Establishing a holding company in Germany – Everything you need to know
What exactly is a holding company?
A holding company is essentially a limited liability company (GmbH) or a simplified limited liability company (UG) that does not sell its own products or provide its own services. Instead, it holds shares in other companies. It acts as the parent company within a group of companies, providing strategic coordination, pooling profits and – crucially – operating under favourable tax conditions. In Germany, there is a clear legal framework for this. Dividends received by a corporation from another corporation are 95% tax-free. This is not a trick, nor is it a tax loophole – it is a deliberate provision of German tax law that is available to entrepreneurs. Buying a holding company as a shelf company
Reasons for setting up a holding company:
There are many reasons why establishing a holding company makes sense. Most entrepreneurs initially think only of tax optimisation. However, a holding company can be much more than that:
- Tax optimisation: Profits from investments flow into the holding company virtually tax-free
- Limitation of liability: Every operating limited company is a separate legal entity
- Wealth creation: Capital from the company flows into the holding company and is reinvested:
- Succession planning: Shares can be transferred in a structured manner
- Exit optimisation: When the business is sold, the holding company pays instead of you personally
What is the most suitable legal form for a holding company?
In practice, most start-up founders and entrepreneurs in Germany use either a GmbH or a UG as a holding company. Both have their merits: The GmbH holding company requires a minimum capital of 25,000 EUR (12,500 EUR paid up is sufficient at incorporation) and enjoys greater prestige. The UG holding company can be incorporated for as little as 1 EUR, is just as tax-efficient and is particularly suitable for founders who wish to hold their shares without tying up a significant amount of capital.
What matters is not the legal form, but the structure behind it.
Step by step: How to set up your holding company
Step 1: Define the objective and structure
Before you go to a German notary, clarify the following: Why do you need a holding company? Is it intended to hold shares in an existing company, take on future start-ups, or consolidate property assets? Draw up your structure as an organisational chart – who holds what, and which company fulfills which function.
Step 2: Choose a name and business purpose
The corporate purpose of a holding company often sounds straightforward: ‘management of its own assets’ or ‘acquisition and holding of shareholdings in its own name and on its own behalf’. And that is as it should be. A corporate purpose that is too narrowly defined can cause problems later on, for example, if you wish to broaden the scope of the holding company’s investment activities.
Step 3: Appointment with the notary – single or double
The traditional approach would be to go to a notary public in Germany, have the holding company established, wait until it is registered in the Commercial Register, and then go back to the notary again to set up one or more subsidiaries. With the help of GmbH-UG.com, you can purchase ready-made, pre-registered holding companies, which are offered as shelf companies are offered and already consist of a parent company and a subsidiary. This saves you the need for a second notarisation.
Step 4: Pay up the share capital and register the company in the commercial register
After the appointment with the notary, you must pay the share capital into the business account, unless you have purchased a shelf company. The notary will then register the new company with the local court. Registration usually takes between 2 and 6 weeks, depending on the federal state and the court’s workload.
Step 5: Tax number and Business Registration Office
A pure holding company that merely holds shareholdings does not usually need to register as a business. This saves on business taxes. You will receive your tax number automatically once you have registered with the tax office. To do this, you simply need to complete the tax registration questionnaire via ELSTER as normal.
When you receive your tax number, check whether the tax office may have inadvertently registered your holding company as subject to VAT. This happens quite frequently in practice. If this is the case, you should contact your case officer at the tax office. Otherwise, the authorities would expect you to submit regular VAT returns.
How much does a holding company cost in Germany?
The start-up costs for a GmbH holding company typically range from 1,500 to 3,000 EUR (notary, local court, and a tax adviser if required). The running costs of a pure, non-operational holding company can be kept to under 500 EUR per year – if you know how.
That sounds surprisingly low. But it isn’t. A holding company with no business activities of its own has minimal accounting requirements, is not liable for business rates, and incurs only minimal statutory costs (Chamber of Commerce membership fees, bank charges, annual accounts).
Frequently Asked Questions
A holding company is a company structure and not a legal form. It will usually formed as a limited liability company (GmbH) or a simplified limited liability company (UG) that does not itself sell products or provide services, but instead holds shares in other companies or properties. It acts as the parent company within a group of companies and derives profits from its shareholdings. Under German tax law, 95% of the dividends that a corporation receives from another corporation are tax-exempt (if certain conditions are met).
Both legal forms are equally effective from a tax perspective for a holding company. A GmbH holding company requires a minimum share capital of 25,000 EUR, of which at least 12,500 EUR must be paid up at the time of incorporation, and is regarded as more prestigious. A UG holding company can be incorporated with as little as 1 EUR and is particularly suitable for founders who wish to hold shares without tying up a significant amount of capital. Ultimately, it is not the legal form that matters, but the structure behind it.
The incorporation process comprises five steps: first, the company’s objectives and structure are set out in an organisational chart; next, the name and corporate purpose are determined. This is followed by an appointment with a notary public in Germany to have the documents notarised, then the payment of the share capital and registration with the Commercial Register, which takes between two and six weeks. Finally, a tax registration number must be applied for at the tax office. A business registration is not usually required for a pure holding company.
The one-off costs of setting up a GmbH holding company typically range from 1,500 EUR to 3,000 EUR, including fees for the notary, the Commercial Register and, where applicable, a tax advisor. The annual running costs of a non-operating holding company can be kept to under 500 EUR, as the accounting workload is minimal. Mandatory costs are limited to the Chamber of Industry and Commerce (IHK) contribution, bank charges and the annual accounts.