From the annual accounts to the distribution resolution: return, receipt and hidden profit distribution

Brenner Messtechnik GmbH made an annual surplus of €180,000 in 2025. Its shareholder and managing director wants to move €100,000 of it to his private account and asks whether he can simply transfer the money. Between the profit and his account, however, stand a resolution, two annual returns, a withholding return and a tax deduction, and anyone who skips a step ends up paying twice.

Two levels, two taxes

A GmbH is a taxpayer in its own right. It pays tax on its own income, corporation tax and trade tax, in the year in which it earns that income. The shareholder is taxed only on what actually reaches him, and that is the distribution, not the company's profit as such.

This separation is the core of the whole subject. Anyone who wants money out of the company moves it from one tax level to the other, and each level carries its own duties. The company files, resolves, withholds and reports; the shareholder either files himself or relies on the final withholding effect.

How corporation tax and trade tax are computed in detail is covered by the course on corporation and trade tax. This course starts where that one ends: with the returns by which the company closes its year, and with the route that taxed profit takes into the shareholder's private sphere.

Section 8(3), first sentence, of the Corporation Tax Act (KStG) lays down a basic rule to know before thinking about distributions at all. For determining income it is irrelevant whether the income is distributed. A distribution therefore does not lower the company's tax; it comes after it.

That is what sets a distribution apart from a salary. A reasonable managing director's salary is a deductible business expense for the GmbH and employment income for the recipient. A profit distribution, by contrast, is paid out of profit that has already been taxed and is caught a second time in the recipient's hands, now as investment income.

For planning purposes this means that anyone who needs money from the company should first ask by which route to draw it. Salary, rent and interest on arm's-length terms reduce the company's profit. A distribution does not, but in return it is tied to no contract and to no service given in exchange.

The burden therefore comes in two layers. The first carries the corporation tax rate that applies to assessment periods up to and including 2027, and so to 2026, plus solidarity surcharge and trade tax. The second carries the shareholder's own tax on whatever amount is actually paid out.

The 5.5 percent surcharge appears twice in this course. It is levied on the company's corporation tax and equally on the withholding tax the company deducts when it distributes. Section 3(1) no. 5 of the Solidarity Surcharge Act expressly names the withholding tax to be levied as its assessment base.

The returns that close the year

Under § 31(1) KStG the provisions of the Income Tax Act apply correspondingly to the conduct of taxation, unless the Corporation Tax Act provides otherwise. Like a sole trader, the company therefore files an annual return, only it is the corporation tax return rather than an income tax return.

Subsection 1a prescribes the form. The corporation tax return and the return for the separate determination of tax bases must be transmitted electronically in the officially prescribed data record. Paper is available only on application to avoid undue hardship, and then the legal representative signs by hand.

The second return is often overlooked, although for this subject it matters more. Section 27(2), fourth sentence, KStG obliges corporations to file returns for the separate determination of tax bases as at the end of every financial year, among other things for the balance of the tax contribution account.

The duty applies even in years with no distribution and no contribution at all. The account is rolled forward, its balance is determined separately, and the notice serves as the basis for the following year's determination. How the account works, and why it decides on tax-free repayments, is shown in the third module.

• Corporation tax return for the assessment period, filed electronically (§ 31(1a) KStG)
• Return for the separate determination of tax bases, including the tax contribution account (§ 27(2) fourth sentence KStG)
• Return for the trade tax base amount, covered in the course on corporation and trade tax
• Withholding tax return for every single distribution, independent of the annual cycle (§ 45a EStG)

Where the financial year differs from the calendar year, a special rule governs advance payments. Section 31(2) KStG requires them to be made already during the financial year that ends in the assessment period. Such a financial year is declared in the assessment period in which it ends.

Finally, a small rule with a practical effect: under § 31(1), second sentence, KStG the individual corporation tax amounts are rounded to full euros in the taxpayer's favour when tax is assessed. Anyone checking the notice should therefore not treat a difference of a few cents as an error.

By when the returns are due

The deadline is not in the Corporation Tax Act but in § 149 of the Fiscal Code (AO). Under subsection 2, returns relating to a calendar year must be filed no later than seven months after that year ends. For 2025 the deadline therefore expires at the end of July 2026.

Where a tax adviser has been engaged to prepare the returns, subsection 3 moves the deadline to the last day of February of the second following year. In the same numbered item the provision names both the corporation tax return and the determination return under § 27(2), fourth sentence, KStG.

Both returns thus move in step, and that makes sense. Determining the contribution account relies on the same tax balance sheet as the corporation tax return. A company that files only one of the two has already done the groundwork for the other and merely forgoes the final step.

The tax office may, in individual cases, demand returns covered by the longer deadline earlier. How such an early demand works, when an extension is possible and what late filing costs is dealt with in the course on objections, deadlines and deferral; the basic rule is enough here.

One distinction tends to blur in practice. The deadlines in § 149 AO concern the annual returns. The withholding tax on a distribution runs on an entirely different clock, namely the day the money is received, and it does not wait for the following year's annual return.

From resolution to receipt

A GmbH does not distribute because its managing director transfers money. Under § 46 no. 1 of the Limited Liability Companies Act (GmbHG), adopting the annual accounts and appropriating the result fall to the shareholders. Only their resolution turns an annual surplus into a claim to payment.

Section 29 GmbHG sets the framework for that resolution. The shareholders are in principle entitled to the annual surplus plus any profit carried forward and minus any loss carried forward. Unless the articles provide otherwise, they may however allocate amounts to revenue reserves or carry them forward as profit.

If the balance sheet is already drawn up with the result partly appropriated, or reserves are released, § 29(1), second sentence, GmbHG entitles the shareholders to the balance-sheet profit instead of the annual surplus. Paying out profits retained in earlier years therefore also requires a shareholders' resolution.

The profit is shared in proportion to the shares held, unless the articles lay down another key. Section 30 GmbHG draws a limit: assets needed to preserve the share capital must not be paid out to the shareholders. For a UG the statutory reserve comes on top, which the course on choosing between GmbH and UG explains.

For tax purposes the resolution fixes two things. To whom the distribution is attributed depends, under § 20(5) of the Income Tax Act (EStG), on who held the shares at the time of the profit distribution resolution. When it is received is governed instead by § 44(2) EStG.

Under that rule, profit shares whose distribution a corporation resolves are received on the day that the resolution sets as the payment date. If no such date is set, the day after the resolution is deemed to be the time of receipt.

The day of receipt is more than a formality. On it the withholding tax arises, on it the tax must be withheld and, as the second module shows, for a GmbH distribution it must also be paid over on that very day. A resolution without a payment date therefore starts the clock the very next morning.

A carefully drafted resolution therefore states the amount, the allocation and the payment date. At the same time it makes clear when the company must hold enough cash: not only for the net payment to the shareholders but also for the withheld tax, which goes to the tax office on the same day.

The hidden profit distribution: the detour that costs twice

Not every distribution is resolved. If the company pays its shareholder more than it would pay an unrelated third party, or forgoes income for his benefit, this is called a hidden profit distribution. The legislation uses the term in several places without defining it itself.

For the company, the consequence is laid down in § 8(3), second sentence, KStG: hidden profit distributions do not reduce income. What was booked as an expense is added back to income; the course on corporation and trade tax shows this adjustment in detail.

The consequences do not stop with the company, however. Section 20(1) no. 1, second sentence, EStG expressly counts hidden profit distributions among the shareholder's other receipts. The same amount is then non-deductible for the company and, at the same time, investment income for the shareholder.

This also brings the hidden distribution within the withholding system. Section 43(1), first sentence, no. 1 EStG attaches withholding tax to investment income within § 20(1) no. 1, and on the wording that includes the hidden distribution. By its nature, nothing was withheld on it.

Under § 44(5) EStG the payer of the investment income is liable for tax not withheld, unless it proves that it breached its duties neither intentionally nor through gross negligence. Where the company knowingly made the payment to its own shareholder, that proof is hard to provide.

Typical triggers are an excessive salary, rent above market level for premises owned by the shareholder, an interest-free loan to him, or private use of a company car without an agreement. What they have in common is that a benefit flows which unrelated parties would not have agreed in that form.

Prevention is unspectacular: clear contracts between company and shareholder concluded in advance, arm's-length terms and actual performance that matches the contract. Anyone who wants money out of the GmbH should take it openly, by salary, resolution or return of contributions, and not by a detour.

How the receipt is taxed in the shareholder's hands when he holds the shares privately is covered by the course on investment income. A company as shareholder and shares held as business assets follow their own rules, set out in the third module.