The taxation of the sale of the company under german law
Tax burden on the seller in Germany
Company sales are the order of the day in the german SME sector. In various constellations, for example in the context of company successions, in the restructuring of groups of companies or in the exit of a successful start-up, the sellers have to deal with the issue of taxation of a company sale. Our tax advisors and tax lawyers will work out tax-optimized structures for you in any M&A transaction in Germany.
Are you a buyer? You can find information on the taxation of the company PURCHASE here: Taxation of company purchase in Germany
Detailed information on the taxation of the sale of a GmbH or a GmbH & Co. KG in Germany
- Taxation sale GmbH
- Taxation of sale of GmbH & Co. KG
For a non-binding inquiry, please contact one of our experts directly by phone or e-mail or use the contact form at the bottom of this page.
Legal services in german tax law for the sale of companies
Our team of tax advisors, tax lawyers and certified specialists has many years of experience in the M&A field. From our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne, we support our clients in the execution of company sales and in particular also offer comprehensive tax law support for these transactions. In detail, this includes:
- Examination of tax obstacles in the run-up to a company sale in Germany
- Preparation of financial due diligence and tax due diligence
- Planning and tax structuring of the sale of the company in Germany
- Drafting of the purchase agreement and support during contract negotiations;
Here you will find further information on corporate transactions in german practice from a practitioner's point of view:
- Company acquisition, investment acquisition (buyer's perspective)
- Sale of a company, sale of participations (seller's perspective)
- Company valuation and the reconciliation of enterprise value to equity value
- Corporate financing (debt, equity and mezzanine)
- Venture capital, investment agreements and financing rounds
- Due Diligence
- Share deal or asset deal
- What are the most important clauses in a company purchase agreement?
Strategic goals in the sale of a company in german practice
In a company transfer, there are at least two parties involved, namely the seller and the acquirer, who have different - often even opposing - strategic, economic and tax interests in the company sale or acquisition. While it is in the seller's natural interest to achieve the highest possible after-tax purchase price, the acquirer, on the other hand, is interested in a low purchase price payment. In addition, it is also important for him to be able to claim the paid purchase price as income-reducing as quickly as possible. Buyers and sellers should be aware of these different negotiating positions prior to the sales negotiations in german practice.
What is important from a german tax perspective?
There are many different aspects to consider when it comes to taxation on the seller's side. The first important questions for german income taxation from the seller's perspective are: How is a company sold (share deal or asset deal) and who is on the seller side (e.g. a private individual or a limited liability company)? In this context, it must be taken into account that the purchase of shares in a partnership - in contrast to german trade tax law - is also to be treated as an asset deal (individual asset sale) under german income tax law.
The following presentation focuses on an overview of the income tax burden on the seller side. It should be noted only in passing that, in addition to income taxes (income tax, corporate income tax), transaction taxes (in particular value added tax) may also be incurred to a considerable extent in german practice. In this context, it should be noted that a sales tax burden can be avoided if there is a sale of the business as a whole. If, however, real estate is affected by the sale, high real estate transfer taxes may also be triggered in Germany.
Taxation of a private individual as seller in the context of an asset deal in Germany
If a private individual sells a company in Germany by way of an asset deal (sale of individual assets, sale of a sole proprietorship or transfer of a partnership), income tax is due on the capital gain. It should be noted that, from a tax perspective, the sale of shares in a partnership is equivalent to an asset deal and is treated for tax purposes in the same way as the sale of individual assets.
In german law, the taxable capital gain is calculated as the difference between the selling price on the one hand and the selling costs and the book value for tax purposes on the other. The hidden reserves must be disclosed and taxed. The capital gain is taxed in the same way as current profits of the company (Sections 15, 18 EStG). The tax burden of the seller of the company depends on his individual income tax rate.
Trade tax is also payable on the capital gain with the corresponding credit options. However, this does not apply to self-employed companies in Germany such as tax consultants or architects.
It should be noted that the sale of entire businesses or parts thereof by natural persons may be subject to income and trade tax under german law. The seller can claim certain tax allowances as well as a reduction of the income tax rate for capital gains up to a certain amount. Finally, the so-called one-fifth rule with its progression reduction and an exemption from trade tax may apply in german practice. For more information on tax benefits for german private individuals who sell companies by way of an asset deal, please refer to our page "Taxation of the sale of a GmbH & Co. KG" (following soon)
Taxation on the sale of shares in a corporation by private individuals under german law
If shares in a corporation are sold by a private individual in Germany, a distinction must first be made as to whether the shares sold were part of the seller's business assets or private assets. If the shares are part of the business assets, only 60% of the capital gain is subject to income tax and possibly trade tax (partial income method). The hidden reserves in the shares are disclosed. However, the hidden reserves in the assets of the corporation to be sold are not disclosed. The partial income procedure is also applicable if the german private individual holds the business share to be sold indirectly via a partnership.
The situation is different for business shares held as private assets by the seller: in german practice, a distinction must be made according to whether there is a material interest in a corporation. If the seller holds at least 1% or more in a corporation, the partial income procedure applies, so that 60% of the gain from the sale is taxable under german law. If, on the other hand, there is a minority shareholding of less than 1%, the so-called final withholding tax applies. The final withholding tax on the gain from the sale is then 25% plus solidarity surcharge and, if applicable, church tax.
Taxation in german law: Corporation sells business by way of asset deal
If a corporation sells its business, part of its business or a partnership held by it, the capital gain is subject to german corporate income tax and trade tax. The capital gain is taxed in the same way as the current profit of the corporation. The hidden reserves must be disclosed and taxed. If the profit from the sale of the business is distributed by the corporation to its shareholders, the partial income method applies again, under which 60% of the profit is taxed at the shareholder's individual tax rate in german practice.
Taxation on the sale of shares in a corporation by a corporation in Germany
When a corporation sells the shares held in its subsidiary, a tax-free capital gain arises in german practice. The German Corporate Income Tax Act (Körperschaftssteuergesetz, KStG) provides special rules for such sales of shares. The gain from the sale of a share in a corporation is generally tax-exempt. However, it should be noted that the tax-exempt capital gain of 5% results in a non-deductible operating expense. As a result, there is a tax exemption of the capital gain in the amount of 95 % under german law.
A similar tax privilege mechanism applies to profit distributions in Germany when a corporation distributes profits to another corporation. However, this tax privilege requires that there is no free float, i.e. no shareholding of less than 10%. Our tax advisors and tax lawyers will advise you on the planning and implementation of your company sale in Germany. We are active in all company sales in the medium-sized sector (small companies up to larger groups of companies). Our team will advise you comprehensively on all german tax and corporate law issues, working hand in hand with your tax advisors and financial accountants.