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What exactly is a vGA?
Under Federal Fiscal Court case law, a vGA is a reduction of assets, or a prevented increase in assets, at the corporation that is caused by the shareholder relationship, affects income and is not based on a formal profit distribution resolution (§ 8 (3) sentence 2 KStG). The central yardstick is the arm's-length test: would a prudent managing director have entered into the same arrangement with an unrelated third party? If not, the excess portion is a vGA – regardless of what the parties called the transaction.
The classic cases
- Excessive managing director pay: total package (salary, bonus, pension, car) above what external directors of comparable companies receive.
- Private expenses through the GmbH: family holiday booked as a "business trip", the spouse's private car, renovating the private home on the company's account.
- Non-standard leases: the GmbH rents premises from the shareholder above market price – or lets to them well below it.
- Interest-free or unsecured loans to the shareholder without arm's-length terms.
- Bonuses exceeding 50 % of annual profit, or revenue-based bonuses without special justification.
- Paper-only contracts: agreed services that are never actually performed or invoiced.
Legal consequences: expensive twice over
The vGA operates on two levels. At GmbH level, income is increased off-balance-sheet by the vGA amount – triggering roughly 30 % corporate and trade tax retroactively. At shareholder level, the benefit is requalified as investment income: 25 % withholding tax plus surcharge, or the partial-income method if the shares are held as business assets. If the amount was previously taxed as salary, it is offset – but late-payment interest, the unwinding of several years and, in extreme cases, suspected tax evasion remain. A vGA spanning three audit years can quickly add up to six-figure total damage.
How to avoid a vGA
- Put every transaction between GmbH and shareholder in writing and in advance: employment contract, lease, loan agreement – with clear terms.
- Document the arm's-length comparison: salary studies, rent indices, market interest rates on file as evidence.
- Actually live the contracts: timely payment, correct booking, no informal deviations.
- Review the managing director's total package regularly – especially after profit jumps, and for bonuses and pension commitments.
- Involve your tax advisor before unusual transactions (selling assets to the shareholder, granting rights of use) – before, not after.
vGA prevention
Audit-proof before the auditor arrives.
We review the contracts between your GmbH and its shareholders for vGA risks – director pay, rent, loans, pension commitments – and document the arm's-length comparison so it withstands a tax audit.
Frequent questions
What clients ask about this most often
- The vGA itself is not a criminal offence but a tax correction. However, if it was deliberately concealed – for example private costs systematically disguised as business expenses – an allegation of tax evasion may arise. Most vGA cases, though, are technical errors without criminal consequences.
- The yardstick is the external arm's-length comparison: salary surveys (e.g. BBE studies) by industry, revenue and headcount. The tax authorities regularly accept a range; it gets critical at the upper end, with bonuses above 50 % of profit, and when several shareholder-directors each draw a full salary.
- No. Once the conditions are met, neither repayment nor a subsequent agreement helps – for tax purposes, the repayment is treated as a capital contribution and does not eliminate the vGA. That is precisely why prevention through clean contracts is the only reliable protection.
Your next step
How does Hidden profit distribution (vGA) impact your business specifically?
Theory is one side – your concrete numbers are the other. In a 30-minute introductory call we will show you which lever fits your situation. Free, written offer included.
030 555 721 370