Germany–Switzerland · Succession
Inheritance · Gifts · Businesses · ShareholdingsBusiness succession between Germany and Switzerland
Cross-border business succession requires more than an assessment of inheritance or gift tax alone. Key factors include whether the transfer concerns a sole proprietorship, a partnership, a German limited liability company (GmbH) or a Swiss company limited by shares (AG), where permanent establishments are located, where the deceased, donor and recipient reside, and whether German business asset relief is available at all. In an inheritance, the separate Germany–Switzerland inheritance tax treaty may also apply. This treaty generally does not apply to gifts, although a special German–Swiss arrangement must be considered for gifts of businesses.
Starting point
Not every business succession receives the same tax treatment
In business succession between Germany and Switzerland, the first step is to establish exactly what is being transferred.
A sole proprietorship with a Swiss permanent establishment, an interest in a partnership and shares in a Swiss AG may receive entirely different inheritance tax treatment.
The consequences also differ depending on whether the transfer takes place by inheritance, a lifetime transfer in anticipation of inheritance or a gift.
Only after this classification can tax treaties, German relief provisions, Swiss cantonal taxes and potential income tax consequences be assessed correctly.
Business structure
The first step is precise legal classification
Sole proprietorship
The business assets are directly attributable to the owner. Permanent establishment rules and rules based on asset location may therefore apply directly.
Partnership
Under the inheritance tax treaty, partnership interests may be closely linked to permanent establishment assets.
Corporation
Shares in an AG or GmbH must generally be distinguished from the company’s assets. The company’s permanent establishments are not automatically attributed to the shareholder.
“Business” is not a sufficiently precise tax category
International succession planning requires a clear distinction between transferring a business itself, an interest in a business partnership and shares in a corporation.
German tax liability
German residence on either side may bring the entire acquisition within the scope of German tax
Under Section 2 of the German Inheritance and Gift Tax Act (ErbStG), unlimited German inheritance or gift tax liability generally applies if the deceased or donor, or the recipient, qualifies as a German resident for these purposes at the relevant time.
Germany may therefore include Swiss business assets or shareholdings in the tax base.
Only at the next stage is it necessary to assess whether a tax treaty restricts these taxing rights or whether foreign tax must be credited.
- The recipient’s German residence may be sufficient
- The tax can cover worldwide acquisitions, although it is not a tax on worldwide income
- Swiss business assets are not automatically excluded
- Assess inheritances and gifts separately
- Apply the treaty after establishing liability under domestic law
Business succession on death
The separate Germany–Switzerland inheritance tax treaty may apply to an inheritance
Germany and Switzerland have a separate agreement covering estate and inheritance taxes.
This treaty distinguishes, among other categories, between immovable property, permanent establishment assets and other property.
The permanent establishment rule is particularly relevant to business succession. Business assets attributable to a permanent establishment in a contracting state may generally be taxed in that state.
Shares in a corporation, however, do not generally become permanent establishment assets merely because the company itself operates a business.
An heir resident in Germany may trigger additional German taxing rights
Even if the deceased was resident in Switzerland, Germany may impose additional tax under the special rules of the inheritance tax treaty because the beneficiary is resident in Germany. Double taxation is then addressed through the treaty’s relief provisions.
Lifetime succession
The inheritance tax treaty generally does not apply to ordinary gifts
If a business is transferred during the owner’s lifetime, German and Swiss domestic gift tax law provides the starting point.
The Germany–Switzerland agreement on estate and inheritance taxes generally does not apply to ordinary lifetime gifts.
Where both countries impose tax, the domestic foreign gift tax credit under Section 21 ErbStG may therefore be particularly relevant.
Special arrangement for businesses
Germany and Switzerland have a special mutual agreement arrangement for gifts of businesses, under which the provisions of the inheritance tax treaty may be applied correspondingly. Whether a particular transfer falls within this arrangement should be assessed on a case-by-case basis.
A transfer of shares is not equivalent to a transfer of a business
Legally, transferring shares in a Swiss AG is not automatically the same as transferring the business operated by that AG. This distinction may be significant for international gift tax purposes.
Treaty framework
Permanent establishments, partnerships and corporations must be distinguished
| Asset type | Typical classification on inheritance | Key consideration |
|---|---|---|
| German sole proprietorship | Permanent establishment assets | Germany may tax as the state where the permanent establishment is located |
| Swiss sole proprietorship | Permanent establishment assets | Switzerland may tax as the state where the permanent establishment is located |
| Business partnership interest | The permanent establishment rule may apply | The treaty provides special treatment for partnership interests |
| Shares in a Swiss AG | Generally other property | The AG’s business assets are not automatically attributed to the shareholder |
| Shares in a German GmbH | Generally other property | Assess German domestic taxation and relief separately |
| Real estate required for business operations | Immovable property may fall under a separate treaty provision | The state where the property is located may also be relevant |
GmbH & Swiss AG
Corporate shareholdings are a distinct category of succession
In the case of a corporation, it is the shareholder’s interest that is transferred, rather than the business itself.
This is particularly important for a Swiss AG or GmbH: the company owns its business assets. The shareholder owns their shares or equity interest in the company.
The value of the shareholding must therefore be determined for inheritance and gift tax purposes.
Shares in an operating Swiss company do not qualify for German business asset relief under Section 13b ErbStG merely because the company carries on an operating business.
Swiss corporations generally fail the EU/EEA geographical requirement in Section 13b ErbStG
For shares in corporations, Section 13b(1) no. 3 ErbStG requires the registered office or place of management to be in Germany, the EU or the EEA. A typical Swiss AG with both its registered office and place of management in Switzerland does not meet this requirement.
Permanent establishment assets
When transferring a business itself, the location of the permanent establishment may be decisive
Unlike a transfer of corporate shares, a transfer involving a sole proprietorship or partnership may actually involve permanent establishment assets.
On inheritance, the inheritance tax treaty may generally allocate taxing rights over such assets to the state where the permanent establishment is located.
However, German business asset relief is subject to a further geographical restriction. In addition to German business assets, Section 13b(1) no. 2 ErbStG covers only corresponding business assets serving a permanent establishment in an EU or EEA state.
Swiss permanent establishment
Taxing rights under the treaty do not automatically mean eligibility for German business asset relief
A Swiss permanent establishment may be allocated to Swiss taxation under the inheritance tax treaty.
For relief under Sections 13a and 13b ErbStG, however, it is also necessary to establish whether the assets fall within a category eligible for relief in the first place.
- The treaty and Section 13b address different questions
- Switzerland is not an EU or EEA state
- Swiss permanent establishment assets may therefore present difficulties
- No automatic 85% or 100% relief
Sections 13a and 13b ErbStG
German business asset relief requires particularly careful assessment in cases involving Switzerland
German inheritance tax law generally provides substantial relief for qualifying business assets.
However, the familiar standard relief of 85% and optional relief of 100% first require the assets to fall within an eligible category under Section 13b ErbStG.
This is often the first difficulty for Swiss businesses: Section 13b imposes a geographical restriction to Germany, the EU and the EEA for business assets and corporate shareholdings.
| Asset being transferred | Eligibility under Section 13b ErbStG | Typical issue |
|---|---|---|
| German sole proprietorship | Generally possible | Assess the additional requirements and non-qualifying investment assets (Verwaltungsvermögen) |
| Shareholding of more than 25% in a German GmbH | Generally possible | Consider the ownership percentage, non-qualifying investment assets and retention requirements |
| Swiss AG with its registered office and management in Switzerland | Generally not eligible under Section 13b(1) no. 3 | Switzerland is outside the EU and EEA |
| Swiss permanent establishment of a sole proprietorship | Generally problematic | Section 13b(1) no. 2 covers foreign permanent establishments only within the EU or EEA |
| EU or EEA permanent establishment | Generally possible | Assess the additional relief requirements |
The 25% threshold does not resolve the Swiss eligibility issue
A shareholding of more than 25% may satisfy one requirement of Section 13b ErbStG for corporations. However, it does not replace the additional requirement that the registered office or place of management must be in Germany, the EU or the EEA.
Valuation
Business valuation comes before succession planning
Inheritance and gift tax are generally based on the relevant business value for tax purposes, rather than book values, nominal values or historical acquisition costs.
For unlisted corporations, the fair market value of the shareholding must generally be determined under the German Valuation Act (BewG).
This value may be derived from sales between unrelated third parties close to the valuation date. Where no such transactions exist, income-based valuation methods or other recognised market-standard methods may be used.
Income-based value
Future earnings and sustainable earning capacity may determine the valuation.
Sale to an unrelated party
Suitable transactions close to the valuation date may provide direct evidence of fair market value.
Asset structure
For holding companies or companies managing their own assets, the underlying asset value may be particularly relevant.
The Swiss tax value does not automatically replace a German valuation
Swiss cantonal valuations of unlisted shares may be useful for the analysis. However, German inheritance or gift tax requires an assessment under German valuation rules.
Succession planning
Inheritance or gift?
| Issue | Inheritance | Gift |
|---|---|---|
| Germany–Switzerland inheritance tax treaty | Generally applicable | Generally not applicable to ordinary gifts |
| Control over the timing for tax purposes | Only limited scope for planning | The transfer date can be actively planned |
| Personal allowances | Available on death, taking previous acquisitions into account | Repeated use can be planned at ten-year intervals |
| Business valuation | Value at the date of death | Value when the gift is completed |
| Gradual involvement of the successor | Generally not possible through the inheritance itself | Possible through partial transfers |
| Swiss cantonal gift tax | Not relevant | Assess according to the canton and the relationship between the parties |
Moving abroad & succession
Business succession and a move to Switzerland should be planned together
Several areas of taxation overlap where entrepreneurs in Germany are also planning to move to Switzerland.
A corporate shareholding may trigger exit taxation under Section 6 of the German Foreign Tax Act (AStG) when the shareholder moves abroad.
If the shareholding is gifted beforehand, gift tax may arise instead, and subsequent exit taxation may affect a different person or no longer apply in the same way.
At the same time, German nationals remain subject to special rules extending inheritance and gift tax liability after departure.
Do not optimise individual taxes in isolation
Bringing a gift forward may change the exit tax position while also triggering gift tax or reducing the availability of relief. Income tax, inheritance and gift tax, treaty rules and Swiss tax should therefore be modelled together.
Particular care is needed when a German GmbH before departure becomes a Swiss AG through restructuring
If the business structure is also changed before succession, additional issues may arise under reorganisation tax law, including hidden capital contributions or profit distributions, exit taxation and international transfer pricing, alongside inheritance and gift tax.
Example
Entrepreneur in Switzerland — child living in Germany
An entrepreneur lives in Switzerland and holds 100% of an operating Swiss AG. Their child lives permanently in Germany. The business is to pass to the next generation.
Recipient
The child’s German residence may trigger unlimited German inheritance or gift tax liability.
Valuation
The Swiss AG shares must be valued at fair market value at the time of transfer.
Business asset relief
A typical Swiss AG generally does not meet the EU/EEA requirement under Section 13b ErbStG.
Transfer method
Inheritance and gifts require different assessments because of the treaty rules and timing.
Documentation
Which documents are needed for cross-border business succession?
| Document | Purpose |
|---|---|
| Partnership agreement or articles of association | Assess the legal form and transfer restrictions |
| Commercial register extracts | Document the registered office, management and ownership structure |
| List of shareholders or share register | Establish ownership percentages |
| Annual financial statements for several years | Prepare the business valuation |
| Current financial information | Establish the circumstances at the valuation date |
| Overview of permanent establishments | Assess the treaty allocation of business assets |
| Business valuation | Determine fair market value for tax purposes |
| Evidence of residence and nationality | Determine personal tax liability and treaty treatment |
| Details of earlier gifts | Assess Section 14 ErbStG and available allowances |
| Succession agreements | Document the transfer of assets and voting rights |
Our approach
Germany–Switzerland business succession in eight steps
People involved
Establish the residence and nationality of everyone involved.
Legal form
Classify the business, partnership or corporation.
Locations
Identify the registered office, place of management, permanent establishments and real estate.
Valuation
Determine the business or shareholding value for tax purposes.
Germany
Assess tax liability, allowances and relief.
Switzerland
Analyse cantonal inheritance or gift tax.
Tax treaty
For an inheritance, determine taxing rights and the relief method.
Implementation
Coordinate agreements, registers, tax notifications and the succession process.
Frequently asked questions
Business succession between Germany and Switzerland
Does a child living in Germany have to pay tax on Swiss business assets?
Does the Germany–Switzerland inheritance tax treaty apply to business succession?
Does the treaty also apply to gifts?
Are shares in a Swiss AG permanent establishment assets?
What is the position for a partnership?
Can shares in a Swiss AG qualify for German business asset relief?
Is a shareholding of more than 25% sufficient for relief?
Do Swiss permanent establishment assets qualify for relief under Sections 13a and 13b ErbStG?
How is a Swiss AG valued for German inheritance tax?
Can the Swiss tax value be used?
Is a gift better than an inheritance?
Can personal allowances be used more than once?
What if the business owner plans to move to Switzerland?
Can Swiss inheritance or gift tax be credited in Germany?
Does the business transfer have to be notified in Germany?
Further tax insights
Succession, businesses & shareholdings
Germany–Switzerland tax advice
Planning business succession between Germany and Switzerland?
We assess German inheritance and gift tax, the Germany–Switzerland inheritance tax treaty, Swiss cantonal taxes, business valuation, the applicability of Sections 13a and 13b ErbStG, permanent establishments and corporate shareholdings, as well as the interaction with a planned move abroad.
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