A brief summary is provided below on the relevant taxation matters to be borne in mind with the purchase of a company. This summary should not be interpreted as being an exhaustive presentation but is only designed as a general orientation. Tax experts are to be involved at all events with the purchase of a company, regardless of whether the purchase is effected in the form of an asset deal or a share deal. Reference is only made here to the land transfer tax which is payable on the purchase of a company. Any implications for other taxes, e.g. corporation tax, are not taken into account.
The so-called sale of the business, i.e. a sale of the company as a whole or a separate division within the company, is no longer subject to turnover tax with effect from January 1, 1994 in accordance with =A7 1, para. 1a following an amendment of the German Turnover Tax Act ("UStG").
Land transfer tax may still be payable on the purchase of a company, however. This applies to a purchase by singular succession, i.e. an asset deal, if the assets to be acquired include German properties or leasehold rights within the meaning of =A7 2 of the Land Transfer Tax Act (GEStG). The taxable act is performed with the conclusion of the contract. In the case of the purchase of a company by an interest acquisition , i.e. by a share deal, land transfer tax is payable if the assets of the company include German properties or leasehold rights or if all the shares in the company are held by one shareholder after the sale of the shares or if all the shares already held by one shareholder are sold to another shareholder. The land transfer tax becomes due upon the conclusion of the commitment transaction; if no such transaction takes place, by the in rem execution of the contractual agreement.
Land transfer tax is not payable, however, if the prerequisites of =A7 3 (6) of the Land Transfer Tax Act (GEStG) are met. According to this regulation,the buyer of a company which is the owner of real estate is exempt from taxation if the buyer has a direct relationship with the seller. For example, if a father forms a limited partnership with his two children and if he contributes his business including real estate into the partnership and if he has a 50 % holding in the private partnership, the whole acquisition procedure is exempt from tax. In other contribution cases, the valuation basis for the imposition of land transfer tax is the value of the compensation in accordance with =A7 10, para. 1 of the Land Transfer Act (GEStG). In the case of a purchase and sale of a company with a real estate holding, the part of the purchase price attributable to the real estate has to be determined separately therefore. The contribution of a business which has real estate may also lead to a unification of shares with consequences for land transfer tax purposes. This is the case if a contributed business has shares in a joint stock company or a private partnership in which the contributor or the company had an exclusive holding. A unification of shares with land transfer tax consequences also applies if all the shares in a joint holder who or which is the owner of real estate are transferred to a joint stock company.
So much for the introduction into the question of the purchase and sale of companies in Germany. The following comments refer to the contract forms. It is shown which rules apply to these contracts under German law and which are not compatible with German law.
For further information please contact Dr Erich Michel, Wessing Berenberg-Gossler Zimmermann Lange, Freiherr-Vom-Stein-Strasse 24-26, Frankfurt am Maim 60323, Frankfurt, Germany- Tel: +496 997 1300, Fax: +496 997 130100.
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