Inheriting a Company in Germany

German Inheritance Tax on GmbH Shares, Family Businesses and Business Succession

Anyone who inherits a house, a securities portfolio or other private assets in Germany will usually have to consider German inheritance tax relatively quickly. The situation can be very different when a business is inherited.

German tax law is designed, in principle, to avoid a situation in which a functioning company has to be sold or broken up simply because the next generation cannot finance the inheritance tax.

For this reason, substantial tax relief is available for qualifying business assets. Under certain conditions, 85% or even 100% of qualifying business assets may be exempt from German inheritance tax.

However, this does not mean that every inherited company automatically remains tax-free.

A Typical Case: The Next Generation Takes Over a GmbH

Consider a simplified example:

An entrepreneur owns 100% of the shares in a German GmbH. The company has a relevant tax value of €3 million. After his death, his daughter inherits all shares and intends to continue operating the business.

Without special relief, the company value could generally form part of the taxable inheritance.

For qualifying business assets, however, special exemption rules may apply.

Option 1: The 85% Regular Exemption

Under the so-called regular exemption, 85% of qualifying business assets can generally be exempt from inheritance tax if the statutory requirements are met.

A simplified calculation:

Company value: €3,000,000

85% exemption: €2,550,000

Remaining amount: €450,000

Children can generally benefit from a personal inheritance tax allowance of €400,000, provided the relevant requirements under German inheritance tax law are met.

If we assume, purely for illustration, that no other assets are transferred and the full allowance remains available, only:

€50,000

would initially remain as a taxable acquisition.

This example shows that even a company worth several million euros does not necessarily result in a correspondingly high inheritance tax burden.

The calculation is deliberately simplified. In practice, the decisive issue is how much of the company value actually qualifies as privileged business assets.

Option 2: Can 100% of the Business Be Exempt?

Potentially, yes.

German inheritance tax law also provides an optional 100% exemption for qualifying business assets.

However, the conditions are considerably stricter.

Among other things, the retention period is generally extended from five to seven years. Larger companies are also subject to stricter payroll requirements. In addition, the proportion of administrative assets must generally not exceed 20% for the 100% exemption regime.

The basic idea is clear:

The business should genuinely be continued and not merely inherited tax-free and sold shortly afterwards.

Why the Size of the GmbH Shareholding Matters

This is particularly important for GmbHs and other corporations.

Shares in a corporation may generally qualify for business property relief where the deceased or donor held more than 25% of the nominal capital directly.

For example:

If a father owns 100% of a GmbH and leaves the shares to his daughter, this participation threshold is generally met.

If he owns only 20%, the special relief cannot automatically be applied in the same way.

There are special rules for certain pooled or bundled shareholdings, so the ownership structure should be reviewed before a planned business succession.

A GmbH Is Not Automatically 100% Privileged Business Property

One of the most important practical points is that the tax authorities do not look only at the legal form of the company.

They also examine what assets are held inside the company.

German inheritance tax law distinguishes between qualifying business assets and so-called administrative assets.

Depending on the facts and statutory exceptions, administrative assets may include, for example:

• third-party rented real estate,

• securities,

• certain minority shareholdings,

• works of art,

• excess financial assets or liquidity.

This can become particularly relevant where a company has accumulated large cash balances, securities portfolios or other assets that are not directly required for the operating business.

If administrative assets are too dominant, the available tax relief may be reduced or, in extreme cases, lost entirely.

A manufacturing GmbH with employees, machinery and an active operating business is therefore treated differently from a company whose assets consist almost entirely of cash, investments or certain real estate holdings.

What Happens if the Heir Sells the Company Shortly Afterwards?

This is another key issue.

Under the normal 85% exemption, the statutory retention period is generally five years.

If the inherited GmbH shares are sold during this period, the previously granted tax relief may be reduced retroactively on a pro-rata basis.

Under the 100% optional exemption, the retention period is generally seven years.

Anyone who inherits a company while already planning to sell it in the short term should therefore not assume that the initial tax exemption will remain permanent.

Jobs and Payroll Can Also Matter

For larger businesses, the development of the payroll may also be relevant.

Under the normal exemption regime, the payroll period is generally five years. Depending on the number of employees, the business may have to maintain a specified cumulative payroll level.

Businesses with no more than five employees are generally exempt from the payroll requirement.

The 100% exemption regime imposes stricter conditions and uses a seven-year payroll period.

The policy objective is to prevent a company from being transferred tax-free only for employment to be substantially reduced immediately afterwards.

What About Very Large Businesses?

The standard relief rules are not unlimited.

For qualifying business assets of up to €26 million, the normal 85% exemption or, under stricter conditions, the 100% exemption can generally apply.

Transfers from the same person within a ten-year period are aggregated for this threshold.

Above €26 million, special rules apply.

Depending on the circumstances, the taxpayer may apply for a reduced exemption under the statutory phase-out model or for a needs-based relief assessment, under which the tax burden may be reduced if the heir cannot pay the tax from legally defined available assets.

For larger family businesses, succession planning therefore becomes a separate tax and corporate structuring project.

Business Succession Should Not Begin Only After Death

Perhaps the most important practical point is this:

Business succession should ideally be planned before the inheritance occurs.

Important questions include:

• Who should take over the company?

• How are the shares currently distributed?

• Is the required participation threshold met?

• What is the company worth for inheritance tax purposes?

• What assets are held inside the company?

• How much administrative property exists?

• Will the successor continue the business or sell it?

• Would a lifetime transfer by way of gift be more suitable than a later inheritance?

German inheritance tax and gift tax largely follow the same legal framework.

A planned lifetime transfer can therefore provide substantially more flexibility than an unplanned succession following death.

International Entrepreneurs Need to Look at More Than Germany

For international families, an additional layer must be considered.

If the deceased, the successor or other family members live abroad, foreign inheritance or gift tax may also become relevant.

It is not enough simply to ask where the GmbH is registered.

Depending on the case, tax consequences may also be influenced by:

• residence,

• habitual residence,

• nationality,

• location of assets,

• foreign inheritance and gift tax rules.

This is particularly important for families with connections between Germany and countries such as South Korea, the United States, Switzerland or other jurisdictions.

A German exemption for business assets does not automatically mean that no tax arises in another country.

The Current Rules Are Again Under Constitutional Review

The topic is especially relevant in autumn 2026.

The German Federal Constitutional Court is scheduled to hear a case on 13 October 2026 concerning the preferential inheritance tax treatment of business assets.

The outcome remains open.

As of September 2026, the current statutory rules remain in force. Nevertheless, entrepreneurs planning long-term succession structures should continue to monitor further developments.

Conclusion

Anyone inheriting a business or substantial GmbH shareholding in Germany does not automatically face a high inheritance tax bill.

German inheritance tax law provides significant relief for qualifying business assets. 85% and, under stricter conditions, even 100% of qualifying business property may be exempt from inheritance tax.

The key question is therefore not only:

“How much is the company worth?”

It is equally important to ask:

“How is the business structured, what assets are held inside it, and what does the successor intend to do with the company after the transfer?”

For this reason, business succession should not be viewed solely as an inheritance law issue. It is also a matter of corporate structure, tax planning and long-term family strategy.

Status: 15 September 2026

This article provides general information only and does not constitute individual tax or legal advice. Small differences in ownership structure, asset composition or personal circumstances may have significant tax consequences.