Everything About Capital Gains Tax at a GmbH

Capital gains tax (Kapitalertragsteuer) is a tax levied by the tax office on capital income of all kinds. This includes profit distributions that a GmbH pays to its shareholders. At the same time, many GmbHs themselves receive capital income — for example from interests in other companies. As managing director of a GmbH, you therefore come into contact with capital gains tax in various ways.

As a general observation: the rules governing distributions to your shareholders are comparatively straightforward. Where a GmbH receives capital income, the various scenarios are more complex. The following sections explain the basic principles of capital gains tax law. Practice shows, however, that you are best advised to leave the specific tasks to a competent tax advisory firm!

The term Kapitalertragsteuer (capital gains tax) might suggest that it is an entirely separate type of tax. This is a misconception. Capital gains tax is a particular method of collecting income tax or corporation tax. However, there are some special features: there is, for example, the variant of the Abgeltungsteuer (withholding tax), under which tax offices levy the tax at a flat rate at source. This is a significant difference from the ordinary collection of income tax, where individual tax rates apply.

The Abgeltungsteuer represents a simplified form of tax collection. Those who distribute capital income withhold the capital gains tax and remit it to the tax office. This procedure also applies to GmbH distributions to shareholders. The flat-rate tax comprises the following components:

- Capital gains tax: 25%

- Solidarity surcharge: 5.5% on capital gains tax

- Church tax where applicable: 8 or 9% on capital gains tax

When a GmbH distributes profits, shareholders must pay capital gains tax on them. In each individual case, it depends on which form of taxation the shareholders choose. There are two options:

- Abgeltungsteuer (withholding tax)

- Partial income method (Teileinkünfteverfahren)

You should note that the partial income method (Teileinkünfteverfahren) is subject to certain conditions. Ask your tax advisory firm whether you may apply this method if a shareholder submits the relevant application.

Under the Abgeltungsteuer option, the GmbH is required to withhold the relevant tax amount and remit it to the competent tax office by the 10th of the following month at the latest. The only exception is where a tax exemption order (Freistellungsauftrag) issued by the shareholder is on file.

At the same time, the GmbH issues individual tax certificates to its shareholders. These set out the capital gains tax withheld, the solidarity surcharge, and church tax where applicable. Using this certificate, shareholders may if necessary apply for a subsequent individual assessment of the distributions.

Under certain conditions, shareholders may opt for the partial income method (Teileinkünfteverfahren) as an alternative to the Abgeltungsteuer. This method is available if either of the following conditions applies:

- A person active in the company holds at least 1% of the GmbH's registered share capital.

- A shareholder not working in the GmbH holds at least 25% of the registered share capital.

If shareholders exercise the resulting option, the GmbH distributes the profit share without deducting tax. Taxation takes place as part of the income tax calculation. 60% is subject to the shareholder's individual tax rate; 40% remains tax-free.

As someone responsible within a GmbH, you also encounter capital gains tax from a different perspective: your GmbH receives various forms of capital income that you may need to pay tax on.

Examples are:

- Distributions from GmbH shareholdings

- Dividends from equity investments

- Interest income

Important: the legislator treats various types of capital income differently. Complex rules exist, and there are numerous exceptions even for the same type of capital income. If you want to comply precisely with tax law whilst also making full use of all advantageous options, engage an experienced tax firm!

Many GmbHs, as legal entities, hold interests in other corporations, which are frequently also organised as GmbHs. In many cases, companies can receive the resulting distributions largely free of tax. This applies where the GmbH holds at least 10% of the registered share capital. The distribution is in principle tax-free, but the receiving GmbH must record 5% of the gross distribution as a non-deductible business expense. Where the holding is smaller, this advantage does not apply.

In both cases, a tax deduction still takes place — the distributing GmbH withholds capital gains tax and the solidarity surcharge. The tax office then offsets these amounts against the corporation tax to be assessed. The tax amount payable is reduced, or GmbHs receive a refund.

In addition, capital gains tax law contains many further rules for various types of capital income. For most interest income, banks and similar institutions apply a standard tax deduction, whereas discounted products are treated differently — these fall under the exemption rules for business investors. Income from property, by contrast, constitutes ordinary business income and is subject to corporation tax and trade tax in the same way as other business income.

If you wish to understand the specific tax implications, you must look beyond just the capital gains tax and the flat-rate deduction at source. In many cases, taxation takes place through the profit and loss account. Seek advice from competent tax advisers!

How high is the capital gains tax at a GmbH?

For GmbH distributions, capital gains tax amounts to 25%, with the solidarity surcharge and church tax added on top. Shareholders do, however, have the option of having their dividend taxed at their personal income tax rate. Alternatively, they may choose the partial income method (Teileinkünfteverfahren) if they meet the relevant conditions. For capital income received by the GmbH itself, the applicable rules depend on the type of income.

How is interest income in a GmbH taxed?

Interest income constitutes business income and is taken into account in the profit and loss account. The corporation tax and trade tax rates apply if your GmbH records an overall profit. Note that your bank will nevertheless withhold tax. The tax office subsequently offsets the tax withheld against your corporation tax.

How are GmbH profits taxed?

GmbHs remit corporation tax and trade tax to the tax office. If they distribute all or part of their profit, the shareholders become liable to tax. In many cases, the distributing GmbH directly remits Abgeltungsteuer to the tax office. Alternatively, shareholders may opt for the partial income method (Teileinkünfteverfahren). Here, the tax authority applies the individual income tax rate to 60% of the distribution; 40% remains tax-free.

Can a GmbH submit a Freistellungsauftrag (exemption order)?

The saver's allowance (Sparer-Pauschbetrag) is available only to natural persons — the GmbH takes exemption orders into account when making distributions. Where the GmbH itself records capital income, however, it cannot submit a Freistellungsauftrag. In that case, the relevant tax rules applicable to each type of income apply.