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Establishing a UG or GmbH is relatively easy and often happens almost reflexively. Whether this legal form always makes sense remains to be seen. Limitation of liability is certainly an aspect when choosing the legal form. The restriction almost always applies to the shareholders as long as they are not involved in financing the company with shareholder loans. It becomes more critical for the management, who become personally liable relatively quickly. Because a managing director does not act for himself, but like a trustee for other people's assets. This applies even if he owns 100% of the shares.

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Personal liability of the manager

A common starting point for the managing director's personal liability is the failure to pay payroll taxes and employee social security contributions. Just as often, claims are made against managing directors due to late filing of insolvency. Since the UG as well as GmbH, GmbH & Co KG and AG have to file for insolvency if they still have liquidity but are over-indebted, accounting is of particular importance in Corona times. To avoid and eliminate accounting for over-indebtedness, please read the separate article.

One way to avoid the obligation to file for insolvency due to excessive indebtedness and to avoid the strict accounting rules and the mandatory audit by an auditor is to convert the company into another legal form. The conversion law allows 12 months retroactively and tax-neutrally, e.g. B. to switch to another legal form on June 30.06.2020, 1 or even further back. So you can e.g. B. use the quarterly financial statements for 2020/XNUMX to gain significant tax advantages. If a GmbH becomes an OHG, then the shareholders are personally liable, but that is often not the problem, especially since you can convert back at any time. A sole proprietorship, an OHG or KG can be over-indebted and still not have to file for bankruptcy as long as the company is solvent.

GmbH conversion

The conversion can take place at book values ​​or higher values ​​up to standalone selling value. As a result of an increase in the book values, the previous company, e.g. a GmbH, usually generates a conversion profit that can be offset against the current or carryforward losses. The converted company, e.g. OHG, can make regular depreciations from the increased book values. In this way, the GmbH's losses can be gradually offset for tax purposes against the salary of the shareholder-managing director or other income of the shareholders.

Undistributed profits

If the GmbH has undistributed profits, these should be distributed before the conversion. The distribution is not fully taxed in Germany, but is subject to withholding tax depending on the amount of the participation or only 60% of the dividend is taxed. If there is a conversion loss, the dividend can also be offset and ultimately made tax-free. If you merge the GmbH into another, for example a newly founded GmbH, the profit is only taxed at 5%, 95% remains tax-free.

Conversion of a corporation abroad

A particular challenge is the conversion of a capital company based abroad if shareholders based in Germany are also involved. because the transformation of a company also leads to the transformation of the shareholding. She wants and under commercial law these are referred to as exchange-like transactions that are treated like a sale of the previous investment. This normally results in a profit that is taxed as income from capital assets. In an international context and under most double taxation agreements (DTAs), these profits are taxed in the country in which the shareholder is resident.

If an AG or GmbH based in Switzerland is converted into a partnership, for example a general partnership, this can be done tax-free for the shareholders resident in Switzerland. However, the shareholders of this company resident in Germany can only receive tax exemption from the conversion if the converted company was founded under the law of an EEA state. These are the EU states including Great Britain (if founded by the end of 2020) plus Norway, Iceland and Liechtenstein. Switzerland is not an EEA state, but is closely linked to Liechtenstein. If the converted company was established under Liechtenstein law and the registered office was then relocated to Switzerland, the genetic defect does not exist and the German shareholder also remains tax-exempt.

Conclusion

The corporation does not always prove to be optimal, especially in times of crisis. German conversion law and conversion tax law (UmwStG) are already very formal. Not every notary has experience in this, and every notary will decline liability for tax issues anyway. Nationally, but especially in an international context, it is very important to have experience in dealing with the matter and to find a well-coordinated team between tax advisor and notary.

Jürgen Bächle
Jurgen Bachle

has been working as an independent tax consultant and expert in international tax law since 1989 and has been a member of the board of the German Association of Tax Consultants Baden-Württemberg, DSTVBW, for over 20 years.

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