Why should I con­sid­er set­ting up a hold­ing company?

A hold­ing com­pa­ny offers a range of strate­gic and tax benefits:

• Cen­tral­ized con­trol of subsidiaries
• Tax-effi­cient prof­it dis­tri­b­u­tion (div­i­dends most­ly tax-free)
• Sim­pli­fied suc­ces­sion planning
• Greater flex­i­bil­i­ty for reor­ga­ni­za­tions or future exits
• Sep­a­ra­tion of own­er­ship and oper­a­tional risk

It’s par­tic­u­lar­ly use­ful for entre­pre­neurs who already own one or more GmbHs and want to restruc­ture own­er­ship with­out trig­ger­ing tax­es.

How does Set Up a Hold­ing Com­pa­ny Tax-Free via Share-for-Share Exchange under § 21 Umw­StG work?

A share-for-share exchange allows you to con­tribute shares in an exist­ing cor­po­ra­tion (like an oper­at­ing GmbH) to a new­ly found­ed hold­ing GmbH, and in return, you receive new shares in the holding.

Under the con­di­tions of § 21 Umw­StG, this can be done tax-neu­tral­ly at book val­ue, mean­ing no hid­den reserves are taxed immediately.

What are the require­ments for tax neu­tral­i­ty under § 21 UmwStG?

To qual­i­fy for tax-neu­tral treatment:

1. The hold­ing GmbH must acquire more than 50% of vot­ing rights in the tar­get company.
2. The con­trib­u­tor receives only shares – no cash, loans, or oth­er assets.
3. Ger­many retains tax­a­tion rights over the con­tributed shares.
4. A book val­ue elec­tion is made – explic­it­ly or via the tax bal­ance sheet.

If these are met, the con­tri­bu­tion is treat­ed as if it occurred at book val­ue (Buch­w­ert­fort­führung), avoid­ing imme­di­ate taxation.

Is this use­ful even if I already own 100% of my company?

Yes – that’s actu­al­ly the most com­mon case!

Exam­ple:

You own 100% of „Con­sult­ing GmbH“. You form „Hold­ing GmbH“ and con­tribute your shares in Con­sult­ing GmbH into the new hold­ing. You now own all shares of Hold­ing GmbH, and Hold­ing owns Con­sult­ing GmbH.
Result: same con­trol – but more struc­ture, more options, and tax advantages.

What are the spe­cif­ic tax ben­e­fits of this structure?

• Div­i­dends paid from the oper­at­ing GmbH to the hold­ing GmbH are 95% tax-exempt.
• The hold­ing can sell or restruc­ture sub­sidiaries with bet­ter tax planning.
• Future suc­ces­sion becomes eas­i­er – you can gift or trans­fer the hold­ing shares instead of direct oper­at­ing shares.
• Oper­a­tional risk is sep­a­rat­ed from strate­gic asset control.

When does § 21 Umw­StG make the most sense??

Use Case	Why it works well

You want to pre­pare for suc­ces­sion

Hold­ing shares are eas­i­er to pass on

You’re plan­ning a future exit

Eas­i­er struc­tur­ing, less tax burden

You want to rein­vest profits

95% of div­i­dends are tax-exempt

You man­age mul­ti­ple GmbHs

Group struc­ture = more flexibility

What risks or mis­takes should I watch out for?

Here are the most com­mon pitfalls:

❌ Receiv­ing cash or loans along with the shares → destroys tax neutrality

❌ For­get­ting to for­mal­ly request book val­ue treatment

❌ Not acquir­ing major­i­ty vot­ing rights in the process

❌ Sell­ing the new­ly acquired hold­ing shares with­in 7 years → trig­gers par­tial tax­a­tion (so-called Ein­bringungs­gewinn I, see § 22 Umw­StG)

How does the 7‑years-rule work: please see our blog “Why would a sole pro­pri­etor con­sid­er trans­fer­ring their busi­ness to a GmbH?” for examples.

Tip: Work close­ly with a tax advi­sor and notary, and doc­u­ment all steps carefully.

How to con­tin­ue / con­tact to us

We as eng­lish speak­ing tax advi­sors who can advise you how to set up a hold­ing com­pa­ny tax-free via share-for-share exchange under § 21 Umw­StG in Ger­many and com­mu­ni­cate with the finan­cial author­i­ty on your behalf.

You can con­tact us by using one of these phone num­bers or the mail address.