Holding Company Germany
Form a German holding company: 95% dividend and capital gains exemption under §8b KStG. GmbH holding, family holding, tax optimization. Free consultation.
In summary: German holding: 95% of dividends and capital gains tax-free (§8b KStG). Effective tax burden only ~1.5% instead of ~30%. Popular legal forms: GmbH or GmbH & Co. KG. Substance requirements apply. Ideal for family businesses, investors, and corporate groups.
What is a Holding Company?
A holding company (also parent company) is a business entity whose primary purpose is holding and managing participations in other companies. It typically does not conduct operational business but controls and steers its subsidiaries.
Tax Benefits of a German Holding
German tax law offers significant benefits for holding companies:
95% Tax Exemption under §8b KStG
| Income Type | Tax Exemption | Effective Tax |
|---|---|---|
| Dividends | 95% tax-free | ~1.5% (instead of ~30%) |
| Capital Gains | 95% tax-free | ~1.5% (instead of ~30%) |
| Write-downs | Not deductible | No loss deduction |
Example calculation: On a dividend of €1,000,000, €950,000 is tax-free. Only €50,000 (5% deemed business expenses) is taxed at ~30% = €15,000 tax burden. Effective tax rate: 1.5%.
Requirements for Tax Exemption
- Participation in a corporation (GmbH, AG, etc.)
- No minimum participation quota (even under 10% possible)
- No minimum holding period (unlike other EU countries)
- The holding must be a corporation (GmbH, AG)
Holding Structures Compared
Operative Holding
The parent company is itself operationally active and additionally holds participations. Suitable for companies with central control.
Management Holding
The holding assumes central management functions (strategy, finance, HR) for subsidiaries. Typical for groups with strong centralization.
Financial Holding
Pure administration of participations without operational influence. Focus on asset management and dividend income.
Family Holding
Consolidation of family assets, succession planning, separation of operational business and family ownership. Ideal for entrepreneurial families.
Legal Form Choice for Holdings
| Legal Form | Advantages | Disadvantages |
|---|---|---|
| GmbH | Limited liability, 95% exemption, flexible articles | ~30% tax on holding's own profits |
| GmbH & Co. KG | Trade tax reduction possible, transparent taxation | More complex structure, higher effort |
| AG | Stock exchange listing possible, freely transferable shares | Supervisory board required, higher costs |
| Foundation | Permanent asset protection, succession solution | No disposition over assets, permanence |
Advantages of a Holding Structure
Tax Advantages
- 95% Dividend Exemption: Nearly tax-free profit distributions
- Capital Gains: 95% tax-free on company sales
- Loss Offsetting: Possible within the holding group
- Fiscal Unity: Tax consolidation between holding and subsidiaries
Liability Protection
- Risk Separation: Operational risks remain in subsidiaries
- Asset Protection: Holding assets separated from operations
- Insolvency Protection: Subsidiary insolvency doesn't affect holding
Strategic Advantages
- Succession Planning: Easy transfer of shares
- M&A Flexibility: Easy buying and selling of companies
- Financing: Central capital raising for the group
- Reporting: Consolidated group reporting
Substance Requirements
To ensure tax recognition, the holding should have sufficient substance:
- Office Space: Own office premises in Germany
- Personnel: At least qualified staff on-site
- Management: Genuine decisions made in Germany
- Communication: Own phone number, email, business address
- Documentation: Demonstrable business activity (minutes, contracts)
Warning: Pure letterbox companies without economic substance are not recognized for tax purposes. Tax authorities scrutinize substance particularly for cross-border structures.
Forming a Holding GmbH
Step 1: Structure Planning
- Analyze existing corporate structure
- Identify tax optimization potential
- Determine legal form and location
- Draft articles of association
Step 2: GmbH Formation
- Notarization of articles
- Pay in share capital (min. €12,500)
- Entry in commercial register
- Trade and tax registration
Step 3: Transfer of Participations
- Contribution of participations to holding
- Potentially tax-neutral restructuring (UmwStG)
- Adjustment of corporate documents
- Land registry and register changes
Costs and Effort
| Item | Cost |
|---|---|
| GmbH Formation | €1,500 - 3,000 |
| Share Capital | Min. €25,000 |
| Tax Advisory Structuring | €3,000 - 15,000 |
| Ongoing Accounting | €200 - 500/month |
| Annual Financial Statements | €1,500 - 5,000/year |
Who Benefits from a Holding?
- Entrepreneurial Families: Succession planning and asset protection
- Investors: Tax-optimized participation management
- Startups: Preparation for exit with reduced taxation
- Real Estate Investors: Share deals instead of asset deals
- International Corporations: German intermediate holding
Frequently Asked Questions
A holding company is a corporation whose primary purpose is holding and managing participations in other companies. It does not conduct operational business activities but serves to consolidate, control, and optimize corporate groups from a tax perspective.
The key benefits are: 95% of dividends are tax-free (§8b KStG), 95% of capital gains are tax-free, only 5% are treated as non-deductible business expenses. This results in an effective tax burden of only ~1.5% on dividends and sale proceeds.
The GmbH is the most common legal form for holdings due to limited liability and tax benefits. The GmbH & Co. KG is also popular as it can offer trade tax advantages. For larger structures, the AG may be considered.
Yes, to avoid abuse allegations, the holding should have its own office space, personnel, telephone, and genuine management in Germany. Pure letterbox companies are not recognized for tax purposes.
In principle yes, but there are limitations: If the holding owns more than 50% of shares in a real estate-holding GmbH, real estate transfer tax may apply on sale (share deal). The tax exemption also only applies to gains from corporate participations.
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