributions. For the latter, there are no tax benefits within an asset management company, but there are for capital gains.

Taxation of capital gains Taxation of dividends
Asset-managing GmbH Exempt from corporation tax No tax exemption
Dividends or profit distributions Capital gains tax or partial income method Capital gains tax or partial income method

Another difference lies in the deductibility of costs (acquisition and disposal costs). In the case of capital gains, the actual costs can be deducted, whereas in the case of dividends, only the lump sum of EUR 801 for individuals and double this amount for married couples plays a role.

In principle, 30% tax is payable on share profits within a GmbH, consisting of corporation tax and trade tax. A large part of the profit remains to be reinvested.

Exemption from corporation tax

However, 95% of profits from dividends and profit distributions are exempt from corporation tax. The same applies to dividends and profit distributions, but a shareholding of at least 10% is required. No KStG exemption is therefore to be expected for free float.

It should also be noted that losses from share profits are not deductible or offset against profits from share trading. However, if the asset-managing GmbH generates a profit and distributes this to the owners of the GmbH, these distributions are definitely taxable. The distribution to shareholders is subject to taxation in the form of capital gains tax.

For you as a private individual, it may therefore be advantageous to hold the shares within your GmbH and use the profits to make further investments instead of accepting the capital gains tax due on distributions. If you are active in both share and real estate investments, there is nothing to stop you from setting up your own GmbH – quite the opposite.

Important: Share transactions do not have a disadvantageous effect on an extended property reduction if the trade is carried out with your own capital and not that of the company. The ideal solution would therefore be to set up an asset-managing real estate GmbH that benefits from the extended property reduction and also trades on the stock market.

Special form: Holding GmbH for investments

Let’s assume that you now benefit primarily from the profits of your investments and want to allocate them to your private assets. This is where our good old friend, the capital gains tax, comes into play. An extremely charming way to avoid it is to set up a holding company. This requires a parent company and at least one subsidiary that are legally independent of each other.

With this company structure, you benefit from the fact that no capital gains tax is due when the subsidiaries distribute profits to the parent company. We are talking here about an asset-managing investment GmbH. The combination of a real estate GmbH and a holding company in particular offers the best conditions for obtaining the lowest possible tax rate for capital gains.

Let’s take a closer look at the whole thing using an example: An entrepreneur founds a limited company for the sale of sports shoes. His aim is to optimize the company’s profits for tax purposes. If he now sets up a holding company and transfers all the profits of the subsidiary (in this case the sports shoe business) to the parent company, he can avoid paying capital gains tax.

The parent company receives all the profits and he can use them to make further investments and, for example, specialize in deposits and set up another subsidiary for this purpose, which also transfers its profits to the parent company. It should of course be noted that the subsidiary (sports shoe business) is of course taxable like a regular GmbH. The advantage lies in the low taxation of profit distributions.

This construct can be spun out further and shows the advantage of setting up a holding company. The formation of a GmbH helps with the management of both private assets and shareholdings.

Investments > 15% Investments 10-15% Investments <10%
Holding GmbH Profit distributions: 1.5% total tax burden
Capital gains: 1.5% total tax burden
Profit distributions: 95% corporate income tax exemption, full trade tax liability
Capital gains: 1.5% total tax burden
Profit distributions: Full corporation and trade tax
Capital gains: 1.5% total tax burden
Privately held investments Capital gains tax Capital gains tax Capital gains tax

What needs to be considered when setting up a company

Some basic conditions must be met in order to establish an asset-managing GmbH. Every future shareholder should be aware that setting up a company always involves a lot of (initial) effort and costs.

The decision to set up and maintain such a GmbH requires careful consideration of costs and tax savings. Another option may be to buy an existing GmbH. However, it is important to check carefully whether all the necessary requirements for the planned project are met.

What expenses are incurred when setting up the company?

  • Investment of 25,000 euros
  • Several thousand euros for business registration, commercial register registration, notary fees and legal fees for all types of contracts

How much capital do you need

  • A minimum share capital of 25,000 euros
  • Additional planning of sufficient reserves

What steps are involved in setting up a GmbH

  1. Drafting the articles of association
  2. Important: Specify the purpose of the activity: asset management
  3. Opening a business account
  4. Notarization of the contract by a notary and signature of all shareholders
  5. Payment of the capital contribution into the business account
  6. Registration in the commercial register by a notary after proof of payment
  7. Registration in the commercial register by the competent local court
  8. Publication of the GmbH
  9. Only then may the GmbH become active
  10. .

To avoid unnecessary errors and additional costs when going through the above process, it is advisable to always seek advice and support from a tax consultant.

What costs are associated with an asset-managing GmbH

With regard to the running costs of a GmbH, you can expect to pay around 2,000 to 3,000 euros. These only change with higher expenses if the GmbH generates a lot of turnover, employs many people and has a high administrative workload overall. Above all, ongoing costs, such as those for essential tax advice, should be taken into account. Annual accounting is also an ongoing burden.

There is no general answer to the question of when a VV GmbH is worthwhile. As a rough guide, the assets should be at least in the six-figure range. However, even if you have just started out and your aim is to build up your assets gradually but over the long term, such a company can be useful. If you are planning to make larger contributions of your private assets at a later date, you can then avoid high taxation.

Advantages and disadvantages of an asset-managing GmbH

The decision for or against the establishment of an asset-managing GmbH should definitely be carefully considered and weighed up, as it depends on your individual situation and, above all, your future intentions and plans. To make the decision a little easier for you, here is a summary of the advantages and disadvantages of an asset-managing GmbH, especially when setting up a real estate management GmbH

Advantages of an asset-managing GmbH

  • Significant tax savings (depending on the form of the asset-managing GmbH)
  • avoidance of corporation tax by granting loans
  • worthwhile, especially for people with high capital and real estate assets
  • tax advantage even for long-term asset transfers to children or grandchildren
  • Joint formation with several creditors (positive impact on liquidity and repayment)
  • Focus on long-term asset accumulation and retention

Disadvantages of an asset-managing GmbH

  • Only suitable for long-term asset accumulation
  • Risk of extended land ownership reduction
  • High formation costs
  • High ongoing management costs
  • Assets contributed to the GmbH are not private assets, but business assets for tax purposes
  • continue to pay private tax on shareholders’ salary
  • no longer a private individual after the formation of the GmbH
  • Little flexibility (only via distribution or salary)
  • obligation to publish the annual financial statements
  • high transparency

Special case for real estate GmbH

  • Gains from the sale of real estate cannot be sold tax-free even after the 10-year period has expired

The asset-managing GmbH: Conclusion

The most important aspect is certainly your own investment strategy. Is it long-term asset accumulation rather than frequent, short-term profit distributions? What is the composition of your own assets and what is foreseeable and planned for the future? From a financial point of view, can distributions be dispensed with and income permanently retained? Should real estate remain in the family in the long term or be sold? It may be very worthwhile to take a close look at the topic of asset-managing limited liability companies