Why Setting up an Asset Management GmbH is Rarely Worthwhile

Does an asset management GmbH, which exclusively manages listed stocks and bonds (fixed-income securities), make sense compared to direct investment by a natural person with large assets and taxation at the top tax rate?

Advantages of a GmbH:

A GmbH always has advantages in the taxation of capital gains from shares (capital gains) because these are 95% tax-free at the GmbH level (§ 8b para. 2 KStG).

Disadvantages of a GmbH:

1. Capital losses or write-downs are not allowed to be claimed.
2. It is only a deferral on the capital gains, because in the event of a distribution at the shareholder level, there is at least a subsequent taxation with 25% income tax (ESt), plus solidarity surcharge (5.5% of the ESt) plus, if applicable, church tax – KiSt (8-9% of the ESt). According to reports, the tax exemption is to be increased to the Schachtelbeteiligungsgrenzen of 10% or 15% as with dividends (see below under point 4.). In any case, the tax exemption does not apply to capital gains from bonds, whose capital gains are 100% taxable.
3. Withholding taxes on foreign stock profits may have to be accepted and cannot be offset against taxes, insofar as the stock profits are tax-free at the GmbH level.
4. Dividend income is only 95% tax-free for corporation tax if the shareholding is > 10% at the beginning of the financial year. For trade tax, the minimum shareholding must be at least 15% at the beginning of the financial year.
   So-called portfolio shares of listed companies at home and abroad are therefore generally not tax-free, but are taxed at an average of around 30% in Germany for GmbHs (corporation tax including solidarity surcharge and trade tax).
5. Interest income is also taxed at an average of 30%. The same applies to income from derivatives, cryptos, funds and trading in precious metals and bonds. Other operative income such as rents or originally commercial income are also taxed at around 30%. Although this is still lower than the top tax rate of 48.5% (without KiSt) in Germany, in the event of a distribution, the total burden is over 48.5%, see below.
6. If it is possible to accommodate the GmbH in a trade tax “oasis”, i.e. a municipality with a low trade tax multiplier, which is always at least 200%, then it may be possible to reduce the tax rate at the GmbH level to 22.83%.
7. Then, however, in the event of a distribution or liquidation of the GmbH for the capital gains, the dividend income mentioned under 4. and the other income mentioned under 5., there is a subsequent taxation with 25% plus Soli (and, if applicable, church tax). The subsequent taxation leads to a total tax at the level of the GmbH and the subsequent taxation at the level of the shareholder in the amount of a total of 57% (without KiSt). The total burden is therefore considerably higher than the top tax rate. The total burden also applies in the event of the sale of the GmbH or in the event of the liquidation of the GmbH. Thus, the GmbH must already accumulate the profits for a very long time so that the subsequent taxation at the shareholder level and the total burden is overcompensated by the deferral.
8. For share portfolios, there are solutions for how these can be transferred more easily free of inheritance tax. Not for share portfolios at the level of a GmbH.
9. Moving away with GmbH shares is simply impossible (§ 6 AStG), unless one chooses an operational structure for the shares (e.g. holding in the form of a commercial GmbH & Co. KG, for which further requirements must be added). Even with a residence abroad, the income will continue to be taxed in Germany in the event of distribution, liquidation or sale, which is why the move is not sanctioned for tax purposes either. Only the deferral advantage remains.
10. The ideal would be a foreign accumulating (individual) equity fund, in which the new exit tax must be observed.