Holding structure – optimizing tax burden

Entrepreneurial thinkers often think in terms of structures. One particularly popular form of organization among entrepreneurs is the holding company structure. It is considered a genuine tax optimization tool. But what is behind it, and why is it worthwhile to set up a holding company? We explain the structure in an easy-to-understand way—and use concrete figures to show how you can save a significant amount of tax compared to direct investment.

Outline

1. What is a holding company?
2. Advantages of a holding company
3. Tax comparison
4. Advantages and other possibilities
5. Outlook: Corporate tax reform – tax relief
6. Our assessment

1. What is a holding company?

A holding company is usually a corporation (e.g., a limited liability company) that holds shares in other companies. The holding company itself is usually not operationally active, but serves the purpose of managing shareholdings, pooling profits, and centrally controlling strategic decisions.

Typically, a simple holding structure looks like this: A parent company (Holding-GmbH) holds 100% of the shares in one or more subsidiaries that are operationally active.

2. Advantages of a holding company

A holding company structure can offer several advantages, which we outline below.

Ongoing taxation: Profits distributed by the operating GmbH to the holding company are 95% tax-free. Only 5% is considered a non-deductible operating expense and is subject to regular taxation. This significantly reduces the tax burden and leaves more capital in the holding company for reinvestment.

Sale of GmbH shares: If the holding company sells shares in a subsidiary, 95% of the capital gains are also tax-free. As with the ongoing taxation of distributions, this also leaves more liquidity for reinvestment directly through the holding company.

Succession and gifts: The holding company facilitates structured succession planning. Shares can be transferred to successors (e.g., children) over a period of years, making optimal use of tax allowances.

3. Tax burden comparison

Below, we illustrate the tax burden of a direct investment by a private individual compared to a holding structure.

The following basic assumptions are made:

• Corporation tax: 15 %
• Solidarity surcharge: 5,5 %
• Trade tax: ca. 15 %
• Capital gains tax: 25 % + solidarity surcharge (church tax is also payable depending on affiliation, omitted in this example)
• Pre-tax profit: 100.000 €

Sample calculation:

• Without holding company:
  • Tax burden in the GmbH approx. 30.825% → net amount remaining: €69,175
     Capital gains tax on distribution: 26.375% → tax: €18,242
     → Payout amount: approx. €50,933
• With holding company:
  • Tax burden on operating GmbH: approx. 30.825% →   Net remaining: €69,175
     Full distribution to holding company: approx.1,54 % Tax → Net remaining: 68.110 €
    Distribution to private individual: 26,375 % → Tax: 17.962 €
     → Payout amount: approx. 50.148 €
• Conclusion on the tax comparison:
  The tax comparison shows that reinvesting via the holding company leaves significantly more assets available. In the previous example, the holding company still has approximately €68,110 available for reinvestment, whereas the private individual with a direct investment would only have approximately €50,933 remaining after distribution. 

4. Advantages and further possibilities
Another key advantage is the separation of risks, as the operating business is separated from asset management in the holding company. Should the subsidiary encounter liability issues or financial difficulties, the holding company's assets are protected.

The holding structure is also an important tool in the context of gift and succession planning. By centrally bundling the shareholdings, shares can be transferred flexibly and gradually – often with a significantly lower tax burden.

The possibility of reinvestment is particularly attractive: if the profit is left in the holding company and not distributed to the shareholders, around 68% of the profit remains available. These funds can be used without further taxation – e.g. for new investments, real estate or business development.

Last but not least, the holding company creates a high degree of flexibility for the efficient management of complex corporate groups or multiple operating units under one roof.
In addition to the advantages mentioned above, it should also be noted that the holding company can also be used to control distributions to shareholders, for example, to optimize distributions in years with a low personal tax rate (retirement) – application of the partial income procedure

5. Outlook: Corporate tax reform – tax relief
A gradual reduction in the corporate income tax rate from 15% to 10% is planned from 2028 onwards. The rate is to be reduced by approximately 1% each year. The aim of this measure is to make Germany more attractive as a business location in terms of taxation – decided on June 26, 2025, as part of the so-called immediate investment program.

In concrete terms, this means a further reduction in the tax burden for our proposed holding structure. As a result of the adjustment to the corporate tax rate, the burden will fall from approximately 1.5% to approximately 1% in the future. Reinvestment via the holding company will become even more attractive.

6. Our assessment
The holding structure is an extremely effective tool – both from a tax and strategic perspective. Entrepreneurs with a long-term perspective, reinvestment intentions, or planned succession should consider the holding structure at an early stage.

Would you like to find out whether a holding structure makes sense for you? Arrange a personal consultation with our team of experts now.