German Holding GmbH to save taxes temporarily

[Luca]

I know we have quite some investors here from Germany, since Germany is not ideal for investing, tax wise, one option is to create a holding that reduces the taxes paid:

 

 

 

 

Essentially reducing the capital gains tax from 26.38% to 1,465% and taxes on dividends from 26.38% to 15.82%. 

 

If one swings in and out from positions (like we had with meta), this holding would open up quite a lot of opportunities due to having more capital available due to less taxes paid today. When closing the holding and transferring the equity to one's private wealth, that would then create a tax event, essentially enabling one to defer taxes. It's also possible to pay one's own salary through the holding, so some options of getting cash out without paying too many taxes is there. 

 

Anybody here in Germany and ever did this? Annual costs to run this shouldn't be too much, costs can be kept low between 500-2000 € annually as far as I understood. 

 

 

 

[maxthetrade]

That's what we are using in the family office I'm working for. One other big advantage of a trading GmbH is that you can deduct derivative losses without the pesky annual 20k limit that applies to individuals. The 1.465% taxrate only applies to stocks, derivative gains are taxed at the corporate tax rate.

Setting up an corporate account is a real PIA though.  One other disadvantage is that you are automatically deemed a professional data user and have to pay a higher price for realtime quotes ($125/month at IB). 

Of course you can put a lot of costs in the GmbH like car, phone, IT, travel expenses etc.

[Luca]

1 hour ago, maxthetrade said:

That's what we are using in the family office I'm working for. One other big advantage of a trading GmbH is that you can deduct derivative losses without the pesky annual 20k limit that applies to individuals. The 1.465% taxrate only applies to stocks, derivative gains are taxed at the corporate tax rate.

Setting up an corporate account is a real PIA though.  One other disadvantage is that you are automatically deemed a professional data user and have to pay a higher price for realtime quotes ($125/month at IB). 

Of course you can put a lot of costs in the GmbH like car, phone, IT, travel expenses etc.

Thanks a lot for answering, yeah there are some frictional costs but if you are still having a long investing runway and dont need the money for anything else, holding makes sense with a decent Net worth. I will post more later at home, cheers!

[Luca]

6 hours ago, maxthetrade said:

That's what we are using in the family office I'm working for. One other big advantage of a trading GmbH is that you can deduct derivative losses without the pesky annual 20k limit that applies to individuals. The 1.465% taxrate only applies to stocks, derivative gains are taxed at the corporate tax rate.

Setting up an corporate account is a real PIA though.  One other disadvantage is that you are automatically deemed a professional data user and have to pay a higher price for realtime quotes ($125/month at IB). 

Of course you can put a lot of costs in the GmbH like car, phone, IT, travel expenses etc.

So the account itself is free, at least thats what i am able to find but you say for realtimequotes you gotta pay up? I guess for someone who doesnt trade derivatives and makes not too many trades the 125 dollars can be disregarded.

Edited July 6, 2023 by Luca

[frommi]

You have around 3-5k fixed annual expenses for running a gmbh which makes it only feasable for large accounts. And transferring assets to the GmbH itself triggers a sell event so you have to pay taxes. So when you are small its too expensive, when you are large you better only do it if you dont have unrealized gains.

And it is possible that when you need the money you pay a lot more than 25%.

Edited July 7, 2023 by frommi

[maxthetrade]

One other disadvantage that I've forgotten to mention is that if you later decide to move to say the Bahamas, Monaco, Cyprus etc. you are subject to the 'Wegzugsbesteuerung' if you own more than 1% of a company. This is probably not the case for most exchange traded stocks unless you own some micro caps or you're dealing with large sums.

I agree with frommi, I wouldn't even think about it unless you're investing at least two millions and young or trade a lot of derivatives.

If you have a GmbH with a tax loss carry forward then things get a lot more interesting!  

 

[Luca]

2 hours ago, frommi said:

You have around 3-5k fixed annual expenses for running a gmbh which makes it only feasable for large accounts. And transferring assets to the GmbH itself triggers a sell event so you have to pay taxes. So when you are small its too expensive, when you are large you better only do it if you dont have unrealized gains.

And it is possible that when you need the money you pay a lot more than 25%.

I read that it's possible to reduce expenses down to around 1k if you do the books yourself, which I saw is legal? What matter is if you are young enough that the taxes you save are so significant over the long term. Agree with the rest. How much more than 25% is it when you liquidate the holding?

1 hour ago, maxthetrade said:

If you have a GmbH with a tax loss carry forward then things get a lot more interesting!  

Is tax loss carry forward not the base case? 

[maxthetrade]

21 minutes ago, Luca said:

Is tax loss carry forward not the base case? 

 

Huh, why sould that be the case? Most trading GmbH's are new and hence have no tax loss carry forward from prior activities.

[Luca]

3 minutes ago, maxthetrade said:

 

Huh, why sould that be the case? Most trading GmbH's are new and hence have no tax loss carry forward from prior activities.

Okay, i misunderstood, of course they dont. Yes, tax loss carry forward is a good thing.

[frommi]

14 hours ago, Luca said:

I read that it's possible to reduce expenses down to around 1k if you do the books yourself, which I saw is legal? What matter is if you are young enough that the taxes you save are so significant over the long term. Agree with the rest. How much more than 25% is it when you liquidate the holding?

Is tax loss carry forward not the base case? 

Maybe, it depends on the company doing the audits. In my company we have two separate entities doing this stuff and the pure cost for the "Jahresabschluss" are around 3k and there is nothing in there that you can do yourself. I think this cost depends on the asset base or revenue for the year.

[Luca]

42 minutes ago, frommi said:

Maybe, it depends on the company doing the audits. In my company we have two separate entities doing this stuff and the pure cost for the "Jahresabschluss" are around 3k and there is nothing in there that you can do yourself. I think this cost depends on the asset base or revenue for the year.

Thanks for sharing!

[bennycx]

What are the taxes applied to foreigners investing in German Equities?

Just the withholding on dividends?