Selling your German business: tax implications

Selling your business is likely one of the most significant financial decisions of your life. And one of the most underestimated questions is: how much do you actually get to keep after taxes?

The answer depends on several factors: What is your company’s legal structure? Do you hold the shares privately or through a holding company? Is the transaction structured as a share deal or an asset deal? Depending on the setup, the tax burden can range from as little as 1.5% to over 45% of your sale proceeds. On a business valued at €500,000, that difference can amount to several hundred thousand euros.

In this article, we explain the key tax levers – clearly and practically, without the jargon.

Share Deal vs. Asset Deal: Two Ways to Sell a Business

There are fundamentally two ways to transfer a business:

Share Deal: The buyer acquires the company’s shares. The business continues as a legal entity – with all its contracts, assets, and liabilities. For the seller, this is often the more tax-efficient option.

Asset Deal: The buyer acquires individual assets (machinery, customer lists, brand rights, etc.). The company as a legal entity remains with the seller. The buyer benefits from depreciation opportunities on the acquired assets – but the seller typically pays more tax.

The choice between a share deal and an asset deal therefore has a direct and substantial impact on your net sale proceeds. In practice, this conflict of interest between buyer and seller regularly becomes a key point in price negotiations.

Legal Structure Matters: Corporations vs. Partnerships

The tax treatment of your business sale depends heavily on the company’s legal form.

Corporations (GmbH, AG, UG)

For corporations, the choice between share deal and asset deal makes an enormous difference in tax terms:

Share deal as a private individual: The so-called partial income method (Teileinkünfteverfahren) applies: 60% of the capital gain is taxed at your personal income tax rate. At a top marginal rate of 42%, the effective tax burden is roughly 25–28%.

Share deal via a holding company: Thanks to the holding privilege (§8b KStG), 95% of the gain is tax-exempt. Only 5% is taxed as non-deductible business expenses. Effective tax rate: approximately 1.5%.

Important to understand: The 1.5% tax rate sounds attractive – but the sale proceeds initially remain inside the holding company. The money is not automatically available to you personally. However, within the holding it can be put to excellent use: you can invest in a new business, acquire stakes in other companies, or build wealth. Only when you pay yourself the profit as salary or dividends does the corresponding personal tax apply (income tax on salary, or 25% withholding tax on dividends). A holding is therefore not a tax-avoidance trick, but a tax-deferral instrument with a reinvestment advantage – and that is where its true value lies.

Asset deal: Here the GmbH pays tax on the gain at the corporate level at roughly 30% (corporate income tax + trade tax). If the remaining profit is then distributed to the shareholder, the total tax burden can rise to as much as 47%.

Comparison: Tax on €500,000 Gain (Corporation)

Scenario

Effective Tax

Net on €500k Gain

A. Share Deal – Private Individual

approx. 25–28%

approx. €360,000–375,000

B. Share Deal – Holding*

approx. 1.5%

approx. €492,500

C. Asset Deal – GmbH + Distribution

up to 47%

approx. €265,000

The difference between the best and worst scenario in this example is over €225,000.

* Remains in the holding company. When paid out to the shareholder, additional withholding tax (dividends) or income tax (salary) applies.

Partnerships (GbR, OHG, KG, Sole Proprietorships)

For partnerships, the situation is more straightforward: there is no tax difference between a share deal and an asset deal. The reason is that purchasing a stake in a partnership is treated for tax purposes as purchasing individual assets.

The capital gain is subject to your personal income tax rate. However, there are two important concessions:

Tax-free allowance: Under §16(4) EStG, up to €45,000 can be exempt from tax (this allowance is phased out from €136,000 gain onwards).

Reduced tax rate: If you are at least 55 years old or permanently unable to work, you may qualify for the reduced tax rate under §34 EStG. This can lower your tax burden to approximately 56% of the standard rate – a once-in-a-lifetime opportunity that can only be used once.

In addition, the sale of a sole proprietorship or partnership interest is exempt from trade tax – unlike a corporation’s asset deal.

The Holding Structure: Why Early Planning Is Critical

The numbers speak for themselves: if you hold your GmbH shares through a holding company and sell via a share deal, you pay only around 1.5% tax on the gain. This is the most tax-efficient route available.

But: a holding structure cannot be set up at short notice before a sale. When an existing GmbH is restructured into a holding arrangement, a seven-year lock-in period applies. If you sell within this period, the restructuring is retroactively taxed in full (though the taxable amount is reduced by one seventh for each full year that has passed).

Practical tip: If selling your business is even a remote possibility, the holding structure should be established as early as possible – ideally at least seven years before a planned exit.

What This Means for You as a Business Owner

Tax planning for a business sale is not something to address at the last minute. The key takeaways:

Your legal structure determines your options. GmbH owners have significantly more room to manoeuvre than sole proprietors or partners in a partnership.

Holding beats private ownership. The difference between 1.5% and 28% tax is enormous – but only achievable with early preparation.

Share deal is usually better for sellers. For corporations, a share deal is almost always more tax-efficient. For partnerships, it makes no difference.

Use tax allowances and concessions. Business owners over 55 in particular should be aware of the once-in-a-lifetime reduced rate under §34 EStG.

Involve a tax adviser early. Studies show that two thirds of business owners reported that inadequate tax planning reduced the value of their sale.

Conclusion

For most owners, selling a business is a once-in-a-lifetime event – which makes proper preparation all the more important. The tax structure can make the difference between a good result and an outstanding one. Take the time to understand your options, and seek expert advice early.

Disclaimer: This article is for general information purposes only and does not constitute individual tax advice. The tax treatment depends on your personal circumstances. Please consult a qualified tax adviser for your specific situation.

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