Taxes Holding: The taxation of a holding

Holding, taxes and tax advantages 

Companies are taxed. Income tax is levied on the profits of a sole proprietor or partnership (up to 42 percent), and corporation tax on the profits of corporations. Trade tax is usually added to this. corporations thus often pay 30 percent  tax or more.

If the remaining profit is distributed to shareholders, this amount must also be taxed. The final withholding tax is 25 percent  and the solidarity surcharge is 5.5 percent  If, for example, the tax payments of a GmbH and the tax payments of the shareholders are added together, the tax rate quickly exceeds 50 percent.

Within a holding structure, the tax payments change significantly. The shareholders do not own the shares as individuals, but they are held by a second corporation.

If a corporation receives a profit distribution from another corporation, 95 per cent of the distributed profits are not taxed, Only on 5 per cent of the profits 15 per cent corporation tax as well as solidarity surcharge and trade tax are levied.  Thus a large part of the profit is   available to the company for reinvestment.

There are three “players” in the taxation of a holding, each of which should be examined individually. 

• The holding subsidiary – The operating company, generally a GmbH or UG, which operates a business branch of the parent company. 
• The holding parent – The asset management company that holds one or more subsidiaries, generally also a GmbH or UG. The profits of the subsidiaries are distributed to the parent company and can be used for further undertakings of the holding parent company, which can form more and more subsidiaries for this purpose. 
• The holding shareholders – The shareholders of the holding parent company, generally the founders or entrepreneurs, that is, “natural persons”. Through the parent company, they control the subsidiaries and may make private withdrawals from the profits distributed to the parent company, which come from the subsidiaries’ operations or their sale. Shareholders as legal persons are conceivable, including those from abroad.