– Why smart private investors should give it a wide berth? –
But woe, woe, woe!
When I look at the end!!! (Wilhelm Busch, 1865)
Asset-managing LLCs are among the top topics of numerous podcasts penned by experts and professors. This construction is advertised, for example, with the fact that only 15% corporate income tax is due on the profits of the GmbH – and no trade tax if structured correctly. This tax burden is then compared with the personal top income tax rate, which is up to more than three times higher, including the solidarity surcharge and, if applicable, church tax. Until then, the good advice usually proves to be just as incomplete as the euphemistic omissions in the sale of junk real estate.
Secure tax advantage for foreign investors
The comparison is at most correct if the owner of the limited liability company is based abroad and uses this corporation for investments in shareholdings and/or real estate. If a resident moves abroad after founding his GmbH, the “Reichs-Flucht-Steuer” (exit tax) applies – owning one percent of the shares is sufficient for this: Within the scope of the exit taxation, since 2022 with hardly any deferral possibilities, a (fictitious) profit in the amount of 60% of 13.75 times the average profit (of the last three years) of the GmbH, will be assessed by the shareholder at the personal tax rate. The same is true if the shareholder procures a foreign company while on vacation or on the Internet. And those who are unlucky do not know that and when their foreign limited liability company became a partnership for tax purposes or with regard to personal liability for debts under private international law.
Risk of additional exit taxation – disadvantage of taxable speculation
While price increases of real estate in private assets remain tax-free after 10 years, such gains in the corporate assets of a GmbH are always taxable. Then there is the annual additional expense for accounting, risk management, annual financial statements and tax advice. Moreover, lending banks will demand additional loan collateral from the shareholder and, in case of doubt, make the loan even more expensive by adding a risk surcharge for the GmbH.
Necessary case-by-case consideration over the entire period of the investment
On the one hand, a serious analysis includes the scenario technique – for example, with a focus on rental income or value appreciation. In addition, taxes are regularly incurred in the event of withdrawal of the property, sale, profit distribution from the GmbH, as well as liquidation of the corporation – if the additional administrative costs are included, the GmbH can be uneconomical. Without concrete comparative calculations for the entire investment period, it will hardly be possible to gain an accurate overview.
Not to forget legal risks – as well as the question of bankruptcy risk
Now in its second year, the “air tax” is increasing annually. It is also thanks to the price increases for energy that up to more than 25% of tenants are currently having difficulty meeting their rent payments – so they will have to move, for example.
In the future, owners are to relieve their tenants of the CO2 tax, which will motivate them to make energy improvements. Under discussion are a penalty tax on roofs without photovoltaics, as well as an occupancy requirement with no more than 20sqm per resident. A tax on capital gains along the lines of the Austrian model could also be considered.
The private investor does not have to file for insolvency in the event of over-indebtedness, but the GmbH does. No bank wants to know with the private investor, what the real estate is worth in the meantime once, so that he can simply sit out bad phases, particularly if he has other income, on which he realizes high tax savings.
Banks may only give limited loans to a limited liability company, unless you are personally liable for them. Who wants to use thus its own money only for minimum own capital, in order to use the financing lever, to set off interest and depreciation, but to realize increase in value tax-free, which will advance already with the financing lever only as private investors
Tax trap of the real estate in the business assets
Masses of medium-sized companies have their own business or private real estate on the books of their company limited liability company. The expert usually speaks of business splitting, so that at the latest when the business is closed down (possibly by the heirs), one may first reverse all depreciation and has to pay tax on the increases in value – including trade tax. This situation can be rectified – or the hidden tax debt can be allowed to continue to grow; from the testator’s point of view then according to the motto “After me, the deluge”. Many an heir has declared a disclaimer and claimed his compulsory portion instead.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.guetsel.de (published on 02.08.2022, under the headline: The real estate GmbH as allegedly clever tax saving idea, why clever private investors should give it a wide berth).
www.pt-magazin.de (published 04.08.2022)
www.goldseiten.de (published 05.08.2022)
www.deal-magazin.com (published 05.08.2022)
www.experten.de (Published 11/08/2022)
Link: Real estate GmbH as a tax saving idea? – expert report
www.network-karriere.com (published in Network-Karriere, issue 09_2022, page 25)
Der BauUnternehmer (published in issue 173, November 2022, page 7 under the headline: Fall-Strick Immobilien-GmbH – the supposedly clever savings idea).
bank intern (published in Bank intern spezial in supplement to No. 42/2022 of 17.10.2022)
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About the author
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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