The taxation of the acquisition of a company in Germany

Tax optimization from the buyer's perspective under german law

In the case of company acquisitions, transfers of shareholdings and other corporate transactions in Germany, both the transaction structure and the concrete contract design are significantly influenced by german tax law. As a law firm specializing in german business and tax law, we work with you to overcome all legal and tax hurdles in the purchase and sale of companies or interests in companies. In principle, it should be noted in corporate transactions that the structuring approach of the seller of a company differs fundamentally from the objectives of the buyer of a company.

Are you a seller? Then read on here: Taxation of the sale of a company in Germany (following soon)

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 structuring of company acquisitions and the purchase of shareholdings

Our team of tax advisors and certified specialists for german tax law work hand in hand with our certified specialists for german commercial and corporate law in corporate transactions. From our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne, we cover the entire spectrum of tax law advice for our clients:

  1. Planning and tax structuring in the run-up to a transaction, including tax burden comparisons
  2. Preparation and compilation of documentation for finance and tax due diligence as well as risk assessments through appropriate due diligence reports
  3. Drafting of contracts concerning tax issues: Guarantee, tax clauses and tax transfer regulations, blocking and holding periods, book value continuation
  4. Accompaniment of acquisition financing (deduction restrictions, interest barrier)
  5. Support in the tax-optimized integration of the acquired company

General legal information on corporate transactions from a practitioner's perspective can be found here:

Taxes on the purchase of a company in Germany

In a german corporate transaction, at least two parties, namely the buyer and the seller, are confronted with the question of the tax implications of a transaction. However, tax effects can also affect the target company itself (e.g. in the form of a limitation of tax loss carryforwards in the case of higher share transfers).

As a rule, the two contracting parties to a german corporate transaction pursue different - often even opposing - strategic, economic and tax interests with the sale or acquisition of a company. While the seller seeks to achieve the highest possible after-tax purchase price, the buyer is interested in paying a low price and being able to claim the payable purchase price as quickly as possible against income. These different positions must be balanced in the tax structuring and tax planning associated with a transaction. When a company acquires another company, there are accounting and tax implications on the buyer side.

The following discussion focuses on the tax implications of a corporate transaction in Germany on the buyer's side.

A presentation of the tax burden on the seller side, in particular in connection with the receipt of the purchase price for the sold company, is provided here: Taxation of the seller in the sale of a company in Germany (following soon)

Tax interests of the buyer

Planning on the buyer's side should be done at an early stage, taking into account in particular the interests of the seller's side. The review of the target company within the scope of a buyer due diligence including a tax due diligence should definitely be included in the time planning of a company acquisition. In the course of tax due diligence, all material aspects are reviewed and information is compiled in order to achieve two goals: First, the company review should enable optimization of the acquisition structure from a tax perspective. Secondly, the tax risks, often from the still open assessment periods, are to be identified in the course of the tax due diligence. Possible risks can then be hedged at a later stage at the contractual level by means of appropriate tax clauses and guarantee provisions in favor of the buyer side. The tax due diligence carried out by the buyer can be compared with an audit carried out by the german tax office.

In the following, only selected central german income tax principles will be presented. It should be noted only in passing that there is also the possibility of a considerable burden of transfer taxes. It is true that there is often no transfer tax if there is a sale of the business as a whole in Germany. If, however, real estate is involved in the context of the company takeover, a high burden of real estate transfer tax may arise.

Acquisition of a company by way of an asset deal in Germany

When planning a company takeover, the strategic goals pursued with it, such as the possibility of using patents and IP rights acquired as part of a transaction, are the top priority. Nevertheless, from the buyer's point of view it is advisable to structure the acquisition process also for tax reasons. It is not only on the seller side that there are tax effects as a result of a transaction (taxable capital gain). For example, the purchaser of a company with a balance sheet can utilize the additional hidden reserves for tax purposes by way of depreciation as a result of the acquisition.

If a company acquires another company by way of an asset deal, the purchased assets must be recognized in the balance sheet. An asset deal means that the individual assets of a company (e.g. patents, licenses, operating equipment, inventories, distribution agreements and rental agreements) are acquired by the purchaser as part of a large number of individual transfers. In the process, the assets are depreciated at the buyer's level using the traditional depreciation methods. Thus, when assets are purchased in Germany, the entire purchase price can be written off against profit: The purchase price is allocated proportionately to the individual assets. Any purchase price that is not allocated must be recognized as goodwill, which is amortized over time. Co-acquired liabilities increase the acquisition cost. It should be noted that the acquisition of shares in a partnership is treated like an asset deal from a tax perspective. This means that, for example, when shares in a KG are acquired, the purchase price can be written off in german practice.

Within a certain framework, it is even conceivable (e.g. if a consultancy agreement is concluded with the seller) that part of the purchase price can be immediately deducted as a business expense or at least written off within a short period of time in Germany. Since, in the case of a purchase by way of an asset deal, the purchase price paid can be converted into depreciation volume, the asset deal offers many advantages for the company acquirer from a tax point of view.

If the purchase price is financed by borrowed capital, the borrowing costs are generally deductible as operating expenses for the acquiring company in german practice. However, restrictions may result from the interest barrier. Consequently, care must be taken to ensure tax-optimized financing of the purchase price in Germany.

It must also be taken into account that a loss carryforward and interest carryforward at the target company are not transferred to the purchaser side as part of the takeover of the assets.

Tax effects of a company acquisition in Germany by means of a share deal

Depending on the specific legal and economic situation, a share deal may be preferable to an asset deal in german practice despite the advantages mentioned above. A share deal is always preferable if an entrepreneurial unit is to remain as a whole so that the entrepreneurial risk associated with the target company remains limited and cannot affect the acquirer level. This can be the case, for example, in the german venture capital sector, in many private equity transactions, in joint venture projects and in cross-border transactions.

In a german share deal, the acquiring company recognizes the purchased equity interest in the amount of the purchase price in its balance sheet (the acquired shares are capitalized at actual cost in the tax balance sheet). In contrast to an asset deal in Germany, however, it is generally not possible to write off the investment and the purchase price on an ongoing basis. At the level of the acquired subsidiary, a continuation of the previous depreciation can take place - but at the comparatively low book values. The premium accepted by the purchaser side on the book values of the target company is not converted into any depreciation potential. For tax purposes, this premium only has an effect on the increased acquisition costs in the event of a subsequent sale of the shareholding.

In the case of a purchase of shares in a company with losses carried forward, there are strict german legal restrictions on the assumption of losses. If the purchaser takes over more than 25% of the shares of a corporation, the losses are reduced on a pro rata basis. In the case of a share acquisition, the target company's loss carryforward may even be completely extinguished if a shareholding of more than 50% is transferred.

Brief description: Taxation of the seller side in Germany

A high level of tax relevance in the case of a business transfer in Germany arises on the part of the seller, who receives the purchase price. If a GmbH sells individual assets (asset deal), the capital gain is subject to corporate income tax and trade tax. The capital gain is taxed in the same way as the current profit of the GmbH. If, however, a GmbH sells shares in another corporation (e.g. a GmbH), tax-free capital gains are generated when determining the income of the selling GmbH for corporate income tax purposes. A parent GmbH in Germany can therefore in principle sell its subsidiary GmbH tax-free in the case of a share deal. However, 5% of the capital gain is considered a non-deductible business expense, which economically leads to a tax exemption of 95% at the seller level.

More detailed information on the taxation of the seller side in the sale of a business in Germany: Taxation of the seller in the sale of a business (following soon)

The tax advisors, tax lawyers and certified specialists for german commercial and corporate law at ROSE & PARTNER have many years of experience in the field of M&A transactions, such as company acquisitions, company transformations and other transactions. Buyers and sellers are accompanied throughout the entire process - starting with transaction planning, preparation of financing, due diligence and contract negotiation in connection with the preparation of an SPA.

Contact Form

Submit your non-binding query via the below contact form and/or request a call. We will get back to you shortly.

I consent to the processing of my data pursuant to the data protection statement (para. VIII). My data will be required for processing my query and will not be forwarded to third parties. I may revoke this consent towards ROSE & PARTNER at any time with effect for the future.