Under the draft bill adopted by the German Federal Cabinet on 10 April 2013 amending further tax provisions, the avoidance of inheritance tax through so-called "Cash GmbHs" is to be prevented in the future. Background: As previously reported (10.11.2012: Info; 02.10.2012: Info), the taxation of cash transfers to the next generation differs significantly between business and private assets: Since cash gifts from private assets are generally subject to 100% gift tax, the tax-free transfer of assets via a GmbH consisting exclusively of cash assets is reduced to zero (= "Cash GmbH"). This option is to be eliminated in the future. 16.08.2013: Info
Frequently asked questions
Frequently asked questions
What is a Cash-GmbH in the context of inheritance tax?
A Cash-GmbH is a GmbH whose assets consist exclusively or predominantly of cash holdings or monetary receivables. In the past, it was used to transfer cash assets tax-free to the next generation by leveraging the inheritance and gift tax privileges granted for business assets.
Why was transferring cash assets via a cash GmbH attractive from a tax perspective?
Cash gifts from private assets are generally subject to the full gift tax. However, if the cash was contributed to a GmbH and the GmbH shares were then transferred, the relief provisions for business assets could be applied, effectively allowing the transfer to be made tax-free.
What did the Federal Cabinet plan with the draft bill of 10 April 2013 regarding the cash GmbH?
The draft bill amending further tax provisions, dated 10 April 2013, was intended to prevent the circumvention of inheritance tax through cash GmbHs. The previously possible tax-free transfer of pure cash-asset GmbHs to the next generation was to be eliminated.
What different taxation applies to the transfer of cash held as private versus business assets?
A cash gift from private assets is generally subject to gift tax in full. In business assets, however, the inheritance tax relief provisions could apply, meaning the transfer was largely or even entirely tax-free – this unequal treatment was to be eliminated by the legislative amendment.