Asset-managing GmbH Trade tax

An asset-managing limited liability company is a special form of asset management that can make sense especially for persons with high private and capital assets. The main task of the limited liability company is the management and tax-optimised increase of the assets brought in.

The objective of the GmbH is primarily the long-term accumulation of assets through reinvestment of tax savings, which the company receives subject to compliance with various conditions. Accordingly, different tax benefits arise depending on the type of assets to be managed. 

A distinction is made between different types of a VV GmbH:

  • Real Estate Ltd.
  • Holding GmbH (for participations)
  • Aktien GmbH (for private pension provision)

Is an asset-managing GmbH liable to trade tax?

This special form of GmbH is a corporation which, from a tax perspective, is subject to the conditions of the Corporation Tax Act. In principle, therefore, the following applies: Yes, an asset-managing GmbH is subject to trade tax. 

Does any asset-managing GmbH have to pay trade tax?

The company constitutes a business enterprise and is therefore liable to trade tax. 

But what is behind the myth of the asset-managing asset-managing GmbH without trade tax??

When does a GmbH not pay trade tax?  

In fact, there is an exception. You can now breathe a sigh of relief and consider yourself lucky if you manage real estate with your Vermögensverwaltenden GmbH. For this special form of asset-managing GmbH is exempt from exemption from trade tax.

We will now explain the conditions under which this is possible for your real estate limited company and what you need to bear in mind.

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Reduction of trade tax for asset management GmbH

You have now taken up the trail and want to save trade tax with your save on trade tax with your asset-managing limited liability company.

You already seem to fulfil the first basic requirement: Your GmbH manages real estate.

In this case, they can make use of the extended property reduction

Basically, it should be noted that, strictly speaking, this procedure will result in a reduction of the trade tax of your asset-managing GmbH. can apply for.

But what conditions must be fulfilled for this?

This is a legal regulation which provides tax relief to certain asset-managing companies by allowing the GmbH to reduce its profits in the amount of the income from the asset-managing activity when calculating trade tax. These profits are then exempt from trade tax.
So if any of your real estate is now in a pure real estate company, all income arising from renting and leasing is considered to be exempt from trade tax. Of course, only if you have applied for the extended property reduction and fulfil all the requirements for the reduction.

To ensure this exemption, your real estate limited liability company may only manage its own properties, but under no circumstances may commercial real estate trading take place.

The latter is defined as the acquisition and subsequent sale of at least three properties within five years. 

Also forbidden is commercial letting (hotel complexes, holiday flats etc.).

Activities such as these, are a sure exclusion criterion for reduction.

And what about a company car belonging to an asset management company? This may be driven without affecting the trade tax exemption. 

It is also important to know that the company itself must take care of the application for the reduction at the tax office and that the following conditions must be met for a grant:

Exclusively 

  • Asset management character, No commercial income
  • Management and use of own real estate
  • Management and use of own capital assets
  • Supervision of residential buildings
  • Construction and sale of detached and semi-detached houses and condominiums 

You are also prohibited from prohibited to rent out inventory, operating equipment or movable economic goods.

But there is also a solution for this. In this case, it is advisable to go double-track and set up another company for this purpose. This company is then specifically responsible for the economic goods of the real estate to be rented out, without any negative effects on the trade tax exemption of your real estate GmbH. Furthermore, however, you can rent out your real estate to the "economic goods company", which can rent out properties with, for example, inventory as a complete package. This also results in tax advantages for your real estate company, because the rental income you receive from your other GmbH is regarded there as operating expenses. Your taxable profit is reduced.

The factor that the reduction is only granted for properties that indirectly serve the business should also not be disregarded.

Example: Your existing company owns an office and commercial building that is rented to third parties. This generates high rental income that indirectly serves your company.

However, if you were to use this house yourself, it would only serve directly and the reduction would not be an option. Accordingly, outsourcing the property to a real estate limited company would not make sense.

As far as secondary activities are concerned, which do not belong to the above-mentioned areas, you should keep in mind that any activity, no matter how small, can lead to a denial of the extended property reduction.

As a result, trade tax is also levied, ranging from 7% to 31.5% depending on the location; the average in Germany is 15%. (GewStH 2016 - II. Assessment of trade tax (bundesfinanzministerium.de)

However,share transactions do not have a detrimental effect on an extended property reduction. You are allowed to buy, hold and sell shares, ETFs and funds. 

So if you have a large property portfolio with numerous income-producing properties, this regulation offers a wonderful opportunity to optimise profits from a tax point of view. 

With the help of a trusted tax advisor, you should therefore definitely clarify whether outsourcing your objects is an option in your case. Your specially founded asset-managing GmbH is then exempt from exempt from trade tax.

Trade tax exemption on the sale of the existing property?

Example

Let's assume you purchase an existing property at a price of 200,000 Euros and want to sell it 5 years later at a price of 250,000 Euros, the increase in value of your property amounting to 50,000 Euros must be taxed. 

In any case, corporate income tax and the solidarity surcharge are due here. Consequently, the investment strategy should not be designed to increase the value of your properties, as the obligation to pay tax, unlike for you as a private individual, does not expire even after 10 years. With a long-term strategy, however, it is quite possible to mitigate or completely avoid taxation.

Especially in the case of properties with a foreseeable high increase in value, careful consideration should be given to how they are held. 

However, the trade tax exemption while retaining the extended property reduction is also guaranteed in this example.

Asset management GmbH Sale of real estate Trade tax

As wonderful as the above construct may sound and is handled correctly, when selling your real estate you must always be careful not to be classified as commercial real estate trading. 

What applies to an asset-managing GmbH at sale of a real estate with regard to Trade tax?

In order to escape trade tax, an extended property reduction must be agreed to. One of the most significant factors for this is not to be classified as commercial property trading. We therefore go into a little more detail on the framework conditions of this commercial activity. 

As already explained a little further above, one speaks of commercial property trading from the purchase and resale of 3 properties within 5 years. 

However, in order to confirm this justification, there must be a close temporal connection between the acquisition of the property and its disposal. 

Particularly in the case of existing properties, attention must be paid to comprehensive modernisations. These require the property to be counted towards the "3 property limit".

A business is only established if the acquisition of the property is made at least conditionally because of the intention to resell it. As an indication of this, the

The tax authorities have examined in detail how the above-mentioned temporal connection is precisely presented. 

We have summarised the question of in which cases trade tax is due in the asset-managing GmbH for you here: 

Asset-managing GmbH when does trade tax accrue?

Asset-managing GmbH when is trade tax due?

 

Up to 5 years:

If acquisition, construction or comprehensive modernisation and subsequent sale takes place within a period of 5 years, this indicates an intention to sell. The object must be included in the "object limit". 

 

This 5-year limit is, however, a guide, but not a fixed limit. A slight delay of 2 months, for example, does not necessarily have a detrimental effect. You have the possibility to disprove your assumed intention to sell by credibly demonstrating that at the time of acquisition or at the time of completion you still had the serious intention to let, lease or occupy the property yourself for a longer period of time. 

Taking into account your personal circumstances and the exclusion of other factors indicating a trade, such as a high number of sold properties, short uniform sales periods or full-time activity in the construction sector, the rebuttal may well succeed in individual cases.

5-10 years:

If we talk about a period of 5 to 10 years, it depends above all on the other circumstances that are necessary to be classified as commercial property trading. First and foremost, a high number of sold properties, as well as the affiliation to a professional group close to the industry, e.g. architect, real estate agent or building contractor. 

 

Upper limit 10 years:

If there are at least 10 years between the sale and the disposal, the upper limit is reached above which one no longer speaks of a close temporal connection. Objects that have been rented, leased or used by you yourself for more than 10 years do not have to be included in the 3 objects in the event of sale.

 

Special case of own use: 

If you intend to sell your own home, this will not be added to the 3 properties. It is considered a private sale transaction and, depending on the holding period, is no longer taxed privately or after 10 years. 

However, it is important that the property was used exclusively by you for the entire holding period or at least for the last 3 years before sale. 

If a property is only temporarily used privately by you, but you intended to sell it from the beginning, the property must be counted. 

In this case, the situation must be considered individually and the intention of owner-occupation must be proven. If you have equipped the property individually, as a capital investor would be less likely to do, this speaks for a serious intention, for example. The sale may also have arisen from a personal emergency situation.

As you can see, many things cannot be precisely defined across the board and are largely a matter of interpretation.

 

Conclusion: There is no general statement or exact procedure to be on the safe side here.

The decisive factors are the interplay of timing and planning as well as acquisition and disposal activity.

It is indispensable for you as a shareholder of your real estate GmbH not to be classified as a commercial real estate trader under any circumstances. Otherwise you cannot expect to be exempt from trade tax.

 

We hope that we have been able to shed some light on the question as to whether an asset-managing GmbH is liable to trade tax. Another of our blog articles deals with the topic of VAT in the asset-managing GmbH.

If you are now curious and thinking about expanding your real estate portfolio, we at Meine-Renditeimmobilie will be happy to assist you in the search for your dream property, from financing to managing it.

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