Holding Structure

A holding structure bundles corporate shareholdings within a superordinate company. Ahead of a planned company sale it is frequently established to make use of tax or liability-related effects.

The most important tax lever is Section 8b(2) of the German Corporate Income Tax Act (KStG): gains realised by a corporation (typically a GmbH or UG) on the disposal of shares in other corporations are, in effect, around 95% exempt from corporate income tax and trade tax (5% is treated as non-deductible business expenses). The sale proceeds thus largely remain within the holding company and are available for reinvestment; tax only arises on later distributions to the shareholders.

Where an operating company is contributed into a holding company, the lock-up periods under Section 22 of the German Reorganisation Tax Act (UmwStG) (regularly seven years) must be observed — a change of structure carried out too shortly before the sale can retroactively jeopardise the tax benefit. The specific arrangements and timing should be examined in each individual case with tax and legal advisers.