GmbH & Co KG – formation, financing, liability & Co

The limited partnership – in short: Kommandite or KG – is one of the so-called complete companies and, as a partnership, is subject to the German Commercial Code (HGB). The formation process for this legal form of company is quite uncomplicated, as it can be formed informally and requires a minimum of only two founding members. It can be formed by both natural persons and legal entities. A maximum number of permissible shareholders is not specified by law.

If all general partners of a KG consist of limited liability companies (GmbH), they form a so-called Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft – called GmbH & Co KG for short. Such a GmbH is sometimes also referred to as a general partner GmbH, but beware: the general partner GmbH is a corporation and part of the GmbH & Co KG, while the GmbH & Co KG by virtue of its legal form is always a partnership!

Other typical partnerships:

• Limited partnership (KG)
• General partnership (OHG)
• Limited Liability Company and Compagnie General Partnership(GmbH & Co OHG)

Foundation & Company Name

Two persons are required for the formation of a GmbH & Co KG: The GmbH as full partner – i.e. general partner – and a natural person as partial partner – called limited partner. If you are starting from scratch, you must first establish a limited liability company in preparation. To do this, you need the following in a nutshell: a natural person or legal entity as the founder of the company; a tax identification number (tax ID); the confirmation of registration from the trade office; the shareholders’ agreement aka articles of association together with notarial certification; 25,000 euros in share capital; and finally the entry in the commercial register.

You can find out how the process of setting up a GmbH works in detail here:

• Establishment of a limited liability company (GmbH)

You have successfuly founded your GmbH? The limited partner is ready to go? Then the next step is to set up a limited liability company (Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft). Since the GmbH & Co KG is a separate company, you again need a tax ID and must register the company with the trade office. The establishment of articles of association is also mandatory and of course your company needs a suitable company name including the company suffix “GmbH & Co KG”.

Management & power of representation

As a general partner, the GmbH basically has power of representation in the external relationship. However, since a GmbH is a legal entity, the management authority is entrusted to a natural person. This may be a shareholder of the general partner GmbH or the position may be assigned externally to a so-called third-party managing director. In this case, there is often talk of a third party board of directors or external board of directors.

Alternatively, limited partners may also act as managing directors, provided they are expressly appointed to this body. Since limited partners are generally excluded from management, their management authority in this case is, however, limited to the right of objection in the case of extraordinary transactions.

Profit distribution & loss sharing

With regard to the distribution of profits and the sharing of losses, either the statutory principles come into play or corresponding specifications have been anchored in the articles of association. Profits are generally distributed at 4 percent of the capital share plus additional profit “in reasonable proportion”. Losses are also shared appropriately.

It is possible to completely exclude the general partner GmbH from the distribution of profits by means of a declaration in the shareholders’ agreement, whereby higher profits can be distributed to the investors. Insofar as the GmbH has inherent management authority, it can be paid an appropriate remuneration to compensate for its role as managing director, whereby a managing director’s remuneration cannot be deducted in total as a business expense for tax purposes. However, the remuneration is paid irrespective of the profits generated and thereby has the effect, if applicable, that the entire company can save taxes.

General partner, partial partner & tax liability

Usually, the general partners of a limited partnership are liable without limitation and jointly and severally – i.e. with their business assets plus private assets. If, on the other hand, the general partner of a KG appears in the form of a limited liability company (GmbH), he is liable as a legal entity only to the extent of the GmbH’s capital contribution. Limited partners are liable – as in the case of a conventional KG – only to the extent of the mandatory sum that they paid in as a limited partner’s contribution when the GmbH & Co KG was founded.

Like all other legal forms of companies, the Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft is generally liable to pay taxes. First and foremost, they are subject to trade tax and – in the case of taxable turnover – turnover tax. A GmbH & Co KG is generally exempt from income tax and corporation tax… However, profit income is still subject to taxation: corporation tax is applied to the profit share of the general partner GmbH, whereas limited partners must pay income tax on their profit.

• Trade tax (GewSt)
• Value added tax (VAT)
• Income tax (ESt)
• Corporate income tax (KSt)

Tip. All taxes for companies in one list:

• Taxes in Germany

GmbH & Co KG – For whom is it worthwhile?

A significant advantage of a GmbH & Co KG is undoubtedly the limitation of liability to the business assets of the general partner GmbH. This means that founders do not directly risk the existence of their company if an investment turns out to be disadvantageous, and they can quickly increase their equity capital through the flexible and simple admission of new limited partners. They can confidently outsource the organisational effort and the management to an outside body or make deviating succession arrangements in order to maintain the GmbH & Co KG.

So who is the GmbH & Co KG suitable for? This legal form is worthwhile for start-ups who would like to set up their business as a partnership without having to forego the special liability restrictions of a GmbH. A GmbH & Co KG is also conceivable as an asset-managing company and for family businesses.

Alternatives to the GmbH & Co KG: Legal forms in Germany

Legal forms – What types of company are there? If you want to start your first company, then choosing the ideal legal form is one of the first steps in the process of setting up a company. Whether it’s a special real estate company or a start-up, I’ve summarized all the types of companies in Germany for you here.

• Legal forms: List

Company types in detail:

• Sole proprietorship
• Registered businessman / registered businesswoman (e. K.)
• Civil law partnership (GbR)
• General partnership (OHG)
• Limited partnership (KG)
• Entrepreneurial company (UG)
• GmbH: Limited liability company
• Real estate GmbH / Asset management GmbH
• Stock corporation (AG)
• Real estate stock corporation (REIT-AG)
• Societas Europaea (SE)
• Foundation / Family Foundation

UG (limited liability company) – foundation, financing, liability & Co.

The UG was created in 2008 in the course of the Act to Modernise the Law on Private Limited Companies and Combat Abuses (MoMiG) and is thus one of the newer forms of corporations. With regard to the required start-up capital, the special character of an entrepreneurial company (haftungsbeschränkt) is reflected: The company can be founded with a cash contribution of as little as one euro, which is why this legal form variant is sometimes simply called a 1-euro GmbH.

By lowering the required share capital to a symbolic euro, the founding process has been considerably simplified for many start-ups: Instead of laboriously putting money aside and saving the 25,000 euros for the founding of a conventional GmbH, you can become self-employed as a corporation almost immediately. However, a UG (haftungsbeschränkt) is always founded with the prospect of later changing its legal form to a conventional GmbH. There are no time limits for this, but at some point an economically managed entrepreneurial company (haftungsbeschränkt) will inevitably become a limited liability company.

Other typical corporations:

• Limited liability company (GmbH)
• Stock corporation (AG)
• European Company (Societas Europaea, abbreviated to SE)
• Partnership limited by shares (KGaA)

Foundation & Company Name

You can found a UG (limited liability company) with just one person. This means that as a founder you also take on a managing position at the same time. To do this, you need a tax identification number – tax ID for short – from the tax office and must register your company with the trade office. In addition, you have to take care of the establishment of the partnership agreement aka articles of association and have it notarized. If you have a maximum of three founding members, you can also simply use a sample protocol, as it is available as an annex to the Law on Limited Liability Companies (GmbHG): In this way, you can complete the articles of association, appointment of managing directors and list of shareholders all in one!

In the next step you can register your company in the commercial register. Your company can consist of personal names, industry names, fantasy names or a mixture of these… It is important that the name contains either “Unternehmergesellschaft (haftungsbeschränkt)” or “UG (haftungsbeschränkt)” – in exactly one of these two variants: Brackets are a must and abbreviations are forbidden! Once you have reached the minimum share capital of 25,000 euros, you decide whether to change the name of your company to a GmbH or to continue it as a UG (haftungsbeschränkt).

Financing & profit distribution

Even if the contribution of only one euro may sound quite attractive at the beginning… Caution is required when determining the amount of the share capital for your company: If the capital is too low and the company’s specific needs cannot be met as a result, you can quickly slide into insolvency! Many UG founders therefore opt for a starting capital of around 500 to 1,000 euros. This way they can ensure that their entrepreneurial company (haftungsbeschränkt) does not go bankrupt after the first small purchases.

When founding a UG (limited liability company), you may only use cash contributions; contributions in kind are prohibited. If a share capital of more than 25,000 euros is set, you can no longer establish your company as an entrepreneurial company (haftungsbeschränkt) and will automatically be treated as a GmbH (limited liability company). Until your share capital reaches this limit, you are subject to the obligation to retain profits, which means that you are not allowed to distribute profits in full, and you must transfer 25 per cent of your profits to the statutory reserves.

Liability, accounting & taxes for UG shareholders

As an entrepreneurial company, you are limited by liability and – as with the GmbH – are usually liable for the amount of your capital contribution, i.e. at least one euro. As a UG shareholder, however, you are also subject to the obligation to file for insolvency: In the event of a breach of duty or other criminally relevant actions, you may also be held personally liable under certain circumstances.

The Unternehmergesellschaft (haftungsbeschränkt) is subject to the same taxes in Germany as its big sister, the Gesellschaft mit beschränkter Haftung. It is therefore subject to the obligation of double-entry bookkeeping – annual balance sheet plus profit and loss account – and, depending on the size of the company, may have to prepare regular management reports. Furthermore, it is fully burdened with corporation tax, trade tax and input tax or turnover tax as well as – with regard to the distribution of profits to shareholders – capital gains tax and other final withholding taxes. For all natural persons, income tax also applies as usual.

• Corporate income tax (KSt)
• Trade tax (GewSt)
• Value added tax (VAT)
• Income tax (ESt)
• Capital gains tax (KapESt)

Unternehmergesellschaft (haftungsbeschränkt) – For whom is it worthwhile?

A UG (limited liability company) is the perfect choice for solo founders who have few assets but still want to start their own business with limited liability. The mini-GmbH is particularly suitable for smaller companies in the service industry, as unlike the formation process of a GmbH, no large start-up capital is required for the company formation. Another major advantage is the limitation of liability, which protects the private assets of the UG shareholders.

So for whom is the formation of an entrepreneurial company (haftungsbeschränkt) worthwhile? The legal form always makes sense if the later change of form to a limited liability company is planned. In this way, the first profits can be made with the company at an early stage and business relationships can be established, even though the share capital of over 25,000 euros is not yet available. The UG (limited liability) forms a more favourable preliminary stage to the GmbH – the conversion from UG to GmbH itself is extremely simple, as it is basically only a change of name within the same legal form.

Comparison: Sole proprietorship, one-man GmbH, small AG or entrepreneurial company?

If you plan to set up your business on your own, you can choose between different legal forms of business: On the one hand, there is the classic sole proprietorship, in which you act as a freelancer or registered trader, or set up a small business. Alternatively, you can choose between the one-man limited liability company and the entrepreneurial company – often referred to as a “mini-GmbH” – or set up a small public limited company.

You can find out more about the different legal forms for solo founders here:

• One-man limited liability company – see GmbH
• Sole proprietorship (EU)
• Small public limited company – see AG

Sole proprietorship & one-person GmbH

Basically, there is not much difference between the two legal forms of a sole proprietorship and a single-member company, because in both cases you are the sole shareholder with sole power of management and sole power of representation. However, the decisive difference arises in the form of the liability issue: As a registered businessman (e. Kfm.) or registered businesswoman (e. Kff.) you are liable without limitation, directly and jointly and severally – as the sole shareholder of a one-person GmbH, on the other hand, you are liable exclusively for the business up to the amount of the capital contribution you have made.

Are you a sole proprietor yourself and no longer want to bear the enormous liability risk? Then you should think about converting your sole proprietorship into a one-person limited liability company. The change of form is easily accomplished, but can make a huge difference in case of losses! In order to avoid personal liability, as part of the registered traders (e. K.) you only need a notarial certificate confirming a value of at least 25,000 euros for your business and submit this to the commercial register together with the opening balance sheet. The sole proprietorship is practically brought into the GmbH as a contribution in kind.

Entrepreneurial company & small public limited company

Alternatively, you can consider setting up an entrepreneurial company (UG). Often referred to as a “small GmbH” or “mini-GmbH”, this legal form of company is a sub-form of the conventional limited liability company, but unlike the “normal” GmbH, it only requires a single euro as share capital. It is therefore particularly attractive for solo founders who do not have 25,500 euros in their bank account. Without the share capital of a GmbH, however, your image with the banks could be lower and your chances of getting a good loan could decrease.

The so-called “small AG” is primarily intended for individual shareholders who wish to keep their public limited company within a small group of people. Apart from the individual shareholder, who also equally assumes the role of the management board, only three other persons are required to be appointed as supervisory board members. However, the formation of a public limited company, regardless of its size, is very complex and more cost-intensive than the other common forms of corporate law. Therefore, a one-person limited liability company or an entrepreneurial company may be more suitable if you intend to found your company on your own. Alternatively, you might also consider setting up a sole proprietorship.

Alternatives to the UG: Legal forms in Germany

Legal forms – What types of company are there? If you want to start your first company, then choosing the ideal legal form is one of the first steps in the process of setting up a company. Whether it’s a special real estate company or a start-up, I’ve summarized all the types of companies in Germany for you here.

• Legal forms: List

Company types in detail:

• Sole proprietorship
• Registered businessman / registered businesswoman (e. K.)
• Civil law partnership (GbR)
• General partnership (OHG)
• Limited partnership (KG)
• GmbH: Limited liability company
• Real estate GmbH / Asset management GmbH
• Stock corporation (AG)
• Real estate stock corporation (REIT-AG)
• Societas Europaea (SE)
• Foundation / Family Foundation

Joint stock company: formation, advantages and disadvantages

In the following, you will find out everything you need to know about setting up an AG. How do you become a shareholder of an AG? What are incomplete and complete companies? What are the advantages? What are the disadvantages? How do I set up a company? What is a company? Many questions – many answers! Plus everything you need to know about taxes and real estate trading.

If you’re considering forming a corporation, the first thing you need to know about is the formation process: Who can incorporate, when, at how many, what exactly… what are the differences and similarities between the various forms of corporate law? It is equally important to know the advantages and disadvantages of an AG: From profit distribution to saving taxes – an overview of the seven most important founding criteria for you.

What are the founding criteria?

1. Number of shareholders
2. Management
3. Foundation
4. Company name
5. Funding
6. Liability
7. Profit distribution

Corporation AG: Management according to HGB

In the entrepreneurial world, there are many different forms of business you can choose from. They are roughly divided into two categories, namely sole proprietorship and companies, which in turn are divided into incomplete companies – these include dormant companies and BGB companies – and complete companies – partnerships, corporations and some more.

The stock corporation – AG for short – is one of the so-called complete companies and, in contrast to incomplete companies, is not subject to the German Civil Code (BGB) but to the German Commercial Code (HGB). As a corporation, the AG has a more complex structure than other forms of corporate law, since – like a limited liability company (GmbH) – it cannot simply be founded informally, but rather certain formal requirements must be met in advance for the company to be founded. This essentially includes the notarial certification of the shareholders’ agreement.

Other typical corporations:

• European Company (Societas Europaea, abbreviated to SE)
• Partnership limited by shares (KGaA)
• Entrepreneurial company / UG (limited liability)
• Limited liability company (GmbH)

Together with the GmbH, the stock corporation is the best-known form of corporation. In Germany, it is primarily chosen as the legal form for listed companies and is considered the “big sister” of the limited liability company – not least because of the higher founding capital.

Legal form variant AG & Co KGaA – KGaA with general partner AG

Sometimes the AG also appears in combination with a partnership limited by shares (KGaA). Family businesses, for example, occasionally organise themselves as Aktiengesellschaft & Compagnie Kommanditgesellschaft auf Aktien – in short: AG & Co KGaA. In this case, they form a stock corporation in the legal sense – however, the general partner as a personally liable partner is not just any natural person, but specifically also a stock corporation. If the general partner is instead embodied by a GmbH, it is referred to as a GmbH & Co KGaA, and in the case of a Societas Europaea, as an SE & Co KGaA.

More about the individual hybrid forms:

• GmbH & Co KGaA – see limited liability company (GmbH)
• SE & Co KGaA – see Societas Europaea (SE)

Companies operating under the legal form variant of AG & Co KGaA have only existed since the end of the 1990s, following the unambiguous declaration of open legal issues by a court ruling of the Federal Court of Justice (BGF). The holding company of the well-known Hornbach Baumarkt AG, Hornbach Immobilien AG and Hornbach Baustoff Union GmbH has opted for the formation of an AG & Co KGaA, as have many other companies from a wide range of sectors: Ticketing & Live Entertainment, Medical and Security Technology, Adhesives, Cleaning Agents and Beauty Care, to name but a few.

Examples of AG & Co KGaA companies:

• CTS EVENTIM AG & Co. KGaA
• Drägerwerk AG & Co. KGaA
• Fresenius Medical Care AG & Co. KGaA
• Henkel AG & Co. KGaA
• HORNBACH HOLDING AG & Co. KGaA
• ProCredit Holding AG & Co. KGaA

CEWE Stiftung & Co. KGaA is a special case: In this company, the general partner is embodied by a foundation. In principle, the partnership limited by shares is possible in all conceivable combinations, as GUB Investment Trust KGaA points out as an example.

Continue reading here on the topic of setting up a family foundation:

• Establish a family foundation

Establishment & Formation of an AG – From Articles of Association to Registration

You want to found an AG and live your dream of independence in reality? No problem! Because for the foundation of a GmbH a natural – or legal – person is completely sufficient. If you want, you can be the sole founder of the company – called a shareholder – and thus automatically be the sole managing member of the board of directors. Such a one-person AG is often called a “small public limited company”. However, it is not possible to go it alone: a “small AG” must appoint at least three supervisory board members, which means that the smallest possible public limited company consists of four people.

The process of founding an AG can be divided into two phases, namely the internal formation of the AG and the external formation of the AG. While the first phase is basically a kind of preparatory phase or pre-foundation – in other words, it forms the basic framework for your public limited company – in the second phase you present your company to the public.

Phase 1 – Preparation & Basic Framework

You set up your public limited company internally. One of the most important steps is to draw up articles of association for your AG – also known as a shareholders’ agreement – which must later be certified by a notary public. For the formulation of the articles of association, all founding members must be fully present and the future executive board and the future supervisory board must also be present. At this first meeting it is decided how announcements are to be made in the company and how many board members are to be appointed.

Together you also decide on the company name – i.e. the name of your company as it is to be entered in the commercial register -, the registered office, the amount of share capital – 50,000 euros or more – as well as the nominal value and the number of shares, including details of the respective share type. From bearer shares to par value shares – find out more about the individual types of shares here:

• Types of shares – transferability, legal scope & share capital breakdown

The second step is the acquisition of the shares and the appointment of the bodies of a joint stock company, which must be notarized. The deposit of the securities itself can also take place after the notary appointment. Optionally, the auditor for the annual financial statements can already be appointed here. The supervisory board then appoints the management board of the public limited company as its first official act. At this point at the latest, the contributions must also be paid into the business account until at least a quarter of the share capital has been recorded.

Phase 2 – Entry in the Commercial Register

To complete the formation process for your public limited company, your company must be entered in the commercial register. This step equips the public limited company with its own legal personality and signals to the public that a new public limited company exists on the market. The founding members together with the supervisory board and executive board carry out the application for registration in the commercial register together. An overview of all supervisory and executive board members, various deeds and notarial certifications are required, the contribution of the shares must be documented and a price for the subsequent share issue must be defined.

After all documents and records have been submitted, the registration court assesses whether the formation of the public limited company has been carried out properly. In a final step, the entry is made in the commercial register and your public limited company is officially deemed to be established.

The foundation process at a glance

Here is an overview of all the steps up to the official, externally effective formation of your corporation:

• Phase 1 – Establishment in the internal relationship
  • Adoption of the Articles of Association (certified by a notary)
  • Share acquisition
  • Appointment of the AG bodies (notarized)
  • Appointment of the auditor, if applicable
  • Payment of deposits (min. 1/4 share capital)
• Phase 2 – External incorporation
  • Application for registration
  • Submission of documents & records
  • Assessment by the registry court
  • Entry in the register of companies

Entry in the Commercial Register: The most important applications for AG founders

The internal relationship determines the beginning of the company as the date contractually agreed between the shareholders. In the external relationship, however, the formation of the AG is dated on the first action on behalf of the company, i.e. at the latest with the binding entry in the commercial register. Registration costs you on average around 200 to 300 euros and is usually carried out by a notary.

As you are registered in the commercial register as a shareholder of an AG, you can officially trade under a company name – just like a shareholder of a GmbH. This means that your company has a company name, i.e. an official name, which you can freely design together with the other shareholders. It doesn’t matter whether it’s a personal company, a real company, a fancy company or a mixed company… As long as the name is in line with the prohibition of misleading people and bears the suffix “AG”, almost anything is allowed.

Tax ID, Trade Licensing Office, Articles of Association & Notary Public

You will first receive a tax identification number – tax ID for short – from your local tax office, which serves as a basic prerequisite for all other formalities and applications. The registration of your AG as a company or commercial enterprise is carried out by the Trade Licensing Office for a processing fee of approximately 10 to 65 euros.

According to the law, there is no obligation to make additional contributions for stock corporations, in contrast to cooperatives with and without limited liability, just as there is for general partnerships (Offene Handelsgesellschaften, OHG) or limited partnerships (Kommanditgesellschaften, KG). In the case of shares with restricted transferability, however, it is possible to stipulate in the articles of association that the shareholders are to make recurring payments – excluding cash payments. The precise ancillary obligations of shareholders are explained in the German Stock Corporation Act (AktG).

Excerpt from the law – § 55 AktG:

(1) If the transfer of shares is subject to the consent of the company, the articles of association may impose on shareholders the obligation to make recurring non-cash contributions in addition to the contributions to the share capital. In doing so, they must determine whether the payments are to be made against payment or free of charge. The obligation and the scope of the benefits shall be stated in the shares and interim certificates.
(2. The statutes may lay down contractual penalties in the event of failure to fulfil the obligation or failure to fulfil it properly.

Excerpt from the law – § 180 AktG:

(1) A resolution imposing ancillary obligations on shareholders shall require the consent of all shareholders concerned in order to be effective.

(2) The same shall apply to a resolution by which the transfer of registered shares or interim certificates is made subject to the consent of the Company.

Equity capital: 50,000 Euro Share capital & reserves

The share capital of a joint-stock company is called capital stock, because it forms the basis for the equity capital of the joint-stock company. The share capital is defined as the sum of all contributions and is given the term “subscribed capital” in the balance sheet. A prerequisite for registration in the commercial register is the payment of the required share capital of at least 50,000 euros into the business account. This means that twice as much share capital is required for the formation of a public limited company as for the formation of a private limited company, where 25,000 euros is sufficient as share capital. A return of the share capital to the shareholders is not permitted.

Excerpt from the law – § 57 AktG:

(1) Shareholders may not be repaid their contributions. The payment of the purchase price in the case of a permissible acquisition of treasury shares shall not be deemed to be a return. Sentence 1 shall not apply in the case of payments which are made in the event of the existence of a control or profit and loss transfer agreement (§ 291) or which are covered by a fully-fledged claim for consideration or restitution against the shareholder. Sentence 1 also does not apply to the return of a shareholder loan and payments on receivables from legal acts that correspond economically to a shareholder loan.
(2) Interest may neither be promised nor paid to shareholders.
(3) Prior to the dissolution of the Company, only the distributable profit may be distributed among the shareholders.

The second pillar of equity is the capital reserves. This includes all amounts that are added to equity, for example by means of a premium – alternative designation: issue premium or premium – i.e. the amount by which securities are priced above their nominal value. If shares are issued, the premium must be allocated to the capital reserves and thus contributes to the equity capital shown in the balance sheet. In addition, there are the revenue reserves, which are made up of the statutory reserves, the reserves under the articles of association and other reserves.

Caution: Reserves and provisions are not the same thing: Reserves are amounts of money that are saved for security or emergencies. Reserves, on the other hand, represent future liabilities and therefore do not count as equity under any circumstances!

Dividend & Reserve Accumulation

The distribution of profits takes place differently in the joint-stock company Kraft legal form than in other forms of corporate law. As a share trading business, the shares are understood as profit shares, whereby one share corresponds exactly to one profit share. The shareholders of an AG therefore also do not receive a profit distribution, as is the case with the general partnership (OHG), the limited partnership (KG) and optionally also the limited liability company (GmbH), they rather receive so-called dividends. The distribution of dividends is decided by the general meeting.

In addition, the German Stock Corporation Act (AktG) requires stock corporations to form legal reserves until ten percent of the share capital is reached. For this purpose, five percent of the net income for the year is added to the statutory reserves each year – after adjustment of the net income for any losses carried forward from previous years. The same applies to the capital reserve, where contributions must also be made until the ten percent mark is reached.

Other revenue reserves are possible within the framework of the adoption of the annual financial statements by the Management Board and Supervisory Board. The allocation may amount to a maximum of half of the net income for the year; higher amounts are only permitted if the Articles of Association allow this. Further contributions may be made to the reserve if a corresponding resolution has been passed at the Annual General Meeting.

AG Organs: Management Board, Supervisory Board & Annual General Meeting

A joint stock company consists of several organs. These bodies are divided into:

1. The Board,
2. The Supervisory Board and
3. Annual General Meeting.

The Management Board deals with the day-to-day business and other matters of the company and represents the stock corporation externally. The Supervisory Board is a legally prescribed self-monitoring body that appoints and monitors the individual members of the Management Board and, in case of doubt, also removes them. Furthermore, it is responsible for the written reporting of the annual financial statements as well as for annual reports. The Annual General Meeting acts as the decision-making body of the stock corporation.

Liability of an AG – internal relationship & external relationship

In the event of a loss, the stock corporation as a legal entity under private law is, to a certain extent, subject to a limitation of liability, because the liability burdens – with a few rare exceptions – exclusively the business assets of the company. In the external relationship, therefore, only the share capital is liable for any losses. In the internal relationship, however, the liability claim can vary depending on the governing body of the AG.

• Liability in the external relationship with the AG: through share capital
• Liability in the internal relationship with the AG: by the executive bodies

If you want to know in detail how a limitation of liability for shareholders, management board and supervisory board affects the internal relationship, read more here:

• Limitation of liability for AG bodies

Advantages: Limitation of liability, financial independence & Co

After presenting the typical features of a public limited company, you have certainly already recognised the advantages that this legal form offers you: The high initial capital also makes the AG a reputable legal form, which can be an advantage especially in matters of company financing. Financial institutions are therefore often willing to issue good loans and business partners and customers gain more security due to the good credit rating.

At the same time, the financial risk remains relatively low, as the liability claims are limited to the share capital and the AG shareholders cannot be held liable externally with their private assets. Plus: As a listed legal form, stock corporations are financially independent through the IPO.

• Respected legal form
• High credit rating
• More security for banks, business partners & customers
• Low financial risk due to limitation of liability
• Financial independence through IPO

Disadvantages: Share capital, formal incorporation & GewSt

The disadvantages that the formation of an AG can bring with it are also quickly located: On the one hand, the high share capital of at least 50,000 euros is an obvious problem for many start-ups. Also the social adhesion measures itself accordingly on at least 50,000 euro. The foundation may not take place informally, but is subject to extensive formalities and specifications. Banks can easily leverage the exemption from liability if, despite high creditworthiness, they aim for a directly enforceable guarantee from the shareholders. Last but not least, the AG is subject to trade tax and, depending on the purpose of the company and how it is handled, has to pay further taxes.

• High share capital required
• Liability based on share capital
• No informal incorporation
• Banks may require directly enforceable guarantees
• High trade tax levies

Evaluation: Low-risk legal form for large companies

After comparing the advantages and disadvantages, it becomes clear that the formation process is significantly more complex and extensive than is the case, for example, with a civil law partnership (GbR) or even a limited liability company (GmbH). In addition to the formal formation, the appointment of the individual bodies of an AG is also obligatory and the formation process as a whole is very time-consuming. It is rather difficult for small to medium-sized companies to raise the necessary share capital. For larger companies, however, the legal form of an AG may be a good option for expanding and gaining an international foothold.

A public limited company makes particular sense if business projects are planned that are exposed to a high level of risk, as the shareholders can protect themselves well through limitations of liability in the external relationship and optionally also in the internal relationship and their private assets remain unaffected. Fast-growing companies can also benefit from the formation of an AG.

Immobilien AG: Holding, trading, managing, letting

You don’t think the idea of an AG is bad at all and are now asking yourself how you can combine your capital company with the real estate business? A real estate company is a company that serves the financing, development, realization, leasing or marketing of real estate – starting with a single property up to a real estate portfolio in the three- or multi-digit range. The management of real estate property or third-party real estate on behalf of third parties can also be handled by a real estate company.

• Real Estate AG / REIT-AG

Taxes for AG shareholders: corporate income tax, trade tax, VAT, capital tax & income tax

As a shareholder of a public limited company, you need to know about some types of tax, because when you set up your company, you receive income from your business and must of course also pay tax on this. In accordance with tax law, sales tax must therefore naturally be paid, insofar as the AG does not only carry out tax-free sales. Profit distributions to the shareholders of an AG are also subject to capital gains tax – for natural persons in the company, income tax is of course also due.

The following applies to all corporations: They are subject to corporate income tax. The payment of trade tax is also obligatory for an AG, even if all founding members were freelancers, because by virtue of its legal form it is always regarded as a commercial enterprise.

• Corporate income tax (KSt)
• Income tax (ESt)
• Capital gains tax (KapESt)
• Value added tax (VAT)
• Trade tax (GewSt)

Here’s the entire list:

• Taxes in Germany

Attention: As already mentioned, the obligation to pay corporation tax and trade tax does not apply to REIT real estate companies as soon as the real estate company fulfils the legal requirements!

You can find out what taxes you can expect with a real estate corporation here:

• Save taxes on real estate

Conclusion: Public limited company – For whom is it worthwhile?

The formation of a public limited company requires a large amount of capital and an equally large amount of administrative work. For this reason, an AG is more worthwhile for large companies which, on the one hand, have the corresponding financial resources and, on the other hand, are already characterised by a certain routine in business processes and legal issues. Start-ups with monetary reserves and real estate investors are given an attractive opportunity by an AG to realise their dreams and entrepreneurial goals.

In the real estate industry, stock corporations are a stable legal form for the purpose of real estate preservation, real estate management as well as trading with and brokering real estate portfolios. If you are already trading within the meaning of the REITG, you can expect significant tax benefits. Real estate stock corporations are worthwhile for a variety of people of different professions: From builders to financiers to real estate fund shareholders, the real estate corporation can contribute significantly to stable cash flow and capital growth.

Tip: Apart from the stock exchange, a public limited company without a stock exchange listing is particularly suitable for families to jointly manage existing real estate portfolios.

Comparison: Sole proprietorship, one-man GmbH, small AG or entrepreneurial company?

If you plan to set up your business on your own, you can choose between different legal forms of business: On the one hand, there is the classic sole proprietorship, in which you act as a freelancer or registered trader, or set up a small business. Alternatively, you can choose between the one-man limited liability company and the entrepreneurial company – often referred to as a “mini-GmbH” – or set up a small public limited company.

You can find out more about the different legal forms for solo founders here:

• Sole proprietorship (EU)
• One-man limited liability company – see GmbH
• Entrepreneurial company / UG (limited liability)

Sole proprietorship & one-person GmbH

Basically, there is not much difference between the two legal forms of a sole proprietorship and a single-member company, because in both cases you are the sole shareholder with sole power of management and sole power of representation. However, the decisive difference arises in the form of the liability issue: As a registered businessman (e. Kfm.) or registered businesswoman (e. Kff.) you are liable without limitation, directly and jointly and severally – as the sole shareholder of a one-person GmbH, on the other hand, you are liable exclusively for the business up to the amount of the capital contribution you have made.

Are you a sole proprietor yourself and no longer want to bear the enormous liability risk? Then you should think about converting your sole proprietorship into a one-person limited liability company. The change of form is easily accomplished, but can make a huge difference in case of losses! In order to avoid personal liability, as part of the registered traders (e. K.) you only need a notarial certificate confirming a value of at least 25,000 euros for your business and submit this to the commercial register together with the opening balance sheet. The sole proprietorship is practically brought into the GmbH as a contribution in kind.

Entrepreneurial company & small public limited company

Alternatively, you can consider setting up an entrepreneurial company (UG). Often referred to as a “small GmbH” or “mini-GmbH”, this legal form of company is a sub-form of the conventional limited liability company, but unlike the “normal” GmbH, it only requires a single euro as share capital. It is therefore particularly attractive for solo founders who do not have 25,500 euros in their bank account. Without the share capital of a GmbH, however, your image with the banks could be lower and your chances of getting a good loan could decrease.

The so-called “small AG” is primarily intended for individual shareholders who wish to keep their public limited company within a small group of people. Apart from the individual shareholder, who also equally assumes the role of the management board, only three other persons are required to be appointed as supervisory board members. However, the formation of a public limited company, regardless of its size, is very time-consuming and more cost-intensive than the other common forms of corporate law. Therefore, a one-person limited liability company or an entrepreneurial company may be more suitable if you intend to found your company on your own. Alternatively, you might also consider setting up a sole proprietorship.

AG: Special case real estate and more

1. Real estate stock corporation (REIT-AG)
2. Real estate shares: List of companies
3. Legal forms: List

Real estate stock corporation (REIT-AG)

Real estate stock corporation / REIT-AG – You don’t find the idea of a stock corporation bad at all and are now wondering how you can combine your capital company with the real estate industry? A real estate company is a company that serves the financing, development, realization, leasing, or marketing of real estate – starting with a single property up to a real estate portfolio in the three or multi-digit range. The management of real estate property or third-party real estate on behalf of third parties can also be handled by a real estate company.

• Real estate stock corporation (REIT-AG)

Real estate shares: List of companies

Real Estate Shares – Not everyone can afford real estate as a capital investment. Through real estate shares, however, everyone can participate in the real estate market and invest money. The share prices of the big players are rising year after year. Vonovia, Deutsche Wohnen, Dream Global, CBRE and Patrizia are a few of the best known active companies in Germany. In addition, there are more than 25 other companies. We have an overview of the most popular real estate stocks for you as an investor. But first a look at the risks of a stock, the stock market, for beginners and beginners. Now to the list and more on the real estate market, your investment options and all prices at a glance, here in the article on real estate stocks.

• Real Estate Stocks

Legal forms in Germany

Legal forms – What types of company are there? If you want to start your first company, then choosing the ideal legal form is one of the first steps in the process of setting up a company. Whether it’s a special real estate company or a start-up, I’ve summarized all the types of companies in Germany for you here.

• Legal forms: List

Company types in detail:

• Sole proprietorship
• Registered businessman / registered businesswoman (e. K.)
• Civil law partnership (GbR)
• General partnership (OHG)
• Limited partnership (KG)
• Entrepreneurial company (UG)
• GmbH: Limited liability company
• Real estate GmbH / Asset management GmbH
• Real estate stock corporation (REIT-AG)
• Societas Europaea (SE)
• Foundation / Family Foundation

Additionally, in the following there may be slight grammatical errors, as this article was written by a German tax expert. This does not detract from the quality of information.

Real Estate Sale & Purchase: Tax for House & Apartment

Depending on the situation, different taxes can be incurred when buying real estate. Taxes are levied at both federal, state, and local level. Therefore, the regulations also differ at federal, state or local level, and differ both in the basis of assessment and in the amount of tax rates and contributions. For the sale or buy of a house, an apartment, a multi-family house or just land.

Examples of real estate taxes:

• Real estate transfer tax (GrESt)
• Land tax (GrSt)
• Speculation tax
• Inheritance tax (ErbSt)
• Gift tax (SchenkSt)
• Turnover tax (VAT) & Trade tax (GewSt)

Real Estate Transfer Tax (GrESt): Change of Ownership of Real Estate & Land

The real estate transfer tax is a legal transaction tax, the one-time levying of which is usually triggered by the purchase of a plot of land or real estate. It is levied on the basis of classic purchase contracts as well as in the case of land exchange, contracts or divisions. Furthermore, changes of ownership within the meaning of real estate transfer tax can lead to a tax levy as a result of transfers as well as highest bids in compulsory auctions.

Trigger for tax levies on the basis of GrESt:

• Assignments
• Performance bids in foreclosure auctions

Tax Rates According to Federal States: Bavaria & Saxony with low tax rate of 3.5 percent

The tax rate is set nationwide and ranges – as of 2020 – between 3.5% and 6.5% of the purchase price. The basis of assessment is the purchase price as certified by a notary – it is multiplied by the country-specific tax rate to determine the amount of tax payable.

Current tax rates 2020 (lowest first):

• Bavaria: 3.5 %
• Saxony: 3.5 %
• Hamburg: 4.5 %
• Bremen: 5.0 %
• Lower Saxony: 5.0 %
• Rhineland-Palatinate: 5.0 %
• Saxony-Anhalt: 5.0 %
• Hessen: 6.0 %
• Mecklenburg-Western Pomerania: 6.0 %
• Brandenburg: 6.5 %
• North Rhine-Westphalia: 6.5 %
• Saarland: 6.5 %
• Schleswig-Holstein: 6.5 %
• Thuringia: 6.5 %

Tax Debtor, Tax Bearer & Tax Exemption – Nearest Relatives & Partner

In principle, buyers and sellers are equally affected by the tax liability. Usually, however, the payment obligation is transferred to the real estate buyer. In the course of settling the tax liability, the taxpayer receives a so-called clearance certificate from the tax office, which serves as the basis for the legal registration of the new owner in the land register.

Under certain conditions, the Real Estate Acquisition Tax Act (GrEStG) allows an exemption from the required one-off payment. This applies, for example, to property sales to family members in a straight line and spouses/life partners within the partnership or during the divorce or annulment process. Also exempt from the real estate transfer tax are real estate or plots of land with a maximum purchase price of 2,500 €.

Conditions for tax exemption:

• Parents and children or grandparents and children (kinship grade I)
• Spouses or registered partners
• Real estate/properties up to 2.500 € purchase price

In the case of taxable inheritances and gifts, the real estate transfer tax is completely waived in order to avoid double taxation.

Property Tax (Grund Steuer; GrSt) – Valuation, Tax Rates & Hebesatz

The property tax is a municipal tax, which is paid annually to the respective municipality in case of real estate ownership. A distinction is made between real estate tax A – agricultural – and real estate tax B – construction – since a special assessment rate applies to property used for agricultural and forestry purposes.

Assessment Basis, Valuation & Real Estate Tax Collection – New Reform 2024

Two laws are used to determine the value of taxable property: the Property Tax Act (GrStG) and the Valuation Act (BewG). The values necessary for the calculation of real estate tax are currently being reformed due to obsolescence and will be replaced by new values. This process should be completed by the end of 2024.

The first step will be for the state tax office to determine a value using the so-called capitalized earnings method. This involves both the actual value of the land and the type of development, location and size of the property.

Secondly, the value is multiplied by the corresponding tax index, which is directly related to the respective real estate object. For example, a flat rate of 6.0 per mille is calculated for agricultural and forestry property, whereas the per mille rate for building property is between 2.6 and 3.5.

Overview of tax rates by type of property:

• 6.0 per mille for agricultural property
• 2.6 per mille or 3.5 per mille for single family houses
• 3.1 per mille for two-family houses
• 3.5 per mille for the remaining building property

The final property tax is then calculated as the product of the property tax assessment issued by the tax office and the property tax rate. The rate of assessment is set by the municipality and is usually valid for a period of one year.

Tax debtor, Tax Bearer & Tax Exemption – Installment Payment, Own use & Third-Party use of Real Estate

As a rule, the tax debtor is the owner of the property – and in the case of own use – the resident. After appraisal and assessment, he receives a corresponding tax assessment from his municipality, which is binding for at least one calendar year. The legal owner at the time of 1st January of each calendar year is therefore considered to be the tax debtor, even if he/she resells the property in the meantime. Private law settlements can of course be made in favour of the real estate seller.

The payments concerning the property tax are generally made in four instalments per year, on 15 February, May, August and November. With small payment amounts between 15 € and 30 € half-yearly rates – in each case to 15 February and August – are usual, whereas with tax payments under 15 € annual rates to 15 August are felt as sufficient.

Installment payments of the property tax:

• Taxes > 30 €: quarterly (on 15.02., 15.05., 15.08. and 15.11.)
• Taxes 15 – 30 €: half-yearly (to 15.02. and 15.08.)
• Taxes < 15 €: annually (15.08.)

In the case of rented real estate objects, however, the charges can be passed on to the tenant(s) as apportionable service charges, provided that a corresponding contractual agreement has been reached in advance. Should a loss of rent through no fault of one’s own arise over large amounts, it is possible to submit an application to the local authorities for real estate tax remission.

Property owned by public authorities, church property and property owned by non-profit corporations are completely exempt from property tax.

Speculation Tax – Private Sales Transactions for Real Estate

The speculation tax is a tax which is imposed on a real estate salesman with private sales transactions according to nationwide regulation. In accordance with the German Income Tax Act (EStG), taxation is levied on all income resulting from private sales, with the exception of owner-occupied real estate.

Applicable Area & Due Date – Letting, Undeveloped Land, Heritable Building Rights & Co

Taxes must be paid on the sale of rented apartments and houses as well as on undeveloped land and further in the case of hereditary building rights. Also affected by the speculation tax are shares in closed real estate funds and further co-ownership shares.

Scope of the speculation tax:

• Letting of apartments & houses
• Undeveloped land
• Leasehold cases
• Shares in closed-end real estate funds
• Shares in co-ownership

The due date is the year of sale. The amount of tax payable is determined individually by the federal states and is based on criteria such as appreciation in value and the seller’s income tax rate, but may be reduced by certain expenses.

These include, for example, profit-reducing modernization costs – to the extent that they exceed 15% of the original acquisition cost -, certain advertising expenses, and brokerage and notary fees. By means of cleverly arranged installment payments, it is sometimes possible to take advantage of tax-free allowances to reduce contributions.

Reduction of speculation tax charges:

• Modernization costs > 15 % of acquisition costs
• Advertising costs
• Brokerage fees

Speculation Period – 10-year Period & Three-Object Limit for Real Estate Sales

The speculation period is 10 years. This means that all sales transactions under private law are exempt from speculation tax after this period. If, on the other hand, the apartment or house is temporarily used by the owner, the 10-year period can be circumvented and reduced to two to three years.

This is always the case if the real estate object was exclusively used for the own residential purpose in the year of the sale as well as the two preceding years – even in the case of owner-occupied second homes or vacation homes. As long as a real estate owner can prove that he receives child benefit for his children, their private use is also regarded as “own residential purpose” of the taxpayer.

If a total of more than three property sales are made in a five-year period and the three-object limit is thus exceeded, the sales are considered by law to be commercial transactions and are therefore automatically subject to trade tax.

Inheritance tax (ErbSt) – Property Valuation & Tax Allowances

Inheritance tax always comes into effect when a deceased leaves an inheritance which is accepted by the beneficiaries.

Assessment Basis & Taxes – Inheritance Taxes According to the Market Value on the Balance Sheet Date

In contrast to foreign states, the federal regulations define the inheritance tax here not as estate tax, but as inheritance accrual tax, which means that the tax charges are generally levied in relation to the specific amount of the inheritance. An extended tax liability ensures that beneficiaries do not benefit from migrating abroad in case of inheritance.

The German Real Estate Valuation Ordinance (ImmoWertV) provides a valuation based on comparative value, income value or real value methods. For real estate inheritances, the valuation is based on the current market value on the reporting date, i.e. the value that could have been achieved for the property in an immediate sale on that day.

In the case of leased properties, a flat tax valuation discount of 10% is applied, whereas 100% of the market value of non-leased properties is included in the valuation.

Assessment basis according to ImmoWertV…

• Rented properties: 90% of the market value
• Non-leased properties: 100% of the market value

The valuation report can be tax deductible as additional inheritance costs.

Tax Allowances & Tax Remission – Degrees of Relationship of the Heirs to the Testator & own use

The amount of the inheritance tax can be reduced by certain allowances. These are based on the respective degree of kinship between a beneficiary and the deceased.

Tax-free amounts according to the degree of kinship:

• 500.000 € for spouse / life partner
• 400.000 € for biological children, stepchildren, adopted children and surviving grandchildren
• 200.000 € for grandchildren
• 100.000 € for parents and grandparents
• 20.000 € for all other heirs (related and unrelated)

Law of the case, if the deceased was living in a property used by himself before his death and his heirs use this property for their own residential purposes for at least ten consecutive years after the occurrence of the inheritance, the inheritance tax is discharged. In the case of an early departure, however, subsequent taxation will take place.

Gift tax (SchenkSt) – Gift Contract & Tax Exemption

Gift tax is payable on assets that are given to the beneficiary instead of sale, loan or inheritance.

In the context of real estate gifts, the donors are often granted rights of residence and/or usufruct (use without altering). In these cases, a contract of gift is advisable, if necessary with an included right of reclaim, in order to avoid compulsory auctions or seizures in worst case scenarios. In the case of the guarantee of lifelong right of residence, a corresponding entry should also be made in the land register in order to provide clear evidence.

Tax-Free Amounts: Tax Remission – Degree of Relationship of the Beneficiaries to the Donor

Gifts to spouses or life partners are subject to complete tax exemption. This also applies if the partners are in the process of divorce or annulment, insofar as they still live together in the family home at the time of the gift.

The tax-free amounts in gift cases can be re-credited every ten years. In the case of parents, this is even possible twice. They differ with regard to the family relationship between the donor and the recipient.

Tax-free amounts according to family relationship:

• 500.000 € for spouse / life partner
• 400.000 € for children and surviving grandchildren
• 200.000 € for grandchildren
• 100.000 € for parents and grandparents
• 20.000 € for all other beneficiaries (related and unrelated)

Claim for Compulsory Portion and Supplementary Claim in Case of Donation & Inheritance

In the event of exclusion of the inheritance, the deceased’s next of kin are entitled to a so-called compulsory portion, i.e. a claim for payment against the testamentary heirs.

According to the German Civil Code (BGB), gifts made by a deceased person in the last ten years prior to his or her death are counted as a supplement to the right to a compulsory portion for his or her heirs when the case of inheritance arises. In accordance with the meltdown model, the entitlements decrease from year to year and fall to zero percent from the eleventh year before the inheritance.

Gifts made within a marriage or registered civil partnership are entitled to a supplement to the compulsory portion without time limitation. However, the gift itself remains absolutely effective.

MwSt & Trade Tax: Commercial Real Estate Trade for Real Estate

The value added tax (MwSt) is passed on to the buyer and new owner at 19% of the purchase price in the case of commercial real estate sales.

The trade tax (GewSt) is charged to the real estate seller in the context of commercial sales transactions and is calculated individually on the basis of the capital gain. The share of profit corresponding to a tax rate of 3.5% multiplied by the municipal assessment rate results in the trade tax amount to be paid.

Trade tax amount = 3.5 % of the profit * assessment rate

Automatic Trade Tax Liability & Allowances – Partnerships, Natural Persons & Co

Insofar as the properties are business assets, the associated income from profits is generally subject to tax. If the 10-year period stipulated in the German Income Tax Act (EStG) with regard to speculation tax is not met, or the three-object limit is exceeded in the sale of real estate units, the corresponding income is also automatically subject to trade tax.

A property originally purchased as an apartment building, which is subdivided into several apartments in the course of a better letting, and resold within five years, therefore causes the same automatically generated tax liability.
Partnerships and natural persons are legally granted an allowance of 24,500 €. Other companies and associations can benefit from a lower tax-free allowance of 5,000 € under certain conditions.

Taxes when Buying / Renting Real Estate

Real Estate – What will you be confronted with when buying a house, a condo, a multi-family house or just land in Germany? It’s an attractive market for many, especially abroad for its strong economy and stable government.

If you’re still looking for areas to invest, or which to avoid, we have guides online.

• What are the most Expensive Cities in Germany?

The Fundamentals: Additional Costs when Buying Real Estate

Low interest rates, great loan offers and irresistible purchase prices entice one or the other to invest in German real estate, or move to the country. So, how do you start to deal enough with the the additional costs that buyers and sellers expect when signing a purchase contract. Which additional costs arise when buying a condominium? How much percent when buying a house?

With the conclusion of a purchase agreement, the financing is already finished. However, the ancillary purchase costs are often underestimated. The bills from the broker, notary, land registry and tax office will come as soon as the loan is fixed. Because of this, the credit is often underestimated. Especially coming from abroad, these costs can be difficult to understand.

• Ancillary Costs of Real Estate Purchase

Grunderwerbsteuer: Real Estate Transfer Tax

In Germany, there is also a real estate transfer tax, just as in many other countries. This is called the “Grunderwerbsteuer”. It needs to be paid everytime a property or part of a property is purchased.

The Grunderwerbsteuer is a state tax. It is determined individually by each federal state (called Bundesland or Bundesländer). At present, it falls between 3.5% and 6.0%, depending on the location. The tax is levied on the basis of the Grunderwerbsteuergesetzes (GrEStG). The respective federal states therefore also decide how to apply it, and to what degree they pass it to lower levels of government.

• Grunderwerbsteuer: German Real Estate Transfer Tax Explained

Appraising Property: Reduce Service Charges + Investment Capital

The better the valuation of the property, the lower the service charges and transfer tax. Therefore, it is vital to get engaged with the valuation of real estate. This process is similar in Germany as in other countries, but the details make up the whole. In general, the difficulty in the appraisal process is the reason why many people hire real estate agents. If you accept a purchase price immediately, you will probably pay on top of it. This is not hard to accept, but if the purchase price is a 5-digit number, it quickly adds up.

These savings would be much better served paying for a renovation or modernization, for example with a new heating system, which you could have done in the repair or modernization. This would have two positive side effects:

1. Reduction in purchase price through concrete points of criticism (e.g. building materials)
2. Increase in value through renovation for resale

So not only do you pay less, you can also use the available assets to increase the value of your property. The more detailed you check the property, the more likely you are to minimize the purchase price. You can learn what is important when evaluating real estate in Germany here:

• Appraising property

If you already have a specific property in mind, I recommend the individual articles on land, apartment, house and Co.

• Appraising Apartment
• Appraising House
• Appraising Apartment Buildings
• Appraising Land

Taxes on Rental Income: GmbH or ‘Stiftung’

Taxes on rental income are definitely an issue for landlords. Private property ownership, ‘Immobilien GmbH’ (real estate company) or ‘Familienstiftung’ (Family Foundation)?

In order to tax your rental income as efficiently as possible – to begin with – the German state opens the possibility of founding a GmbH. A GmbH is a company, and with loopholes, you can found such a company to take care of income you make from renting out property. Yet, it may be even more profitable to found a Familienstiftung. How, when and why? Learn everything in the articles below.

Immobilien GmbH: Wealth Distribution Company

In this article you will learn the basics about the topic Immobilien GmbH. What is it? Is it the same as Vermögensverwaltende GmbH or Immobiliengesellschaft? When buying a house or a condominium, who comes up with the idea of founding a GmbH? Admittedly, it doesn’t make sense for self-interest, but it does if you’re looking to rent your property out.

By law, an immobilien GmbH is a company that pursues the purpose of letting, development, financing, realization or marketing. It is independent whether it concerns one or more properties. It also includes real estate management, for its own properties and those of third parties.

• Immobilien GmbH Explained

You may hear from some people:

Immobilien GmbH, Familienstiftung, isn’t that the same?

It’s true that there is little difference in legal forms between the two, looking at the purchase and taxation of your rental income. It does become interesting when selling real estate though. In the GmbH, the capital gain must be fully taxed. Now we look at the Familienstiftung though, where the sale is tax-free after a speculation period has expired.

Familienstiftung: Providing for retirement, Children and Almost Tax-Free

I repeat: Capital gain is fully taxed in an Immobilien GmbH. The real estate sale of a Familienstiftung is tax-free (after speculation period).

A Familienstiftung is in its essence a foundation intended to reach a goal. This can be a wealthy business mogul designating much of his funds to care for following generations, or a property investor intending to place the profits he made from renting out property in a foundation. In the following tax article we take a deep look into the subject of foundations, family foundations, real estate purchase, taxes and tax optimization. Setting up a foundation, especially a family foundation, has many advantages for you. From tax-free capital gains after speculation tax, to low (15 percent) taxation of rental income. How this works, how you can set up a foundation and how your grandchildren will profit from it, you will learn in this article.

• Familienstiftung: German Tax Optimization for Leasing

Buying Real Estate in USA

What taxes do you have to pay when you buy a house, land or condo in the USA? If you’ve changed your mind, or want to rather look in the US, what their laws are, and how taxes function there, we have an extensive article for you.

The United States of America attracts real estate investors like no other country in the world. Especially California and especially Los Angeles, but also New York City are in focus. In addition, tens of thousands are looking for apartments, condominiums and houses because their career is moving to the USA. Silicon Valley, Wall Street, and more. Here, economic, political and cultural ideas are forged. Investing in the USA can therefore only make sense if the parameters are right.

For real estate buyers, however, the big question is how the tax system in the USA works. Together with our US real estate agent, we have written extensive articles on the subject of taxes in the USA. The first part can be found here:

• Buying Real Estate: All Taxes to Know

View of San Francisco, with typical American skyline:

Real Estate Tax Deductions: US Tax System

Mortgage Credit? Property Taxes? Here we explain all the important terms that you will come across in the US real estate tax system. Here you will find simple instructions on how to reduce the purchase price you pay for your real estate or property in the USA: From tax credits to deductions and allowances. This tax guide gives you a quick and easy overview of what goes into your tax calculation and how you can legally reduce the taxes you pay.

• Tax Deductions USA

Taxes on the Sale of Real Estate

Coming soon!