Trust foundation as a progressive and flexible solution
Almost completely unnoticed by the entire public, a fundamental reform of the inheritance and gift tax is imminent in 2007. This is like a time bomb for the entire middle class, because the details are only now becoming known to the public step by step. Experts and tax experts, e.g. from the Association of German Chambers of Industry and Commerce (DIHK), state that “this is how small and medium-sized businesses are being reformed to ruin them”. For example, the tax value for medium-sized companies – including many doctors, dentists and pharmacists – is to rise sharply in the case of inheritance tax and company succession. Business assets could then be divided into good and bad assets for tax purposes in the future. The so-called evil assets = unproductive assets (cash assets, cash in hand, bank balances, shareholdings in corporations on the balance sheet) would be taxed immediately and gift and inheritance tax would then be due immediately. After the planned tax reform, the tax burden on the transfer of company assets within the framework of the generation change will then increase almost eightfold. For the unproductive assets, the tax burden is still almost three times as high as the old tax, but for the entire business. The new tax regulations that have yet to be passed actually affect the entire middle class. These apply primarily to sole proprietorships, partnerships, but also to entrepreneurs who hold at least a 25 percent interest in their own GmbH or AG. The new final withholding tax on interest income then does the rest. It was also originally planned for 2007, but was postponed due to the corporate tax reform. Now, according to the latest reports, it will come into force in 2009. The final withholding tax will probably be 25 percent at the beginning. For these reasons, intelligent solutions are in demand, which above all allow the medium-sized businessman decisive legally founded scope for structuring his own company, but also for his private sphere. This automatically leads to a means that is little known to the public – the charitable foundation, which is also promoted by the federal government in particular with considerable tax concessions. Now the state explicitly recognizes the commitment of donors with generous tax breaks and benefits related to charitable giving. Further positive impulses for the foundation system are to be expected from the new “Law for the Further Strengthening of Civic Commitment”, which is to be passed by the Bundestag before the summer break. This legal opportunity to combine meaningful action for a charitable purpose with advantageous legal tax privileges has so far been used primarily by large corporations, but now also by high-earning athletes and celebrities in Germany, who are supported by TOP advisors in tax and foundation law. The tax adviser is often not trained in this special field and therefore refers – also for liability reasons – for the time being to doing nothing. This is a glaring mistake, as it is above all medium-sized companies that could benefit from the establishment of a charitable foundation. Especially for managing partners of medium-sized companies (GmbHs), but also for owners of partnerships, doctors, pharmacists, etc., the charitable trust foundation can be seen as an optimal solution to problems.
(Halstenbeker Magazin 8/2007, 12)
Courtesy of Halstenbek Magazine.
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Dr. Johannes FialaPhD, MBA, MM
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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