Should You Set Up a GmbH for Investing? The Numbers Say: It Depends.

In 2003, Thomas Weber, an engineer from Munich, started trading stocks. He bought Amazon, Google, and Tesla early, building a six-figure portfolio—only to realize that capital gains taxes of 26.375% were eating into his profits.

His tax advisor suggested a solution: Set up a GmbH (a German limited liability company) to benefit from lower tax rates and deferred taxation. But was it really the smarter move?

Many investors face the same dilemma. In Germany, there are two primary investment paths:

1. Private investing with capital gains tax

2. Investing through a GmbH, which offers tax advantages but comes with annual costs

So, when does forming a GmbH actually make financial sense? A simulation using different returns and starting capital amounts reveals the answer.

The Tax Reality: GmbH vs. Private Investors

Private Investing

• Capital gains are taxed at 26.375% (including a solidarity surcharge).

• Both dividends and stock gains are subject to the same tax.

• No administrative burden—banks automatically withhold the tax.

Investing via a GmbH

• Dividends from corporations: Only 1.5% tax

• Capital gains on stocks: 100% tax-free

• Capital gains on ETFs and bonds: Taxed at 30%

• Reinvestment is possible (deferred taxation until distribution)

• But: Fixed costs of €3,000 per year

These tax benefits sound great, but do they actually outweigh the costs?

€100,000 Starting Capital, 10% Returns: How Does the Money Grow?

To answer this question, we ran a 20-year simulation with an initial €100,000 investment and an annual return of 10%.

📈 Results:

• Private investing grows to €492,000 after 20 years.

• GmbH investing (retained earnings, before taxes) grows to €613,000.

• After tax on withdrawals, only €429,000 remains—less than private investing!

Conclusion: At 10% returns and €100,000 starting capital, a GmbH is NOT worth it!

📊 Chart 1: Capital Growth at 10% Returns (€100,000 Start Capital)

• Blue (Private Investing): Annual taxes slow growth.

• Green (GmbH, retained earnings): Capital grows tax-optimized, but fixed costs act as a "drag."

• Red (GmbH after payout): The advantage disappears when withdrawing funds.

What Happens at 20% Returns?

Some investors achieve much higher returns, whether through venture capital, high-growth stocks, or entrepreneurial investments.

🚀 New Simulation: €100,000 Start Capital with 20% Annual Returns

• Private investing: Grows to €2.5 million.

• GmbH (retained earnings): Grows to €4.3 million before withdrawals.

• After withdrawals: €3 million remains—€500,000 more than private investing!

Here, the GmbH decisively outperforms private investing.

📊 Chart 2: Capital Growth at 20% Returns (€100,000 Start Capital)

• Tax deferral within the GmbH leads to massive growth differences.

• The higher the return, the greater the GmbH’s advantage.

But what about different starting capital amounts? When exactly does a GmbH make sense?

Break-even Analysis: When Does a GmbH Really Pay Off?

To answer this, we calculated when a GmbH becomes more profitable, considering fixed costs and taxation.

🔍 Findings:

• At 5–10% returns, a GmbH only makes sense from €500,000+.

• At 15% returns, €200,000 is enough.

• At 20% returns, a GmbH can already be advantageous from €100,000.

• At 30% returns, a GmbH pays off at just €50,000.

📊 Chart 3: Break-even Analysis – When Does a GmbH Pay Off?

• Dark blue areas: Private investing is better.

• Red areas: GmbH investment is superior.

• Black dashed line: The tipping point—where a GmbH becomes more profitable.

These results are clear: The higher the return, the sooner a GmbH makes sense.

The Impact of Fixed Costs on Profitability

Many investors underestimate the effect of €3,000 in annual fixed costs. Especially with low capital and low returns, these costs can erode the GmbH's benefits.

The following chart illustrates how profitability shifts with different returns at €200,000 start capital.

📊 Chart 4: The Impact of Return Rate on GmbH Profitability (€200,000 Start Capital)

• Above 15% returns, the GmbH clearly wins.

• Fixed costs become negligible at high returns.

Conclusion: Should You Set Up a GmbH?

🔹 Below 10% returns? A GmbH only makes sense from €500,000+.
🔹 Between 10–15% returns? Consider a GmbH from €200,000.
🔹 Above 15% returns? A GmbH could be beneficial from €100,000.
🔹 Above 20% returns? A GmbH almost always wins.

👉 If you invest in ETFs or bonds, stay private.
👉 If you expect high growth from stocks or business investments, a GmbH can save you massive taxes.

For Thomas Weber, the decision was clear: He set up a GmbH—but only after his portfolio exceeded €250,000.

And for you? The numbers speak for themselves.

Disclaimer:

This analysis is specifically tailored for German taxpayers and companies and is based on the German tax system as of the time of writing. Tax regulations may change, and individual circumstances can significantly impact the optimal investment strategy.

Damantis does not provide tax consultancy and this article does not constitute legal or tax advice. We strongly recommend consulting a certified tax advisor or financial professional before making any investment or structuring decisions.