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Taxes and bookkeeping for founders and entrepreneurs with a holding UG or GmbH
Many founders hold their investments through a holding UG (entrepreneurial company) or GmbH (limited liability company). A holding company may have few receipts, but it has its own tax rules.
Typical tax topics for holding companies
1. Dividends: 95% corporation tax exemption
When your subsidiary distributes profits to the holding company, 95% is exempt from corporation tax (§ 8b KStG). Only 5% counts as non-deductible expenses. You need a holding of at least 10% at the start of the calendar year. Where the trade-tax exemption also applies, the effective burden is roughly 1.5% rather than 30%.
2. Gewerbesteuer: the participation exemption
Dividends are also largely exempt from Gewerbesteuer (trade tax) if the holding company owned at least 15% at the start of the year. Below that threshold, the dividend is added back for trade-tax purposes.
3. Gains from selling investments
When the holding company sells shares in a corporation, 95% of the capital gain is also tax-exempt, regardless of the ownership percentage. This is a major reason for using a holding structure.
4. VAT in a holding company
A pure financial holding company that only holds investments is not a taxable business for VAT purposes and cannot deduct input VAT. If it supplies paid management or administrative services to subsidiaries, it becomes an active holding company and may deduct input VAT.
5. Annual financial statements and disclosure
Even with few transactions, you must prepare your holding company’s balance sheet and profit and loss account each year and disclose them in the Unternehmensregister (company register). You recognise investments at acquisition cost in the balance sheet.
Bookkeeping, duties and deadlines
Bookkeeping: A UG (entrepreneurial company) or GmbH (limited liability company) is a commercial entity by legal form. You must keep double-entry books under the German Commercial Code (HGB) and prepare a Jahresabschluss (annual financial statements) each year, comprising a balance sheet, profit and loss account and notes. Micro-entities may omit the notes.
Annual financial statements: For small companies, you have up to six months after the financial year ends to prepare the statements. You must disclose them in the Unternehmensregister (company register) within twelve months of year-end. You submit them electronically to the Finanzamt (tax office) as an E-Bilanz (electronic tax balance sheet).
Annual tax returns (you file by 31 July of the following year if filing without a tax advisor):
- Corporation tax return: 15% of profit plus a solidarity surcharge of 5.5% on that tax
- Gewerbesteuer (trade tax) return: based on your municipality’s assessment multiplier
- Annual VAT return
- Investment income withholding tax notification if your company distributes profits
Ongoing: You file advance VAT returns monthly or quarterly, depending on the previous year’s VAT, by the 10th of the following month (one month later with a permanent filing extension). Corporation tax prepayments fall due on 10 March, June, September and December; trade tax prepayments on 15 February, May, August and November.
Record retention: Keep supporting documents such as invoices and bank statements for eight years, and books and annual financial statements for ten years.
You can manage your bookkeeping, prepare annual financial statements and create tax returns in Pluto. Employee payroll, non-standard international matters, tax groups, transformations and tax audits are outside its scope.
Frequently asked questions
How much tax does my holding company pay on dividends?+
With a holding of at least 10%, 95% is exempt from corporation tax. With at least 15%, the trade-tax exemption also applies. The effective burden is roughly 1.5%, subject to the relevant conditions.
Can my holding company deduct input VAT?+
Only if it is a taxable business for VAT purposes, for example because it supplies paid management services to subsidiaries. A pure financial holding company cannot.
Must I prepare annual financial statements for a holding company?+
Yes. As with any UG or GmbH, you must prepare and disclose a balance sheet and profit and loss account, and file the applicable corporation tax, trade tax and VAT returns.
Do I need a tax advisor for my holding company?+
You remain responsible for your company’s bookkeeping, Jahresabschluss (annual financial statements) and tax returns. A tax advisor can help with complex matters such as restructuring or tax audits.
Pluto Tax is a software tool that supports you in preparing your own tax returns. It does not provide tax advice within the meaning of the German Tax Advisory Act.
Updated: October 2026