Trade Tax Aspects

Trade Tax Aspects in the Sale of a GmbH

Trade tax (Gewerbesteuer) is one of the central taxes a GmbH must pay. It is levied by the municipality where the company is headquartered and is based on the company’s trade income. Especially in the context of a sale of a GmbH, certain trade tax pitfalls can arise that must be considered. Depending on the structure of the sale, the trade tax burden can vary significantly.

Calculation of Trade Tax

Trade tax is levied on the trade income, which is derived from the taxable profit after corporate income tax. This profit is adjusted by various additions and deductions to determine the trade income (§§ 8 and 9 GewStG).

Key additions include:

• Interest expenses on debt (e.g., interest): 25% of the expenses exceeding €200,000 (§ 8 No. 1 GewStG)
• A portion of rental and lease payments for movable assets: 50% of expenses exceeding €200,000 (§ 8 No. 1 GewStG)
• A portion of rental and lease payments for immovable assets: 50% of expenses exceeding €200,000 (§ 8 No. 1 GewStG)

The trade income is reduced, among other things, by 1.2% of the assessed value of real estate owned as business assets (§ 9 No. 1 GewStG).

The resulting trade income is first multiplied by the tax assessment rate (currently 3.5%). The result is the tax assessment amount, which is then multiplied by the respective municipal multiplier. This multiplier varies by municipality but usually ranges between 200% and 500%.

An example:

• Trade income: €1,000,000
• Tax assessment rate: 3.5%
• Tax assessment amount: €35,000
• Municipal multiplier: 400%
• Trade tax: €140,000

The trade tax itself is deductible as a business expense to the extent it relates to the profit subject to corporate income tax (§ 4 para. 5b EStG).

Trade Tax in an Asset Deal

In an asset deal, the buyer does not acquire the company’s shares but individual assets (e.g., machinery, patents, customer base) of the company. The GmbH thus sells parts of its fixed and current assets, which can lead to a capital gain.

This capital gain is initially subject to corporate income tax and the solidarity surcharge and then included in the trade tax calculation. For example, if the GmbH sells a machine for €500,000 that it originally acquired for €200,000, a capital gain of €300,000 arises. This gain is taxed at approximately 30% (corporate income tax plus solidarity surcharge), and the remaining amount of €210,000 increases the trade income.

Important: For trade tax purposes, it does not matter whether the sold assets contain hidden reserves that are uncovered by the sale. What matters is solely that the sale results in a profit that increases the trade income.

Trade Tax in a Share Deal

The situation is different when shares in the GmbH are sold instead of individual assets (share deal). In this case, the GmbH itself does not realize a capital gain, so there are no direct effects on the trade income.

However, a share deal can indirectly affect trade tax if the company’s financing structure changes as a result of the sale. For example, if the shares of a shareholder who had granted a loan to the GmbH are sold and the new shareholder demands repayment of this loan, this can lead to an increase in interest expenses and thus to higher trade tax additions (see above).

Also, the so-called trade tax deduction for real estate (§ 9 No. 1 GewStG) can play a role in a share deal. If the GmbH holds real estate, it can deduct the assessed value of the real estate proportionally from the trade income, thereby reducing the trade tax. If the real estate is sold (or transferred to another company), this deduction no longer applies, increasing the trade tax burden.

Structuring Options to Reduce Trade Tax

There are various ways to optimize the trade tax burden when selling a GmbH. Some of these include:

1. Utilization of Loss Carryforwards: If the GmbH has tax loss carryforwards, these can be offset against the capital gain. This reduces not only corporate income tax but also trade tax, as trade income is calculated based on the corporate taxable profit.

2. Exploitation of Allowances: The allowance for additions of €200,000 (see above) should be utilized if possible. For example, it may be advisable to pay part of the loan interest or rent before the sale to reduce additions.

3. Timely Adjustment of Financing Structure: As mentioned, changes in the financing structure (e.g., repayment of shareholder loans) can affect trade tax. Early planning and anticipation of potential impacts are essential.

4. Use of Conversions: It may be beneficial to convert the GmbH into another legal form (e.g., a partnership) before the sale. This can reduce trade tax because partnerships are not subject to trade tax. However, other tax consequences (e.g., for shareholders) must also be considered.

5. Holding Structures: In some cases, trade tax can be optimized by interposing a holding company. For example, the holding can sell the shares in the operating GmbH without generating trade income at the GmbH level. However, many details must be considered here to avoid tax pitfalls.

Conclusion

Trade tax is a significant factor in the sale of a GmbH that can substantially influence the overall tax burden. While an asset deal directly increases trade income through the capital gain, a share deal affects trade tax only indirectly through changes in financing structure or the loss of deductions.

Various structuring options exist to optimize trade tax, ranging from the use of loss carryforwards and financing adjustments to conversions and holding structures. Which measures are appropriate depends on the specific circumstances and requires careful planning considering all tax consequences.

In any case, the earlier trade tax aspects are incorporated into the sales considerations, the greater the chances of optimizing the tax burden. Early coordination with experienced tax advisors and auditors is therefore indispensable to maximize the sale proceeds and avoid unpleasant surprises.