Is it worth buying a “defunct” AG or GmbH?

The idea seems tempting: The seller has an inactive corporation or limited liability company that they no longer want, and the buyer wants a corporation for their operations. In a trade, both parties save costs: the seller saves on liquidation costs and the buyer saves on establishing the company. When an inactive company is traded and then liquidated, this is referred to as a "shell transaction."

It seems even more attractive if the company has loss carryforwards, i.e., the company has incurred losses in the past and has not yet been able to offset them with profits. These loss carryforwards can be offset for tax purposes within the following seven years. This saves the new owner income taxes until the loss carryforwards are exhausted. Furthermore, depending on the circumstances, the buyer can later receive tax-free profit distributions by repaying excess share capital or capital contribution reserves. Finally, if the share capital is high (over one million), they would also save on the issuing tax.

The whole thing, of course, is too good to be true. The tax authorities classify shell trading as the liquidation and re-establishment of a company. This means that neither loss carryforwards nor capital contribution reserves can be claimed, and the share capital is subject to issuance tax. And it gets worse: The buyer even has to pay withholding tax on future profits, since the "replenishment" of equity is considered the issuance of bonus shares. From a tax perspective, shell trading is therefore very unattractive.