What are the tax differences between a GmbH and a UG?
November 17, 2023 | 50,00 EUR | answered by Georg Nitsche
Dear tax consultant,
My name is Konrad Stricker and I am the managing director of a small company currently operated as a UG (limited liability company). Lately, my team and I have been considering whether it would make sense to convert the legal form of our company to a GmbH. However, we are unsure about the tax differences between a GmbH and a UG and whether a switch would be beneficial for us.
Currently, as a UG, we pay a lower minimum deposit at the founding compared to a GmbH. However, we are aware that the liability limitation is higher in a GmbH, which could be advantageous for us as managing directors. Additionally, we wonder if the tax advantages of a GmbH compared to a UG would be worthwhile and if we could potentially save taxes by making the switch.
Our company is currently generating a stable profit and we are looking for ways to optimize our tax burden. Therefore, it would be very helpful for us to know what the tax differences are between a GmbH and a UG and whether a change in legal form could be beneficial for us. Are there, for example, differences in the taxation of profits or in the possibilities for tax planning?
Thank you in advance for your support and advice.
Best regards,
Konrad Stricker
Dear Mr. Stricker,
Thank you for your inquiry regarding the conversion of your UG into a GmbH and the tax differences between the two legal forms. The conversion of a company's legal form can indeed have various tax implications that need to be taken into consideration.
First and foremost, it is important to note that a GmbH and a UG (limited liability) generally function similarly as they are both considered as capital companies. However, there are some important differences that can affect the tax treatment.
One significant difference between a GmbH and a UG lies in the minimum capital required at the time of formation. A UG requires only 1 euro, while a GmbH requires a minimum capital of 25,000 euros. This could be an important criterion for you as a managing director, as a higher minimum capital also means higher liability limitation.
Regarding the tax treatment of profits, there are also differences between a GmbH and a UG. A GmbH is subject to the regular corporate tax rate of currently 15%, while a lower tax rate of currently 7% is applied to the first 175,000 euros of profit for a UG. Additionally, a GmbH has the option to retain profits and invest them tax efficiently, while profits in a UG must generally be distributed.
There are also differences in tax planning opportunities between a GmbH and a UG. A GmbH typically offers more flexibility in tax optimization as it provides various options for profit utilization and distribution. Furthermore, a GmbH can utilize certain tax planning models such as restructuring or tax loss carryforward.
Overall, whether a change in legal form would be beneficial for you largely depends on your individual situation and goals. A detailed tax consultation by an experienced tax advisor like myself can help you analyze the pros and cons of a conversion and make the best decision for your company.
I hope this information is helpful to you and I am available to answer any further questions you may have.
Best regards,
Georg Nitsche
