The rich protect their assets.

But how actually?

And when is one so "rich" that one should "protect" one's assets - and from whom?

This question has been on my mind for the last few days. So I thought I'd let you in on my research (which doesn't have to be completely error-free) and link the post with the question: does anyone here know this well/very well - i.e. beyond the "dangerous half-knowledge"? Then I would be glad and grateful if possible misrepresentations are quickly commented...

First: How did I get the idea to deal with the topic?

Together with my brother, I took a closer look at a multi-family house and did the math - as an investment property to rent out.

The question quickly arose as to how a sensible division and organization could take place, so that in the event of a dispute "the circumstances" would be clear. We came up with the idea that a GbR or GmbH could be a possibility.

Why? Because then the GmbH owns the real estate; a [legal] person in the land register and we as two partners can divide the company parts well among themselves, without declaration of partition of the real estate, without various personal entries in the land register etc..

In addition, as the name suggests, a GmbH enjoys limitations of liability.

In the end, nothing came of the property, but the thought continued to occupy me - how can assets be well managed, divided, partially sold or inherited. How do "the rich" do it?

"The rich" protect their assets, for example, through companies.

While I, as a normal person who goes to work and pays taxes, am at worst taxed at a top rate of 42%, companies are generally taxed at a much lower rate.

The "company network" - holding company and GmbH

First a very rough summary, more of it in detail later:

We establish a holding company (i.e. a company whose function is simply to hold shares in other companies).

We also establish an asset management GmbH that is not commercially active and therefore only pays 15% corporate income tax - the other 15% trade tax does not apply, as there is no trade activity.

The GmbH now buys a property and rents it out. After deducting all costs such as interest and maintenance expenses, a profit remains. In the case of a private individual, this profit would be taxed at the personal tax rate of up to 42%.

In an asset-managing GmbH, however, only 15% corporate income tax is due.

Due to the lower tax burden of the GmbH, it is therefore possible to build up new cash assets more quickly and thus to buy new real estate, shares or company shares more quickly.

The example already shows that a positive effect arises especially with a long holding period of the asset and reinvestment of the income.

Now we have the "problem" that also the GmbH has certain liability risks. These cannot be completely eliminated. But: As a shareholder of a GmbH I can distribute profits to myself (as a private person). However, these are subject to capital gains tax of 25%. So it makes relatively little sense to first pay 15% corporate income tax and then pay 25% for capital gains!

Yes and no: because - for regular payouts to the private person the "braiding" is not intended.

Now our holding company comes into play.

Instead of a private partner, we now set up the holding company as a partner (shareholder) of the GmbH. So it is a company that owns a company.

If the holding company holds at least 15% of the shares in the GmbH, 95% of profit distributions from the GmbH to the holding company are not taxed. Only 5 % is subject to corporate income tax and trade tax - effectively, therefore, a total tax burden of 1.5 % arises on the transfer to the holding company.

But why transfer the GmbH to the holding company?

First of all, to eliminate the last liability risks. Has a GmbH distributed profits (let's say for 20 years, distributions every year) and then something goes "wrong", the GmbH gets into difficulties and has to file for insolvency? Then the accumulated assets are no longer part of the GmbH's assets, but have been "made safe" for a mere 1.5% tax. And this already years before. If the GmbH itself had the money "on the high side", it would immediately be part of the insolvency estate.

Other GmbHs with participation by the holding company

Of course, the whole thing can be further expanded by additional companies - e.g. a GmbH that is responsible for "brokering" the real estate (i.e. is commercially active), a GmbH that handles particularly risky parts such as the construction or renovation of a property, etc.

Now the whole thing was very real estate-heavy. What about shares?

Here we can say in general: in most cases the investment in shares by a holding company (formally: acquisition of company shares by the holding company) is only worthwhile for growth stocks, since only the capital gains are tax-free.

Since, as described above, the tax benefit for dividends also depends on the holding company holding at least 15% of the company, it is rather unlikely for us normal people to hold 15% of a listed company. If that were the case, dividends would also have these tax advantages. However, if we hold less than 15% of the company, we would be subject to 15% trade tax and 15% corporate income tax, which would be more than the capital gains tax.

@DonkeyInvestor This is how you get your money now,

After you value your car as a company car, of course :).

The keyword is "Teileinkünfteverfahren" that would be a whole new, complete topic post. But in essence it means that under certain circumstances you only have to pay tax on 60% of the investment income from the holding company if you take it privately. Maybe there will be a post on this sometime :). Otherwise, the subsidiary of our permanent survey winner can certainly provide information

You see, the topic is complex. Perhaps there is a tax consultant with expertise in corporate tax law among us who can correct possible errors in the presentation.

In all examples, I have now left out Soli/church tax - just for information :)

In the net you can find different information, from when such a network can be worthwhile (or first only a VV GmbH) - about 100,000 net assets that generates income is probably considered the lowest limit. So not sooooo much - how was it: the first 100.000 are the hardest.

Good night! #learn