Which taxes apply when you sell your company — and what is left net? The § 16 (4) EStG allowance, the one-fifth rule, asset deal vs. share deal and the holding structure, with concrete worked examples. A practical guide from NORDVISORY in Hamburg.
A Mittelstand owner who sells their company for €5m can, depending on the transaction structure, receive between €2.8m and €4.0m net — a difference of up to €1.2m. This difference is not down to chance, but to choosing the right structure at the right time. In Germany, owners aged 55 and over benefit from one-time tax reliefs that are permanently lost with poor planning. This guide explains which mechanisms work, when they apply — and why the tax question should not be settled only at the notary's office.
Why the tax question decides your life's work
Selling a company is not a transaction. It is the result of often 20, 30 or 40 years of entrepreneurial work. Anyone who realises at the end of the process that the tax structure was not optimised can no longer reverse it.
The figures are clear. According to KfW succession monitoring 2025, 545,000 German Mittelstand companies are aiming for a succession by the end of 2029. The average targeted sale price is €499,000 — nominally 34 percent more than in 2019. In the segment from €2m purchase price upwards, which reflects the typical NORDVISORY transaction, the choice of structure alone can produce tax effects of €500,000 to well over €1m.
At the same time, practice shows that the tax dimension is regularly addressed too late in sale discussions. Owners ask about the purchase price. They rarely ask straight away about the net proceeds. Yet the net proceeds are the only figure that counts.
NORDVISORY does not provide tax advice — that is the job of your tax adviser and your lawyer. What we do: we make sure the M&A process is structured so that your tax advisory team can set the right course at the right time. This guide gives you the foundational knowledge you need to ask the right questions.
The three types of tax that count when you sell
When you sell a company, three types of tax are relevant — in different combinations depending on the transaction structure.
Income tax (Einkommensteuer, ESt) affects natural persons who sell company shares or business assets. The capital gain — the sale price minus the book value of the assets sold — is in principle subject to income tax. The personal tax rate can be up to 45 percent plus the solidarity surcharge. This is where the most important reliefs for owners aged 55+ apply.
Corporation tax and trade tax (Körperschaftsteuer, Gewerbesteuer) become relevant when a corporation (typically a GmbH) sells the business or parts of it. In an asset deal carried out by a GmbH, the capital gain is subject to corporation tax (15 percent) and trade tax (7 to 17 percent depending on the municipal rate). The combined burden is often between 28 and 33 percent at company level — before the proceeds are distributed.
Inheritance and gift tax (Erbschaft- und Schenkungsteuer) is relevant when company shares are transferred ahead of a sale, or when succession is planned within the family. §§ 13a and 13b ErbStG provide for substantial relief under certain conditions, which can be used before a sale.
The key insight: these three types of tax do not operate in isolation. The choice between share deal and asset deal determines which taxes apply at which level. The decision whether you sell as a private individual or via a holding company fundamentally changes the burden structure. These decisions must be made before the first buyer is approached.
The allowance for owners aged 55+: § 16 (4) EStG
§ 16 (4) EStG is one of the most significant tax reliefs in German tax law for entrepreneurs — and it is tailored exclusively to owners aged 55 and over.
What the allowance does
Anyone who has reached the age of 55 and sells their business or co-entrepreneur share can claim an allowance of €45,000 against the capital gain. However, this allowance is tapered according to income: from a capital gain of €136,000 it is reduced linearly, and at €181,000 it falls away entirely.
The allowance sounds small. In the context of the reduced tax rate (more on this shortly), however, it has a leverage effect that goes beyond the absolute €45,000.
Important: the allowance is a once-in-a-lifetime relief
§ 16 (4) EStG can only be claimed once. Anyone who has already used it on a partial sale can no longer claim it on a later sale. This one-off nature requires strategic planning — especially where an entrepreneur holds several shareholdings.
The requirements at a glance
The conditions for claiming the allowance are that the owner has reached the age of 55 or is permanently incapacitated for work in the social-insurance sense; that the entire business or co-entrepreneur share is sold (no partial sales, with certain exceptions for co-entrepreneur shares); and that the place of business is located in Germany.
The exact application, and whether your specific transaction meets the conditions, is something you clarify with your tax adviser. What we at NORDVISORY ensure: that the M&A process is designed so that this question can be asked in good time.
The one-fifth rule and the reduced tax rate under § 34 EStG
§ 34 EStG offers owners who sell their business a substantial tax reduction on the capital gain — independent of age, but particularly effective in combination with the § 16 (4) EStG allowance.
The reduced tax rate
For capital gains from a business or co-entrepreneur share, a reduced tax rate can be applied on request. This amounts to 1.4 times the average tax rate, but at least 14 percent. In practice, this means the effective tax rate on the capital gain is well below the top rate — typically between 25 and 35 percent instead of 42 to 45 percent.
The one-fifth rule as an alternative
As an alternative to the reduced tax rate, the one-fifth rule under § 34 (1) EStG can be applied. The capital gain is notionally spread over five years and the resulting tax progression is smoothed. For owners with very high capital gains, the reduced tax rate under § 34 (3) EStG is usually more favourable — the exact calculation is a matter for your tax adviser.
The interplay
The combination of § 16 (4) EStG (€45,000 allowance) and § 34 EStG (reduced tax rate) gives owners aged 55+ a substantial reduction in tax compared with regular income tax. On a capital gain of €2m, the difference between regular taxation and an optimised structure can quickly amount to €300,000 to €400,000.
Share deal vs. asset deal: the tax burden matrix
The choice between a share deal and an asset deal is one of the most consequential in the entire transaction process — for buyer and seller alike, but in opposite directions.
Share deal: seller-friendly
In a share deal, the owner sells their shares in the GmbH. For a private seller, the capital gain — purchase price minus the acquisition cost of the shares — is subject to the partial income method (Teileinkünfteverfahren): 60 percent of the gain is taxable, 40 percent is tax-free. At a top rate of 45 percent, this produces an effective tax burden of around 27 percent on the capital gain. Combined with § 16 / § 34 EStG for partnerships, this creates the most favourable tax structure for the seller.
For the buyer, the share deal is less attractive from a tax perspective: they take over the company at its historical book values and cannot depreciate the purchase price payment (no step-up of the assets).
Asset deal: buyer-friendly, seller-burdening
In an asset deal, the buyer acquires individual assets of the company. They can allocate the purchase price to the acquired assets and depreciate them — significantly reducing their future tax burden. For the seller, by contrast, an asset deal uncovers and taxes all hidden reserves. Where a GmbH carries out an asset deal, corporation and trade tax are payable at company level (combined approx. 28–33 percent) before the proceeds are distributed — and the distribution triggers the next layer of tax.
The burden matrix at a glance
| Structure | Tax burden — seller | Tax burden — buyer | Typical outcome |
|---|---|---|---|
| Share deal (private seller) | 25–28 % effective (partial income method) | No depreciation on purchase price | Preferred structure for the seller |
| Share deal + § 16/34 EStG (partnership) | 15–25 % effective | No depreciation | Best structure for sellers 55+ |
| Asset deal (GmbH sells) | 28–33 % at GmbH level + distribution tax | Step-up and full depreciation | Preferred structure for the buyer |
In practice, the parties often agree on a price premium for the share deal that compensates the buyer for the missing step-up. Those who understand how these mechanisms work negotiate better.
A full business valuation that derives the transaction value methodically is the basis of every structuring discussion.
Holding structure: 95 % tax-free — and the lock-up trap
For many owners, the holding structure is the most attractive tax planning model — but also the one with the most pitfalls.
The principle: § 8b KStG
When a GmbH (the holding) sells shares in another GmbH (the operating company), 95 percent of the capital gain is tax-free under § 8b (2) KStG. Only 5 percent is treated as non-deductible business expenses and is subject to regular corporation and trade tax. The effective tax burden is therefore around 1.5 percent on the capital gain — at company level.
The effect is considerable: on a capital gain of €4m, a holding pays only around €60,000 in tax instead of around €1.1m (at the full rate).
The decisive catch: the 7-year lock-up period
The holding must already hold the shares in the operating GmbH before the sale process begins. Anyone who only contributes the operating GmbH into a holding shortly before the sale triggers § 22 UmwStG: the contribution is possible tax-neutrally, but the contributed shares are subject to a seven-year lock-up period. If they are sold within that period, the tax neutrality is retroactively denied — with substantial back payments.
In practice this means: anyone who wants to use a holding structure must have set it up at least seven years before the planned sale. Someone who is 58 today and wants to sell at 62 may have missed the train.
When a holding makes sense — and when it does not
A holding pays off when the time horizon is sufficient, when the capital gain is large enough to justify the structuring costs, and when the proceeds are not to be distributed immediately but reinvested. It does not pay off when the owner needs the proceeds straight away to live on — because distributing from the holding triggers capital gains tax again.
The holding is an instrument for forward planning. If you are asking today whether a holding makes sense for you, speak first with your tax adviser — and then with us, to understand which transaction structure is compatible with the holding. Use our Exit Readiness Check for this, which assesses your current position across five dimensions.
Worked example: three structures, one company, €1.2m difference
The following example is fictitious but representative of a typical NORDVISORY transaction in the €3–8m segment. It is for orientation only and does not replace individual tax advice.
Starting point: the Brandt family, Hamburg. Mr Brandt, 60, holds 100 % of the shares in Brandt Industrieservice GmbH. EBITDA €650,000, multiple 5.5x, transaction value €3.575m. For simplicity: book value of the shares €250,000, capital gain €3.325m.
Structure A: direct share deal, private seller
As this is a GmbH, § 16 EStG does not apply directly, but the partial income method does: 60 % of the gain (= €1.995m) is subject to income tax. At an assumed marginal rate of 42 percent plus the solidarity surcharge, this gives an income tax burden of around €855,000. Net proceeds: approx. €2.72m.
Note: in a partnership (GmbH & Co. KG) the § 16 (4) EStG allowance and the § 34 EStG reduced rate apply on top, improving the net proceeds further.
Structure B: asset deal (GmbH sells assets)
Capital gain at GmbH level: €3.325m. Corporation tax 15 % + trade tax (assumed 14 % at a municipal rate of 400): combined approx. 30 % = €997,500 tax at GmbH level. Remaining proceeds in the GmbH: €2.327m. Distribution to Mr Brandt with capital gains tax (25 % + solidarity surcharge): approx. €395,000 additional tax. Net proceeds: approx. €1.93m.
Structure C: holding structure (§ 8b KStG, lock-up already expired)
Capital gain at holding level: €3.325m. Tax burden at holding level: 5 % × 30 % = 1.5 % = approx. €50,000. Proceeds in the holding: €3.275m — reinvestable without further immediate taxation. If the proceeds are distributed: capital gains tax 25 % + solidarity surcharge = approx. €825,000. Net on distribution: approx. €2.45m. Net on retention (reinvestment within the holding): up to €3.27m available.
Summary
| Structure | Total tax | Net proceeds (distribution) |
|---|---|---|
| A: share deal, private | approx. €855,000 | approx. €2.72m |
| B: asset deal via GmbH | approx. €1.39m | approx. €1.93m |
| C: holding § 8b KStG | approx. €50,000 (+ distribution tax if any) | €2.45–3.27m |
Difference between the best and worst structure: up to €1.34m.
These figures are simplified and not applicable without individual tax advice. But they show why the structuring question must be on the table before the first buyer meeting — not after it.
Do you already know the company value on which your tax planning is based? Our company valuation calculator gives a first indicative estimate in three minutes, without registration.
Earn-out and vendor loan: when does which tax fall due?
Many Mittelstand transactions are not paid with a full purchase price at closing. Earn-outs and vendor loans are common structural elements — with different tax implications.
Earn-out
In an earn-out, part of the purchase price is tied to the company's future performance. For tax purposes: the secured portion of the purchase price (the fixed part) is taxable at the time of closing, even if it has not yet been paid. The variable earn-out portion is taxed in the year in which it accrues as income (the receipt principle under § 11 EStG). This means an earn-out paid out three years after closing is subject to income tax in the year of payment — without the possibility of using the reduced rate under § 34 EStG again.
Earn-outs are useful in transactions to bridge valuation gaps. For tax purposes, they are attractive to the seller when the later payment falls in a year with a lower personal tax rate — for instance after retirement.
Vendor loan
With a vendor loan, the seller defers part of the purchase price and receives it back with interest over several years. For tax purposes: the deferred portion of the purchase price must generally already be recognised as sale proceeds at signing/closing, because the claim has arisen. The interest is separately subject to capital gains tax (25 percent). The vendor loan eases the buyer's liquidity, but gives the seller no tax deferral of the capital gain.
Gift before sale: §§ 13a/13b ErbStG
Anyone who wants to transfer company shares to children or other family members before a sale takes place should know the inheritance-tax relief rules — and their limits.
The basic logic of §§ 13a/13b ErbStG
Under certain conditions, business assets can be exempted from inheritance and gift tax to the extent of 85 percent (standard relief) or 100 percent (optional relief). Conditions include observing a holding period (5 years for standard relief, 7 years for optional relief), continuing the business, and complying with the payroll rule.
The problem: a sale breaks the holding period
If the recipient sells the shares within the holding period, the relief is retroactively forfeited on a pro-rata basis. A gift shortly before a planned sale — with the aim of saving inheritance tax while shifting the capital gain to the recipient — is generally not possible for tax purposes. The tax authorities regard this as abuse under § 42 AO.
When it does still make sense
A genuine gift to family members who will continue the company long-term and do not want to sell in the near future can make sense. Likewise, in combination with succession planning, tax advantages can arise that go far beyond the individual case. This is a question your tax adviser and your inheritance lawyer must answer together with your M&A adviser.
Timing roadmap: what to clarify 7, 5, 3 and 1 year before the sale
The most common and most expensive statement in Mittelstand M&A: "We should have clarified that earlier."
7 years before the sale
Review the holding structure. If a holding makes sense, it must be set up now so that the lock-up period under § 22 UmwStG expires in time. Speak with your tax adviser about whether your current corporate structure is transaction-optimal.
5 years before the sale
Begin optimising value. Clean up private entanglements (vehicles, real estate, life insurance held in the business). Build management independence — companies that work without the owner achieve higher multiples. Clarify whether the § 16 (4) EStG allowance applies to you and whether you have already used it.
3 years before the sale
Carry out an initial business valuation. Understand your value corridor. Optimise the EBITDA presentation. Clean up extraordinary items. Check ongoing contracts for transaction clauses (change-of-control clauses in customer and supplier contracts). Run our Exit Readiness Check — it shows you where your preparation stands.
1 year before the sale
Mandate your M&A adviser. Prepare documents (annual accounts, shareholder agreements, commercial register extracts, customer lists, IP documentation). Inform your tax adviser and your lawyer about the planned process. Clarify the transaction structure before the first buyer meeting — not after it.
The most expensive tax misconceptions in Mittelstand M&A
Misconception 1: "The buyer pays the taxes"
Tax on the capital gain is borne by the seller. The purchase price is gross. What remains depends on the structure.
Misconception 2: "The book value of my shares is irrelevant"
The taxable capital gain is calculated as the difference between the sale price and the book value. A low book value — often €25,000 at GmbH formation — means a high taxable gain.
Misconception 3: "I can quickly slot a holding in front"
The seven-year lock-up period under § 22 UmwStG makes a short-term holding contribution harmful to a planned sale.
Misconception 4: "The earn-out is only taxed later, so I save tax now"
The receipt principle applies to variable purchase-price components — but the secured fixed amount is taxable at closing. And the earn-out typically can no longer use the more favourable rate under § 34 EStG.
Misconception 5: "Asset deal and share deal are the same for me as the seller"
No. The asset deal regularly leads to a significantly higher tax burden for the seller — particularly where the sale is via a GmbH.
Misconception 6: "I'll just reuse the allowance I've already used"
§ 16 (4) EStG applies only once in a lifetime. Anyone who has already claimed it cannot use it again.
Misconception 7: "The tax adviser will sort it out during the process"
Many tax structuring measures require years of lead time. A tax adviser brought in only when the purchase agreement is on the table can no longer heal structural mistakes.
Misconception 8: "The M&A adviser knows about tax"
NORDVISORY does not provide tax advice. What we do: we structure the process so that your tax advisory team is involved in good time and the right foundations are in place. The tax advice is the job of your tax adviser.
When you need the M&A adviser first
The tax question is one of the central preliminary decisions when selling a company. But it is not the only one.
The M&A adviser thinks through the whole process: who are the right buyers? How do you create a competitive bidding process that drives the price? Which transaction structure maximises the net proceeds — taking account of tax, but also of warranties, indemnities and the owner's personal goals? How is discretion maintained throughout the process?
These questions cannot be answered in isolation. A seller who asks their tax adviser first and then mandates their M&A adviser risks choosing a structure that is optimal for tax but suboptimal commercially — or vice versa.
The right order: an initial conversation with the M&A adviser to define the process and the goals. Then joint clarification of the structuring questions with the tax adviser. Then mandate and process start.
If you want to know where you stand today — for tax, operations and strategy — start with our Exit Readiness Check. Confidential and free of charge. Or arrange a confidential initial conversation with NORDVISORY directly — with no obligation to proceed.
Frequently asked questions about tax when selling a company
Which taxes apply when you sell a company?
Depending on the structure, selling a company can trigger income tax on the private seller's capital gain, corporation and trade tax where a GmbH sells assets, and possibly inheritance and gift tax. The specific burden depends on the choice between share deal and asset deal, the seller's structure, and the use of § 16 (4) EStG and § 34 EStG.
What is the company-sale allowance for owners aged 55+?
Owners who have reached the age of 55 can claim a one-time allowance of €45,000 against the capital gain under § 16 (4) EStG. The allowance tapers for gains above €136,000 and falls away entirely from €181,000. It can only be used once in a lifetime.
Which is better: a share deal or an asset deal?
For the seller, a share deal is usually more favourable for tax — via the partial income method or § 34 EStG. In an asset deal, all hidden reserves are uncovered and taxed in full. For the buyer, the asset deal is more attractive because the purchase price can be depreciated. In practice, the parties often agree on a price premium for the share deal.
How does the holding structure work for tax when selling a company?
When a GmbH (holding) sells shares in an operating GmbH, 95 % of the capital gain is tax-free under § 8b (2) KStG. The effective burden at holding level is around 1.5 %. The condition is that the lock-up period under § 22 UmwStG (7 years) has expired. The holding must therefore be set up and equipped with the shares at least 7 years before the planned sale.
What is the one-fifth rule when selling a company?
The one-fifth rule under § 34 (1) EStG notionally spreads the capital gain over five years and smooths the tax progression. It is an alternative to the reduced rate under § 34 (3) EStG — for larger gains the reduced rate (= 1.4 times the average rate, at least 14 %) is usually more favourable. The exact calculation should be carried out by your tax adviser.
When do I have to pay the tax when selling a company?
Income tax on the capital gain is in principle due in the year of closing — that is, when the purchase price legally accrues. With earn-outs, the variable part is taxed in the year of receipt. The tax office may set advance payments; you agree the exact due dates with your tax adviser.
Can I gift shares before selling the company to save tax?
A gift can trigger inheritance-tax relief under §§ 13a/13b ErbStG — but only if the recipient observes the holding period (5 or 7 years) and continues the business. A gift shortly before a planned sale is typically treated by the tax authorities as abuse of structuring under § 42 AO.
How much tax do I pay when selling my GmbH?
In a private share deal, 60 % of the capital gain is subject to income tax (partial income method); at a marginal rate of 42 % this gives an effective burden of around 25–28 %. In an asset deal via the GmbH, corporation and trade tax apply at GmbH level (approx. 28–33 %) plus capital gains tax on the distribution. With § 16 (4) EStG (the 55+ allowance) and § 34 EStG (reduced rate), the burden on a private seller can be reduced considerably. For an individual calculation, consult your tax adviser.
What does the partial income method mean when selling a company?
The partial income method (Teileinkünfteverfahren) applies to capital gains from GmbH shares held privately (where the seller held at least 1 % or worked for the GmbH). 60 % of the gain is subject to income tax and 40 % is tax-free. In return, 60 % of the acquisition and sale costs are deductible.
Should I approach my tax adviser or my M&A adviser first?
Ideally both, early and in a coordinated way. The M&A adviser defines the process and the transaction structure from a commercial perspective. The tax adviser optimises the tax design. Many measures — such as setting up a holding — require years of lead time. Anyone who clarifies both only shortly before the sale leaves potential on the table.
Legal notice: NORDVISORY is an M&A advisory firm, not a tax adviser. This article provides general information and does not replace individual tax or legal advice within the meaning of the German Tax Advisory Act (StBerG). For your specific situation, please consult your tax adviser and lawyer.
NORDVISORY is an independent M&A advisory firm based in Hamburg. We support Mittelstand owners with company sales and succession processes in the €1–10m enterprise value segment.
Related topics: Business succession in the Mittelstand · Business valuation Mittelstand · Buy-and-build in the Mittelstand · Our service: company sale
