Capital gains

Gains on the sale of business assets are generally included in
taxable income and taxed at ordinary rates.

However, gains on
the sale or disposal by an individual of his entire business, or an
autonomous part thereof, or his partnership interest, are treated
as “income from commercial business activity”. An allowance
of up to € 45,000 (under certain circumstances) is granted if the
seller is 55 years of age or older. The amount remaining after this
deduction is subject to a reduced tax rate (applicable to extraor-
dinary income, außerordentliche Einkünfte). The rationale for this
is to avoid the disadvantages of the progressive tax rate system,
e. G. When a one-time gain is generated in return for assets
which have been earned over a long period. The reduced tax rate
is based on notional spreading of the capital gain over a period
of five years (called the 1/5th rule).

If the capital gain does not ex-
ceed the ceiling of € 5 million, older taxpayers (55 and older) may
alternatively apply for a reduced tax rate. The reduced tax rate is
56% of the average tax rate. The minimum tax rate is 14%.