Establish German foundation as a corporate form: taxes in the family foundation


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Even in a family foundation, taxes must be paid by the beneficiaries. How does that work in detail?

Establish German foundation as a corporate form: Taxes in the family foundation deutsche-stiftung-gruenden-3


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Reinhard Schinkel 58Is Reinhard Schinkel according to Handelsblatt one of Germany's best tax advisors and specialist author for tax law.

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Taxes in the Family Foundation

A family foundation is established to keep the assets together and to provide the family members permanent support through the so-called "Destinatszahlungen". Beneficiaries of a family foundation are called destinates. But how are these money flows taxed at the Destinatäre?

The topic of distinctions is very complex. Because, as with all other forms of foundation, the foundation stock is usually not touched, and only the income generated benefits the beneficiaries.

How is taxed?

These items are taxed either as income from capital assets (§20 EStG) or are recognized as other income in accordance with § 22 EStG.

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If the taxation is as income from capital assets, the foundation is obligated to deduct from the distributions in advance 25% capital gains tax plus solidarity surcharge and possibly church tax. The amount after deduction of the tax accrues to the Destinatären.

Right to choose the tax rate

There is a right of choice for the beneficiaries: If the personal tax rate is lower than 25%, the taxation of income should be included in the income tax assessment. In that case, the income will be recorded and the tax paid by the Foundation will be credited as a tax pre-payment.

For this purpose, it is necessary to submit a tax certificate to the Residence Bank.

Which income is taxed?

The taxes are paid to the tax office responsible for the taxation of the foundation. For this purpose, a capital gains tax application is filed. With the payment of this tax, taxation at the level of the beneficiaries is completed. This tax deduction has a final effect (final withholding tax).

In the case of taxation as other income, only 60% of the income is entered in the income tax. 40% will be tax-exempt in accordance with § 3 No. 40 EStg (the so-called partial income tax procedure.) What is more favorable in case of doubt should be clarified in advance with the personal requirements of the beneficiaries.

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When is taxed?

When

  • The grants can be agreed as constant annuities or
  • (eg no seat in the board of trustees), or the use of the income is excluded
  • the beneficiaries provide a consideration of the Foundation

it is other income according to § 22 EstG.

If these criteria are not met, the payments will be taxed as capital gains. In this respect, there is a certain room for maneuver.


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