Does it make sense to form a GmbH for real estate?

Privat kaufen & vermieten oder als GmbH?

The formation of a GmbH is a legal form of company that is very common in Germany. It offers many advantages, especially for companies operating in the real estate sector. Certain steps must be taken when setting up a GmbH, including

Articles of association: Formation of the GmbH

The formation of a GmbH requires a partnership agreement that sets out the basic rules and structure of the company. In the real estate business, this agreement may contain specific clauses on the management and sale of real estate.

Minimum capital: 25,000 euros

In Germany, a minimum capital of EUR 25,000 is required to establish a GmbH. This capital must be contributed to the company when it is founded. However, the minimum deposit at the time of formation is only 12,5000 euros.

Notarization and entry in the commercial register

The articles of association and the founding documents must be notarized. The GmbH must be entered in the commercial register before it can legally exist.

Advantages and disadvantages of a GmbH in the real estate business

The advantages and disadvantages of a GmbH explained quickly and simply.

3 advantages at a glance

1. Limited liability
2. Seriousness
3. Tax advantages

The main advantage of a GmbH is the limited liability, which means that the personal assets of the shareholders are protected in the event of debts or liability claims. A GmbH often conveys a higher degree of respectability and trust, which can be an advantage in the real estate market. In addition, GmbHs can benefit from tax advantages, e.g. in the depreciation of real estate or the offsetting of losses.

3 “Disadvantages” at a glance

1. Costs
2. Complexity
3. Profit distribution

The formation and administration of a GmbH can be cost-intensive, including notary fees, capital contribution and annual accounting costs. The GmbH structure requires more formalities and bureaucracy compared to other types of companies. The distribution of profits in a GmbH can be complex and is subject to certain regulations.

An alternative to the GmbH is the UG. Here the minimum capital is only €1 for formation. However, with the notary, commercial register, etc., €1,000 should be paid in, otherwise the UG is effectively bankrupt after paying the formation costs.

Alternatives to the GmbH?

Discover other legal forms you can opt for here:

• Legal forms in Germany

Taxes for a limited liability company in the real estate business

GmbHs are subject to corporation tax and must pay tax on their profits. In the real estate business, however, there are certain tax aspects that should be taken into account:

1. Trade tax
2. Speculation tax
3. Depreciation and amortization
4. Loss offsetting

Real estate companies are often subject to trade tax, which is levied on the profits made. Value added tax may be payable on rentals. However, there are VAT exemption options that should be considered. Speculation tax also applies to the sale of real estate within 10 years. GmbHs can claim depreciation on their properties to reduce the tax burden.

Losses from real estate investments can also be offset against profits in later years to reduce the tax burden.

GmbH formation for real estate

Forming a limited liability company for real estate can be a smart decision, especially when you consider the benefits of limited liability and tax options.

GmbHs protect you in comparison to private letting through limited liability. As a limited company, taxes are also significantly lower than for private rentals. There are many advantages to setting up such a legal company. Just like the real estate holding company.

Immobilien GmbH: Asset-managing GmbH

Immobilien GmbH is not an official legal form in Germany, but it is the name given to GmbHs that focus on buying, renting and selling real estate. In principle 1:1 to the GmbH. Read more here:

• Real Estate Ltd.

Family foundation in comparison

Taxes in Germany and tax optimization are what many people do with their own family foundation. Setting up a foundation, or more specifically a family foundation, has many advantages, from tax-free capital gains after speculation tax to a low 15% tax rate on rental income. More about the model:

• Establish a family foundation