Holding Structure

What is a holding structure?

Holding structure (in German Holdingstruktur) describes a corporate structure in which one company (the holding) holds shares in one or more other companies instead of operating itself. For founders this usually means a personal holding GmbH (German limited liability company) that stands between the founder and the operating GmbH and holds its shares.

The holding appears in the shareholder structure and in the list of shareholders in place of the founder. It is a party to the participation agreement, votes in the shareholders' meeting and is the seller in a company sale. Its importance lies above all in the taxation of capital gains and distributions. It also serves to separate business areas, to pool participations and for succession planning.

Structure and forms of the holding structure

The personal founder holding usually holds only the participation in the operating company and, where applicable, other assets. A management holding, by contrast, manages several subsidiaries, provides services to them such as finance, HR or IT, and charges for them. Intermediate holdings bundle individual areas within a group, for example in order to be able to sell them separately later.

The legal form is almost always the GmbH, because only companies subject to corporation tax receive the relief under Section 8b of the German Corporation Tax Act (Körperschaftsteuergesetz, KStG). A GmbH & Co. KG (a limited partnership with a GmbH as general partner) as holding does not receive it: its profit is attributed to the partners, so for founders income tax applies, as a rule under the partial income method (Teileinkünfteverfahren). Splitting into several companies in principle limits liability to the respective company. This protection, however, extends only as far as no guarantees, letters of comfort (Patronatserklärungen, commitments to stand behind the obligations of another company) or intra-group loans reconnect the risks.

The structure is easiest to create at founding: the founder first sets up the holding GmbH, and it takes over the shares in the operating GmbH. If the operating company already exists, what remains is the exchange of the shares for new shares of the holding or a sale to the holding, which triggers a taxable capital gain for the founder.

Tax advantages of the holding under Section 8b KStG

Capital gains

If a corporation sells shares in another corporation, the gain is tax-exempt under Section 8b(2) KStG. At the same time, 5% of the gain is treated as non-deductible business expenses, so that in effect 95% remains tax-free. No minimum shareholding or minimum holding period is required. The taxable 5% is subject to corporation tax and trade tax. With a total burden of around 30% (as of 2026, income tax), this corresponds to about 1.5% of the gain. With the enacted reduction of corporation tax from 2028 down to 10% in 2032, this figure falls slightly.

Dividends

Profit distributions by the subsidiary are likewise 95% exempt from corporation tax at the holding. This presupposes, however, that the participation amounted to at least 10% at the beginning of the calendar year (Section 8b(4) KStG). A higher threshold applies to trade tax: the trade tax participation exemption under Section 9 No. 2a of the German Trade Tax Act (Gewerbesteuergesetz, GewStG) requires a participation of at least 15% at the beginning of the assessment period. This results in three tiers:

• from 15%: dividend 95% tax-free, for both corporation tax and trade tax
• from 10% and below 15%: 95% free of corporation tax, but fully subject to trade tax
• below 10%: fully taxable

If several funding rounds dilute a founder holding below these thresholds, the relief for dividends lapses. For capital gains it remains.

Deferral instead of waiver

The advantage of the holding lies in the postponement of taxation. It works like an intermediate store between the company and private assets: as long as the proceeds stay in the holding, they are available almost undiminished for new participations, real estate or other investments. Only when the holding distributes to the founder does taxation follow at the personal level, with flat-rate withholding tax (Abgeltungsteuer) or under the partial income method (income tax).

Forming a holding later: contribution and lock-up period

Anyone who already holds shares privately can contribute them to a holding in exchange for new shares (share exchange). Without tax, that is, at book value (here: the original acquisition cost), this is possible under Section 21 of the German Reorganisation Tax Act (Umwandlungssteuergesetz, UmwStG) only on application. The holding must then directly hold the majority of the voting rights in the operating company (qualified share exchange). If several founders each contribute their minority holdings to their own holdings, this majority is lacking. The exchange is then treated as a disposal at fair value, that is, at market value. The increase in value that has arisen up to then is taxed under Section 17 of the German Income Tax Act (Einkommensteuergesetz, EStG) under the partial income method, although no money flows.

If the contribution at book value succeeds, a lock-up period of seven years begins. If the holding sells the contributed shares within this period, the founder is taxed retroactively under Section 22(2) UmwStG. The founder is treated as if the shares had been sold at the time of the contribution at the fair value of that time (contribution gain II, Einbringungsgewinn II). This amount reduces by one seventh for each full year that has elapsed since the contribution. A holding that is only formed once a sale is foreseeable therefore achieves its purpose only in part.

Holding in a funding round and in a sale

Investors generally accept founder holdings. In the participation agreement, however, they often require the founder to be personally bound as well, for example for warranties, non-competes and leaver rules. A change of the shareholders of the holding is usually treated like a transfer of the shares.

In a company sale, the holding disposes of its shares by way of a share deal. Economically, little changes for the acquirer. The acquirer does, however, take care that warranty claims do not come to nothing because the holding has passed on the proceeds. Common are therefore retentions in an escrow account, joint liability of the founder, or commitments to equip the holding with sufficient assets for a certain period. A reinvestment in the acquirer can usually be structured more easily through a holding.

Costs and obligations of a holding

Every holding is a separate company with share capital, business account, bookkeeping, annual financial statements, publication, tax returns and registration in the transparency register. As a corporation it is subject to trade tax by virtue of its legal form. The running costs are manageable but arise every year, including in years without income.

The structure requires strict separation of the asset spheres. Payments by the holding for the founder's private purposes or non-arm's-length loans to the founder lead to hidden profit distributions (verdeckte Gewinnausschüttungen), which are treated for tax purposes like a distribution. A holding is therefore not a private account with a tax advantage, but a company with its own obligations.

Worked example: sale of shares with and without a holding

Simplified example without solidarity surcharge and church tax, acquisition costs disregarded: A founder sells her 40% participation in a software GmbH with a capital gain of EUR 10 million. Her personal tax rate is assumed at 45%, the tax burden of a GmbH at 30% (as of 2026).

• Held directly: EUR 10 million × 60% taxable = EUR 6 million; tax EUR 6 million × 45% = EUR 2.7 million; available EUR 7.3 million
• Through a holding in place since founding: taxable EUR 10 million × 5% = EUR 0.5 million; tax EUR 0.5 million × 30% = EUR 0.15 million; available in the holding EUR 9.85 million
• Later full distribution to the founder: flat-rate withholding tax EUR 9.85 million × 25% = EUR 2.4625 million; privately available EUR 7.3875 million; total burden (0.15 + 2.4625) / 10 = 26.125%
• Contribution only three full years before the sale, fair value at that time EUR 7 million: contribution gain II EUR 7 million × 4/7 = EUR 4 million; tax for the founder EUR 4 million × 60% × 45% = EUR 1.08 million
• The holding can increase its acquisition costs by the taxed contribution gain: tax of the holding (EUR 10 million minus EUR 4 million) × 5% × 30% = EUR 0.09 million; payable immediately in total are EUR 1.17 million instead of EUR 0.15 million

The comparison shows both sides. With full distribution, the total burden is hardly lower than with direct holding. The advantage lies in the EUR 2.55 million that are initially available in addition in the holding for reinvestment. The late contribution consumes about EUR 1 million of this again. The founder must pay the EUR 1.08 million from private funds even though the proceeds sit in the holding.

Distinction: holding, business split, family office and group

• Business split (Betriebsaufspaltung): the separation of ownership and operation, in which an owning company makes essential operating assets available to an operating company. The holding, by contrast, links companies through participations.
• Family office: an organisation for managing a family's assets. It often uses a holding as a legal vehicle but goes further in its tasks.
• Group: the combination of legally independent companies under unified management, often with a management holding at the top. A founder holding with a majority of votes in the operating GmbH can also be a parent undertaking; it must, however, prepare consolidated financial statements only once the group exceeds the size criteria of Section 293 of the German Commercial Code (Handelsgesetzbuch, HGB).

Common mistakes

• Formed too late. The seven-year lock-up period takes away a large part of the effect of a holding formed shortly before a sale.
• Minority holding contributed. Without a voting majority at the holding, the share exchange is taxable and triggers the very tax that the structure was meant to avoid.
• Dividend thresholds overlooked. After dilution below 15% or 10%, distributions by the subsidiary are no longer privileged.
• Private expenses through the holding. They lead to hidden profit distributions and to additional tax payments in a tax audit.
• Joint obligation not planned for. Founders who want to limit liability through the holding find in negotiations that investors and acquirers require personal commitment.

Frequently asked questions

When is a holding worthwhile?

When substantial capital gains or distributions are to be expected and the proceeds are to be reinvested. If they are needed entirely for private purposes, the advantage shrinks to a small difference, while the running costs remain.

What advantages does a holding structure have?

Mainly tax advantages: capital gains and, from certain shareholding levels, dividends remain 95% tax-free in the holding and are available almost undiminished for new investments. It also separates risks and eases succession planning. Against this stand running costs, the seven-year lock-up period on later contribution, and taxation of every later distribution to the founder.

Can a holding be formed later?

Yes, by share exchange. It is tax-neutral only if the holding then holds the majority of voting rights, and a sale within seven years leads to proportionate retroactive taxation of the founder.

Does Section 8b KStG also apply to small shareholdings?

For capital gains yes, there is no minimum shareholding. Dividends, by contrast, are exempt from corporation tax only from 10% and from trade tax only from 15%, in each case measured at the beginning of the year.

Can the founder use the money in the holding privately?

Only through a distribution, an appropriate managing director's salary or a loan with arm's-length interest and security. Any other use for private purposes is treated for tax purposes as a hidden profit distribution.

The Roemer Capital view

We address the founders' holding structure already when preparing a funding round, not only at the sale. A company sale usually takes 6 to 12 months; anyone who sets up the holding only at the start of the process has the seven-year lock-up period almost entirely ahead of them.

For founders, we set the net proceeds side by side for direct holding and for a holding, including the effect of a later distribution. The structuring itself is carried out by the client's tax adviser and law firm. Our contribution is that the decision rests on figures and is made at a time when it still takes effect.