GmbH Taxes: Pay Less Tax on Profits in Germany
In some cases, taxes on profits in a German limited liability company (GmbH) can be reduced to around 26 percent – and in the future, possibly even to around 21 percent. By comparison, private individuals pay up to almost 48 percent tax on their income.
GmbH profits: Why taxes of around 50 percent are often incurred
A “normal” GmbH first pays taxes at the company level: 15 percent corporate income tax plus solidarity surcharge and – depending on the assessment rate – an average of around 14-17 percent trade tax. This means that the total tax burden at the GmbH level is often around 30 percent of profits before anything is paid out to the shareholders.
If the remaining profit is then distributed to the shareholders, 25 percent capital gains tax plus solidarity surcharge and, if applicable, church tax are regularly levied. Added together, the total tax burden on the originally generated profit is therefore quickly in the range of around 45-50 percent, depending on the registered office of the GmbH and the personal situation of the shareholders.
Reducing GmbH taxes: levers at company and shareholder level
Anyone who wants to reduce the tax burden on their GmbH in Germany should always keep an eye on both levels – the GmbH and the shareholders. In practice, the following levers are particularly useful:
- Retaining profits in the GmbH (i.e. no or lower distributions) in order to initially limit taxation to around 30 percent.
- Registering the GmbH in a “trade tax haven”: Municipalities set their own trade tax rates. There are municipalities in Germany that offer a favorable assessment rate, e.g. a rate of 280 percent instead of the usual 400 percent or more. A trade tax assessment rate of 280 percent translates into a tax rate of approximately 9.8 percent (instead of the usual 14-17 percent). If the current corporate income tax rate of 15 percent is added, the total tax burden is approximately 25 percent or approximately 26 percent including the solidarity surcharge. Incidentally, the legislature wants to reduce the corporate income tax rate in the coming years – by 1 percentage point each year from 2028 to just 10 percent in 2032.
- Targeted distribution planning over several years to make optimal use of individual allowances and progression.
- Review of the partial income procedure for shareholders who hold at least a 1 percent stake and work for the GmbH on a professional basis (60 percent of the dividend is then subject to the personal tax rate, and income-related expenses are deductible).
- Structure with a holding GmbH: Dividends between corporations are largely tax-free, so that profits from the operating GmbH that are distributed to the holding GmbH can be reinvested at the holding level with virtually no tax impact. Depending on the business model, profit level, and withdrawal requirements, a total tax rate of significantly less than 50 percent can be achieved without complicated tax structures.
Typical silent partnership: profit transfer in the 25 percent range
A frequently discussed structuring instrument is the typical silent partnership in a limited liability company (GmbH). The silent partner provides capital to the GmbH and receives a contractually agreed share of the profits in return, but does not appear externally.
For tax purposes, the following applies to typical silent partnerships:
- The silent partner's share of profits is generally deductible as a business expense at the level of the limited liability company (GmbH); it thus reduces the profit subject to corporate and trade tax.
- For trade tax purposes, however, 25 percent of the silent partner's share of profits is added back to the trade income, so that there is no complete relief.
- The typical silent partner generates income from capital assets, provided that the investment is part of their private assets. This income is generally subject to a 25 percent withholding tax plus solidarity surcharge and, if applicable, church tax.
In theory, a very high profit share for the silent partner can significantly reduce the tax burden on the GmbH and shift a large part of the profits to the silent partner, where the flat-rate withholding tax of 25 percent applies. However, whether such a structure is actually accepted depends largely on the appropriateness of the profit share and the accounting and contractual arrangements.
Risks and limitations of “25 percent instead of 50 percent”
Arrangements involving silent partnerships are closely monitored by the tax authorities and courts. If the profit share of a typical silent partner is too high, there is a particular risk of:
- Denial of the deduction of operating expenses due to a lack of arm's length or due to a hidden distribution of profits.
- Additional trade tax burdens due to additions and discussions regarding the classification of the silent partner's income (private vs. business assets).
- Risk of reclassification as an atypical silent partnership with a completely different tax classification.
For entrepreneurs, this means: “25 percent instead of 50 percent” is not a flat-rate tax-saving model that can be applied across the board, but merely an option within the framework of a carefully coordinated overall structure. The focus should be on economically sensible arrangements (e.g. holding companies, appropriate distribution planning, involvement of family members where appropriate) and not on purely tax-motivated constructions that do not stand up to an arm's length comparison.
Our consulting services relating to GmbH taxes
Our attorneys and tax advisors examine how the tax burden of a GmbH can be sustainably reduced at the profit and shareholder level for managing directors, shareholders, and family offices. In doing so, we focus in particular on traditional instruments such as retention of earnings, holding structures, and distribution planning, as well as, where appropriate, selected arrangements with silent partnerships – always with a view to practicality, legal certainty, and personal asset and succession planning.
Your tax advisor for GmbH taxes in Germany
As tax advisors for the tax-optimized structuring of GmbH profits, silent partnerships, and holding structures, the interdisciplinary team at WINHELLER is happy to assist you from the initial structural considerations to ongoing compliance. Please feel free to contact us with any questions you may have! The easiest way to reach your contact persons for tax issues relating to companies and partnerships is by e-mail (info@winheller.com) or by phone (+ 49 69 76 75 77 85 21).
Please feel free to contact us if you would like us to provide you with an attractive offer.
Do you need support?
Do you have questions about our services or would you like to arrange a personal consultation? We look forward to hearing from you! Please fill in the following information.
Or give us a call: +49 69 76 75 77 85 21
FAQ | Frequently asked questions about GmbH taxes
How high is the tax burden on the profits of a GmbH in Germany typically?
In many cases, the total burden at the company and shareholder level is around 45-50 percent, depending on the trade tax rate of the municipality and the personal situation of the shareholder.
What taxes does a GmbH pay on its profits?
The GmbH pays 15 percent corporation tax plus solidarity surcharge and trade tax of around 14-17 percent of profits, depending on the municipality's assessment rate. However, corporation tax is set to fall in stages of 1 percentage point to just 10 percent in 2032 starting from 2028. Trade tax, on the other hand, can also be lower than 14 percent in some municipalities (e.g. approx. 10 percent).
As a shareholder, how can I reduce the tax burden on distributions?
Options include the partial income procedure for certain shareholders, a holding structure, or forward-looking distribution planning over several years.
What is a typical silent partnership in a GmbH?
The silent partner invests capital in the company and receives a share of the profits, but does not appear externally and generally generates income from capital assets (flat-rate withholding tax of 25 percent + solidarity surcharge).
Is the “25 percent instead of 50 percent tax” model legally compliant when implemented through a silent partnership?
Tax recognition depends on the specific structure in each individual case. Inappropriate profit sharing often leads to corrections and tax risks. An individual review is essential.