GmbH: tax-optimised capital measures from 2024
On 15 December 2023, the National Council passed the Flexible Capital Companies Act (FlexKapGG) and at the same time the Company Law Amendment Act 2023 (GesRÄG 2023), which reduces the minimum share capital for limited liability companies to EUR 10,000 with effect from 1 January 2024. This allows attractive effects to be achieved for shareholders of already established companies through tax-optimised capital measures.
With the legislative package already announced in the government programme for the years 2020 to 2024, which, according to the explanations, is intended to enable innovative start-ups in particular to enter the business world with limited liability of EUR 10,000 and offer an internationally competitive option in the early stages, the door to lucrative capital measures including tax-advantageous effects is also being opened en passant for all existing GmbHs – including small GmbHs. A welcome side effect for shareholders of this legislative package, which was probably intended differently.
Reduction of minimum capital to EUR 10,000 from 1 January 2024
From 1 January 2024, the statutory minimum capital of a GmbH will be reduced from EUR 35,000 to EUR 10,000, which will also reduce the annual minimum corporation tax for GmbHs to EUR 500. However, all GmbHs with a fully paid-up share capital of EUR 35,000 will also have the option of effectively reducing their capital by EUR 25,000 and thus repaying nominal capital to the shareholders.
It may come as no surprise that this is also associated with tax effects. However, the fact that these can also prove to be very advantageous in strategic tax planning – especially from the shareholders’ perspective – remains hidden at first.
Tax-neutral capital reduction
If the share capital of a GmbH is reduced by EUR 25,000 from EUR 35,000 to EUR 10,000, the repayment from this capital reduction of EUR 25,000 remains completely tax-free, provided that the acquisition costs of the GmbH shares of the shareholders also amount to EUR 35,000. This regularly applies to the founding shareholders of a GmbH founded in cash with full payment of the capital contribution.
The tax advantage for natural persons as shareholders compared to a regular profit distribution of EUR 25,000 thus amounts to EUR 6,875, i.e. 27.5 % and corresponds to the tax rate of the capital gains tax (KESt) generally applicable to profit distributions. It is therefore worth considering substituting profit distributions already planned for 2024 with an ordinary capital reduction.
Capital increase from company funds
Practice shows that the amount of a GmbH’s share capital – i.e. its liable capital – is not insignificant in business life. Adequate nominal capital promotes confidence, as the shareholders signal their willingness to bear entrepreneurial risk to third parties and even quantify this in a recognisable manner. Adequate nominal capital also promotes the preservation of capital, which is necessary from a business perspective, by effectively blocking distributions. Finally, it can be assumed that a higher nominal capital (as tied-up equity) can also have a stabilising and insolvency-preventing effect from a macroeconomic perspective.
It should be noted that the minimum share capital of EUR 10,000 already mentioned in 2019 in the government programme for the years 2020 to 2024 and now provided for by law in this amount amounts to only around EUR 8,200 in real terms as at 1 January 2024 – thus in view of the not inconsiderable inflation in the meantime – and will probably decrease even further in the coming years in terms of purchasing power.
For all these reasons, after an effective capital reduction, it would be worth considering restoring the share capital to the original or an appropriate amount by means of a nominal capital increase. This presupposes free reserves or retained earnings in the required amount.
Just as the double measure of a nominal capital reduction with a simultaneous ordinary (effective) capital increase has liquidity-strengthening effects in favour of the company (“capital reduction”) in the area of corporate restructuring, these effects can also be realised in favour of the shareholders, now also of a small GmbH, via a modified bundle of measures from 1 January 2024. Tax regulations that have already been established require long-term tax optimisation. This is because a capital increase from company funds can be followed by a later, (further) effective capital reduction (with repayment to the shareholders), which can in turn be carried out tax-free to a certain extent after 10 years.
It could therefore prove to be advantageous from a tax perspective to include the balance sheet profits intended for later “distribution” in strategic tax planning.
Considerable tax savings through capital measures
If, from 1 January 2024, the fully paid-up capital of a GmbH is reduced from EUR 35,000 by EUR 25,000 to EUR 10,000 (effective) with repayment to the shareholders and then increased by EUR 25,000 to EUR 35,000 again from company funds (by converting open reserves or a balance sheet profit) by means of a capital adjustment, a repayment from a further (effective) capital reduction of EUR 25,000 resolved after 10 years will result in a tax burden of only 19.6 %. Compared to the 27.5 % withholding tax generally applicable to profit distributions, this results in a tax advantage of a considerable 7.9 percentage points.
The total tax burden from the two effective capital reductions totalling EUR 50,000 therefore amounts to no more than EUR 4,911, or just 9.8 %, leaving the shareholders of this GmbH with a total of EUR 45,089 for private disposition. Compared to a profit distribution, the tax savings amount to a total of EUR 8,839.1
This favourable tax effect increases with the amount of the capital measures described (degressive) and can be extended by retaining profits (accumulation) and tying them up in the GmbH’s share capital in the medium term.
The reduction in the statutory minimum capital of the GmbH as of 1 January 2024 opens the door to advantageous capital measures for already established companies, including small ones, as well as creating a thoroughly attractive building block for the (strategic) tax planning of these corporations.
The experts at WZP will be happy to support you in this regard.