Tax evasion in a limited liability company?

The reduction of the corporate tax rate from % 34 % to 25 as of 2005 has sparked the imagination for legal tax savings. Since the highest tax rate under the income tax rate remains 50 %, the constant tax burden for full distribution of profits from the limited liability company (after corporate tax and capital gains tax) % drops to 43.75 . % The advantages and disadvantages of the limited liability company are briefly summarized below:

Advantages

• In a tax-saving limited liability company, the tax burden is already cheaper than the income tax for an annual income of approx. € 28,000.
  
• With a fully-distributed limited liability company, the tax burden is cheaper than the income tax for annual profits of around €135,000.
  
• With respect to director’s remuneration, the 13th and 14th installments are subject to a fixed tax rate if there is an employment relationship.
  
• Group taxation, even across borders, leads to profit and loss allocation between intertwined companies.

Disadvantages

• The tax benefits depend on the sustainability of the profits. If the profits fall below the limits listed above, the tax burden may be higher than under the income tax.
  
• At Ges.m.b.H., there is no tax incentive (half tax rate) for the unremunerated profit, and the transfer of silent reserves will be abolished from 2005.
  
• Legal entities are subject to a minimum corporate tax, even in the event of a loss (limited liability company € 1,750 per year).
  
• In principle, there is no loss compensation for corporate income tax purposes, as there is for income tax purposes, unless there is a group tax.
  
• In the event of significant involvement of the managing partner, his remuneration must be taxed as income from self-employment, for which there is no fixed tax rate. However, if there is no entrepreneurial risk, additional employee costs (employer contribution and municipal tax) must still be paid. (See article in this issue.)
  
• Directorate-level salaries are subject to the compulsory insurance (health and pension insurance) under § 2, paragraph 1, point 3 of the GSVG, provided that the company is a member of the Chamber of Commerce and Industry.
  
• For the Ges.m.b.H., stricter accounting rules apply and the obligation to submit the annual financial statements to the company register is in place.

Temporal scope

The new corporate tax rate will only be applied from the tax year 2005 onwards. In a fiscal year that differs from the calendar year, the profit due by December 31, 2004 is still subject to taxation at the old rate (34 %).

Company formation

A limited liability company can also be established by a single person. For the incorporation of individual enterprises into a limited liability company, Article III of the UmgrStG applies. Incorporation can take place with tax-effectual 9-month period.

Missing tax benefits for freelancers

In principle, freelancers are left out of the new corporate tax system. They are denied the half tax rate for unremunerated profits and the massive tariff benefits apply only to legal entities. While lawyers, corporate trustees, and civil engineers are legally allowed to incorporate into a GmbH, doctors can only incorporate into a OEG under the Medical Act. The extent to which doctors can actually benefit from the tax advantages of a GmbH is shown below.

Doctors' Society Ltd.

:: Professional Law
Since the VfGH of 1.3.1996, G 1279/95, permits a partnership in the form of a profit-sharing partnership to also exist as a public limited company, according to the opinion of the literature, there is no obstacle to the management of the same in the legal form of a public limited company. It would be useful if this were also enshrined in the Medical Law.

:: Tax law
- Income taxes
Management salaries should be paid only up to the extent that they are below the tax rate of 43.75 (% KÖST and KEST) applied by the limited company for profit distribution as of 2005.
- Sales tax
According to the BMF’s 2003 sales tax protocol, the false exemption under § 6, paragraph 1, item 19 of the UStG applies regardless of the legal form, if the service provided is to be qualified as a medical activity. This therefore also applies to the Ärzte Ges.m.b.H.

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