Setting Up a Holding: Structuring a GmbH or UG Holding Properly
A holding can bring tax advantages and separate risks from assets, but it also means double obligations. We show when a holding makes sense, how the process works and which mistakes you should avoid.
Table of contents
At a glance
A holding is usually a GmbH or UG that holds shares in operating companies: not the day-to-day business, but the level for shareholdings, pooling profits and reinvestment.
The two central advantages: tax effects on dividends and sales of shareholdings, and a separation of operating risk and wealth building. Both only work, however, if the structure and ongoing obligations are planned realistically.
What is a holding in practice?
In its simplest form, there are two levels:
- Holding (parent): holds the shares
- Operating company (subsidiary): generates turnover, concludes contracts, employs staff
The model becomes interesting if you want to separate several projects in the future, buy or sell shareholdings, or do not need to withdraw profits privately right away but want to reinvest them within the group.
Expectations matter here: a holding is not a magic trick that “abolishes” taxes. It shifts and shapes taxation within a legally separate system of several companies, with corresponding effort.
The most important advantages
Tax effects on dividends and capital gains
For corporations, the principle is: income from shareholdings can be largely tax-free at the level of the holding. The core mechanism is set out in Section 8b KStG: certain dividends and gains from the sale of shares are in principle 95 percent exempt, with 5 percent treated as non-deductible business expenses.
Two practical details are decisive:
- For dividends, a minimum shareholding plays a role (typically 10 percent at the beginning of the calendar year under Section 8b KStG).
- For trade tax, there are separate reduction rules; a higher shareholding ratio is often relevant here (see Section 9 GewStG).
This means: the often-quoted effect of an “almost tax-free distribution to the holding” can apply in many cases, but the details depend on the structure and shareholding ratios. Planning this properly once prevents surprises later.
Liability and asset protection as a structural principle
The operating company carries the day-to-day business and thus the operating risks. Shareholdings and liquidity are typically pooled in the holding. This helps to separate risks. But it remains the case that each company is a separate legal entity. Mistakes often arise where assets and payment flows are in fact mixed or where intra-group dealings take place without proper contracts.
Managing reinvestment in a more structured way
If profits remain in the holding, they can be used for new projects within the group without an immediate private distribution. This is less a “tax trick” than a question of making growth and liquidity plannable.
Disadvantages and ongoing effort
A holding is not just an arrow in an organisation chart, but at least one additional company with its own obligations.
Fixed costs and bureaucracy
Typically you have at least two companies, which means:
- two sets of annual financial statements
- two sets of tax returns
- ongoing bookkeeping and resolutions at two levels
This is manageable, but it costs money and time. Anyone setting up a holding should not do so on a gut feeling, but because a concrete benefit is foreseeable.
Planning capital and financing realistically
In a holding GmbH, the share capital plays a different role than in an operating GmbH, but it remains an issue. For the subsidiary, too, capital and liquidity are decisive because operating business fluctuates. With a UG, entry requires less capital, but you should factor in the retention requirement and the slower path to a “full” GmbH.
When is a holding worthwhile?
In practice, a holding often makes sense if at least one of these points applies:
- You expect relevant profits in the medium term that do not all have to be withdrawn privately.
- You want to separate several business areas or structure several companies properly.
- You plan to sell shareholdings in the future or want to invest in shareholdings.
A holding often makes less sense if the business is still highly experimental, if there are unlikely to be profits for a long time, or if the effort exceeds the expected effects.
| Question | Tendency: holding makes sense | Tendency: holding rather not sensible |
|---|---|---|
| Profits foreseeable and reinvestment planned | yes | rather no |
| Several projects or companies planned | yes | rather no |
| Acquisitions of shareholdings or exit scenarios | yes | rather no |
| Minimal administration desired | rather no | yes |
| Budget for double obligations available | yes | rather no |
How do you set up a holding?
Step 1: Define the structure
First, the following is decided:
- Which company already exists (e.g. the operating GmbH already exists)?
- Should the holding be newly formed and take over shares in an existing company?
- Or are the holding and subsidiary formed in parallel?
The routes differ considerably here. A later contribution or restructuring can add complexity. That is exactly why it is worth defining the sequence early.
The holding and the operating subsidiary can be formed in a single notary appointment, which saves time and coordination effort. Read more: Chain formation: several companies in one notary appointment
Step 2: Choose the legal form
In practice, two variants are common:
- Holding as a GmbH, if capital and a long-term structure are the priority
- Holding as a UG, if you start with less initial capital but already rely on a holding logic structurally
The decision is not only a question of share capital, but also of external image, financing and growth path.
Step 3: Draft the articles of association and have them notarised
Every newly formed company needs notarised articles of association. In holding structures, individual articles are often advisable because responsibilities, approval requirements and group logic should be reflected properly.
Step 4: Business account and share capital
This is followed by the familiar steps:
- Open a business account
- Pay in and prove the share capital
- Apply for entry in the commercial register
Good to know: For a GmbH holding with a GmbH subsidiary, you do not need 2 × 25,000 euros of share capital. With a so-called chain formation, around 12,500 euros are enough for both companies: the holding “passes on” the capital to the subsidiary. You will find details in the article on chain formation.
Step 5: Keep the tax office, ongoing organisation and transparency register in mind
With more than one company, the organisational obligations increase: bookkeeping, payment flows, contracts between the companies. If shareholders are legal entities or chains of shareholdings exist, work on the transparency register typically becomes more relevant because beneficial owners must be recorded properly.
Typical mistakes in holding structures
- The holding is formed, but there is no clear plan for what it will actually be used for.
- Payment flows are mixed or intra-group dealings are arranged without clear contracts.
- People rely on general tax figures without checking shareholding ratios and trade tax logic.
- The ongoing effort is underestimated: two companies permanently mean double obligations.
Costs
The costs depend heavily on whether you form just one additional holding or set up several companies in parallel. Typically, the following arise:
- notary and commercial register costs per company
- ongoing bookkeeping and annual financial statements per company
- tax advice, because intra-group transactions must be reflected properly
In practice, the cost driver is not the notary appointment but maintaining the structure over time. A holding is therefore most worthwhile when it is used long term and does not exist merely as a theoretical construct.
More from the series: special topics
Arrange a notary appointment
Frequently asked questions about setting up a holding
As a rule, they are the tax treatment of income from shareholdings within the group and the clear separation between operating risk and the asset level. For tax purposes, Section 8b KStG is the central provision for the exemption system.
Yes, that is possible. The UG is often an entry point if you start with less initial capital. However, you should consider the consequences of the UG rules for distributions and growth, because the holding is usually intended as a long-term structure.
A holding “without a shareholding” has no substance. In practice, a holding only makes sense if it actually holds shareholdings or foreseeably will. Otherwise you have the fixed costs without any structural benefit.
For income from shareholdings, the trade tax reduction is a separate topic. There are rules for this in the Trade Tax Act, in particular in Section 9 GewStG.
It helps to separate risks, but it does not replace proper management. If, for example, assets are mixed or obligations are placed incorrectly, this can weaken the structure. A holding means structural discipline, not automatic invulnerability.
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Your notary in Berlin-Charlottenburg for the right holding structure
A holding is worthwhile if it fits your growth logic and you are prepared to run two companies properly on a permanent basis.
Are you considering whether a holding makes sense for you? Feel free to get in touch for individual advice.
