Pension commitment before selling or handing over a GmbH: continue, transfer out, buy out

A fictional family case as a common thread

Fictional case, not a client matter. Mr Berger holds 100 percent of a GmbH and is its managing director. Many years ago, the GmbH granted him a written commitment to a lifelong retirement pension. He would like to step back in the next few years and is considering two options: selling his shares to an unrelated buyer or handing them over to his daughter.

Assumptions: The shares are held as private assets, Mr Berger is resident in Germany, the commitment meets the requirements of § 6a para. 1 EStG, and the entitlement has already been partly earned and has value. Whether this is the case in a real situation, and whether the commitment is rooted in the service agreement, would first have to be checked. We deliberately do not give any amounts.

For your planning: Write down who granted the commitment, what it promises, which contract it is based on and whether it exists fully in writing.

How does the pension commitment appear in the GmbH's balance sheet?

Tax balance sheet. Under § 6a para. 1 of the German Income Tax Act (EStG), the GmbH may only recognise a pension provision if and to the extent that

• the beneficiary has a legal claim to the benefits,
• the commitment does not provide for benefits that depend on future profit-related remuneration and contains no reservation allowing the benefit to be reduced or withdrawn (unless the reservation is limited to circumstances in which this is permitted under general legal principles with due regard to equitable discretion), and
• the commitment is granted in writing and contains clear details of the type, form, conditions and amount of the benefits.

The provision may be recognised at no more than the going-concern value (Teilwert), calculated using an actuarial interest rate of 6 percent and the recognised rules of actuarial mathematics. Increases whose timing or extent is uncertain only count once they have occurred.

Commercial balance sheet. Provisions must be recognised for uncertain liabilities (§ 249 para. 1 of the German Commercial Code, HGB). They are measured at the settlement amount required according to prudent commercial judgement (§ 253 para. 1 HGB). Pension obligations are discounted at the average market interest rate of the past ten financial years; a flat rate for an assumed remaining term of 15 years is also permitted. The rate is determined by the Deutsche Bundesbank and published monthly. We do not state a specific rate here. In addition, the difference from a valuation based on the seven-year average must be calculated every year. Profits may only be distributed if, after the distribution, the freely available reserves, plus any profit carried forward and minus any loss carried forward, at least equal this difference (§ 253 para. 6 HGB).

For your planning: Ask for the provision in the commercial balance sheet and in the tax balance sheet to be shown side by side. This is exactly the comparison a buyer will ask for.

Florian Enders on the pension commitment when selling or handing over a GmbH

Why do buyers and successors hesitate when there is a pension commitment?

By buying the shares, a buyer also takes over a GmbH that owes the obligation. The following points are criteria to check, not discount rates:

• Obligation on the balance sheet: The provision sits on the liabilities side and stays there until the commitment has been fulfilled or otherwise ended.
• Difference between commercial and tax value: The interest rate and calculation rules differ. Only the actuarial report shows how large the difference is.
• Interest rate risk: The commercial interest rate follows the average of past market rates. If it changes, the provision changes.
• Longevity risk: With a lifelong pension, it is not known how long payments will be made.
• Distribution block: The difference under § 253 para. 6 HGB can limit distributions.
• Ties from earlier applications: If the GmbH has already filed an application under § 4d para. 3 or § 4e para. 3 EStG, it remains irrevocably bound by it, as does its respective legal successor.

Whether and how this affects the purchase price is a matter for negotiation and cannot be quantified without the figures of the individual case.

For your planning: Gather the commitment, the actuarial report, both balance sheet values and any applications filed before a buyer asks for them.

The four routes at a glance

Route 1: The GmbH continues the commitment

The commitment was granted by the GmbH. If Mr Berger sells or gives away his shares, the shareholder changes, but the debtor of the pension does not. The provision continues to be carried under the rules described above.

If Mr Berger steps down as managing director and his entitlement continues, the going-concern value for tax purposes is the present value of the future pension benefits (§ 6a para. 3 sentence 2 no. 2 EStG). In the year he leaves, the provision may be increased up to this value (§ 6a para. 4 sentence 5 EStG). For him, the later pension payments are retirement pay and therefore income from employment (§ 19 para. 1 sentence 1 no. 2 EStG). The statutory wording we read shows no further tax consequence arising from the change of shareholder alone.

For your planning: Continuation is the default. Whether it works depends on whether the buyer or your daughter is willing to take on the obligation and its risks.

Route 2: Transfer to a pension fund or a support fund

Pension fund. The GmbH, as the sponsoring company (Trägerunternehmen), may deduct contributions to a pension fund as business expenses to the extent that they are based on a fixed obligation or cover shortfalls at the fund (§ 4e para. 1 EStG). No deduction is allowed to the extent that the benefits would not have business reasons if the GmbH provided them directly (para. 2). Para. 3 governs the takeover of an existing obligation:

• On application, the total payments required are deducted in equal instalments over the following ten financial years.
• If a pension provision has to be released, increasing profit, the GmbH can deduct payments equal to the released provision in the year of transfer; only the excess is spread over the following ten years.
• The application is filed by the GmbH as the taxpayer. It is irrevocable, and its respective legal successor is bound by it. If only the shares are sold, the GmbH itself remains bound.

Your side as beneficiary. Ongoing employer contributions to a pension fund count as income from employment (§ 19 para. 1 sentence 1 no. 3 EStG). Under § 3 no. 66 EStG, payments by an employer or a support fund to a pension fund for the takeover of existing pension obligations or pension entitlements are tax-free, but only if an application under § 4d para. 3 or § 4e para. 3 EStG has been filed. This wording does not provide for a split into an earned and a future portion. Whether such a split is necessary for the transfer remains open.

Support fund. The GmbH may only deduct contributions to a support fund to the extent that the fund's benefits would have business reasons if provided directly and the limits of § 4d para. 1 EStG are observed. Persons who are not employees also count as prospective beneficiaries if benefits have been promised to them in writing in connection with their work for the company. Contributions above the limit can be carried forward to the following three financial years (para. 2). The application under para. 3 relates only to the amount that the fund pays to a pension fund. It does not create an application requirement for the transfer to the support fund itself. It remains open what wage tax consequence a transfer to a support fund has for Mr Berger.

For your planning: Before transferring to a pension fund, make a conscious decision on the application and inform the buyer, because the GmbH he takes over remains bound by an application once filed.

Route 3: The GmbH buys out the commitment

If the GmbH pays Mr Berger an amount in return for giving up his claims, this must be examined as remuneration from his employment (§ 19 EStG). It makes no difference whether the payments are recurring or one-off.

One-fifth rule only if its conditions are met. The rule applies to extraordinary income. Two cases under § 34 para. 2 EStG are relevant here:

• No. 2: Compensation within the meaning of § 24 no. 1 EStG, for example as a replacement for lost or future income. Whether a buyout of the pension commitment counts as such compensation remains open.
• No. 4: Remuneration for work spanning several years, meaning work over at least two assessment periods and more than twelve months. In VI R 4/16, the BFH considered this route possible for a waiver.

Whether the one-fifth rule applies in an individual case cannot be promised in general terms.

Calculation scheme with placeholders (§ 34 para. 1 in conjunction with § 32a EStG):

• A is the remaining taxable income, i.e. excluding the extraordinary income.
• B is the total of all extraordinary income received in the assessment period. The scheme assumes that the buyout is the only such income; if there is other extraordinary income, it is also included in B.
• ESt(x) is the income tax under the § 32a EStG tariff for income x; for joint assessment, the splitting method under § 32a para. 5 EStG applies.
• Tax on B = 5 × (ESt(A + B/5) minus ESt(A)).
• Total tax = ESt(A) plus tax on B.
• If A is negative and the total taxable income is positive, the tax is five times the tax on one fifth of the total taxable income.

Solidarity surcharge and church tax are not included.

Risk of a constructive dividend. A constructive dividend does not reduce the GmbH's income (§ 8 para. 3 sentence 2 of the German Corporation Tax Act, KStG) and counts as Mr Berger's income from capital assets (§ 20 para. 1 no. 1 sentence 2 EStG). In a decision not designated for official publication (VIII R 17/23), the BFH held that a buyout paid to a controlling shareholder before the pension becomes payable is not a constructive dividend if it is made for business reasons. The standard is a double arm's length test, from the perspective of both the company and the beneficiary. The case involved a restructuring situation and cannot simply be applied to a buyout before a sale or in connection with a handover to a child. We do not derive any further criteria from it. How a buyout in connection with a handover to a child should be assessed remains an open question.

For your planning: Check whether the written commitment provides for a lump-sum buyout at all. Before any buyout, document why it has business reasons from the GmbH's perspective and how the amount was calculated.

Does the Company Pensions Act apply to you as a shareholder-managing director?

The Company Pensions Act applies to commitments made to employees (§ 1 para. 1 BetrAVG). Under § 17 para. 1 sentence 2 BetrAVG, §§ 1 to 16 apply accordingly to persons who are not employees if pension benefits have been promised to them in connection with their work for a company. In decision VIII R 17/23, the BFH works on the basis that § 3 BetrAVG does not cover the buyout for controlling shareholder-managing directors because of § 17 para. 1 BetrAVG. This is an assumption made by a tax court; we have not reviewed labour court case law. For Mr Berger as sole shareholder, the question therefore remains open.

Only if the Act applies, the following rules take effect, among others:

• Buyout (§ 3 BetrAVG): Vested entitlements on termination of the employment relationship and ongoing benefits may only be bought out under the conditions set out there. Without consent, this is only permitted if the monthly benefit does not exceed 1.5 percent of the monthly reference value under § 18 of Book IV of the German Social Code (SGB IV) (18 tenths for lump-sum benefits). With consent, a limit of 2 percent applies (24 tenths for lump-sum benefits), and only if the buyout amount is used directly for contributions to the statutory pension insurance. Paras. 3 and 4 cover further special cases. The buyout must be shown separately and paid in a single payment.
• Vesting (§ 1b BetrAVG): The entitlement is preserved if the employment relationship ends after the age of 21 and the commitment has existed for at least three years. A takeover of the commitment by another person does not interrupt these periods.
• Insolvency protection (§ 7 BetrAVG): If the employer becomes insolvent, there is a claim against the insolvency protection body. For entitlements, this applies only if they are vested under § 1b. Ongoing benefits are capped at three times the monthly reference value. There is no claim to the extent that the sole or main purpose of the commitment or its improvement was to claim insolvency protection; commitments and improvements made in the last two years before the insolvency event are only protected to a limited extent.

If the Act does not apply, you cannot assume this protection.

For your planning: First clarify whether you count as controlling. The buyout limits and insolvency protection depend on this.

Route 4: You waive the commitment

Under civil law, a waiver is a release agreement (Erlassvertrag): the obligation is extinguished if the creditor releases the debtor from the debt by contract (§ 397 para. 1 of the German Civil Code, BGB). For tax purposes, it is the most delicate route.

• Hidden capital contribution: According to BFH VI R 4/16, a shareholder-managing director's waiver of an entitlement that has already been earned and has value is only not a hidden capital contribution if an unrelated managing director would also have given it up.
• Receipt of wages without cash: If the commitment is rooted in the service agreement, the judgment holds that, with such a hidden capital contribution, the managing director receives wages equal to the going-concern value of the entitlement, not the value under § 6a EStG. Tax may therefore arise even though no money is paid. The one-fifth rule under § 34 para. 1 and para. 2 no. 4 EStG may apply.
• GmbH level: To the extent that the obligation ceases to exist through the release, the reason for the provision also ceases to exist (§ 249 para. 2 HGB); for tax purposes, the provision requires a legal claim (§ 6a para. 1 no. 1 EStG). Hidden capital contributions do not increase the GmbH's income; however, income is increased to the extent that the hidden capital contribution reduced the shareholder's income (§ 8 para. 3 sentences 3 and 4 KStG). Contributions are recognised at going-concern value (§ 6 para. 1 no. 5 EStG). How the release of the provision and the contribution affect the GmbH's income overall must be checked in the individual case.
• Your shares: For shares held as private assets, hidden capital contributions count as subsequent acquisition costs (§ 17 para. 2a sentence 3 no. 1 EStG). For shareholdings held as business assets, § 6 para. 6 sentence 2 EStG provides that the acquisition costs increase by the going-concern value.
• Co-shareholders and children: An increase in the value of shares that a participating individual obtains through another person's contribution to the company is also treated as a gift (§ 7 para. 8 of the German Inheritance and Gift Tax Act, ErbStG). If your daughter already holds shares at the time of the waiver, this is a point to check.

How a waiver of an entitlement without value, or of future increases not yet earned, should be treated remains open.

For your planning: If you waive, plan the liquidity for a possible tax charge and have the going-concern value determined in advance.

What does the commitment mean for a sale and for a handover to a child?

Sale. Within the last five years, Mr Berger held at least 1 percent; his capital gain therefore counts as business income (§ 17 para. 1 EStG). The gain is the amount by which the sale price, after deduction of selling costs, exceeds the acquisition costs (§ 17 para. 2 EStG). The pension commitment affects this calculation in two places: a waiver resulting in a hidden capital contribution increases the acquisition costs, and the obligation being taken over is part of the purchase price negotiations. To what extent is open.

Handover to the daughter. How the pension obligation affects the value of the shares for gift tax remains an open question; we do not give a figure. If there is a waiver before or during the handover, § 7 para. 8 ErbStG must also be checked.

For your planning: Decide whether the commitment will be dealt with before or after the contract, and record the arrangement in the contract.

Steps before a sale or handover

1. Gather the commitment with all amendments and check whether it is in writing and unambiguous (§ 6a para. 1 EStG) and which contract it is based on.
2. Obtain an actuarial report and compare the commercial and tax values, including the difference under § 253 para. 6 HGB.
3. Clarify whether you count as a controlling shareholder-managing director and whether the Company Pensions Act applies.
4. Choose one of the four routes and assess the consequences for the GmbH, for yourself and for the buyer or child separately.
5. If transferring to a pension fund, decide on the GmbH's application: under § 4e para. 3 EStG for a direct transfer, under § 4d para. 3 EStG if a support fund pays the pension fund. The application is irrevocable and binds the GmbH and its legal successor. For a mere transfer to a support fund, § 4d para. 3 EStG does not provide for an application.
6. For a buyout or waiver, document the business reasons and the arm's length comparison, and plan the liquidity for a possible tax charge.
7. For a handover to a child, check the share value and § 7 para. 8 ErbStG.
8. Inform the buyer or child before the contract is signed and include the arrangement on the commitment in the contract.

Frequently asked questions

Can I simply cancel the pension commitment before the sale?

Under civil law, a waiver is a release agreement. For tax purposes, the BFH generally treats the waiver of an earned entitlement with value as a hidden capital contribution, unless an unrelated managing director would also have waived it; if the commitment is rooted in the service agreement, it assumes receipt of wages equal to the going-concern value. The one-fifth rule may apply.

Is a transfer to a pension fund tax-free?

Under § 3 no. 66 EStG, only if an application under § 4d para. 3 or § 4e para. 3 EStG has been filed. The GmbH files this application; it is irrevocable and binds the GmbH and its legal successor, so in a share sale it continues to bind the GmbH that the buyer takes over. Whether a distinction must be made between the earned and the future portion remains open.

Does the Company Pensions Act protect me as sole shareholder?

That is open. The BFH works on the basis that § 3 BetrAVG does not apply to a controlling shareholder-managing director; we have not reviewed labour court case law. You should therefore not assume vesting and insolvency protection without checking.

Is a buyout taxed under the one-fifth rule?

It may apply if the buyout is compensation under § 24 no. 1 EStG or remuneration for work spanning several years under § 34 para. 2 no. 4 EStG. If the buyout is not made for business reasons, it risks being treated as a constructive dividend.

Limits of this article and open questions

This article explains the legal position based on the statutory wording and two BFH decisions, and does not replace individual tax or legal advice. In particular, the following remain open:

• whether a controlling shareholder-managing director falls under the Company Pensions Act in labour law, and thus under §§ 1b, 3 and 7 BetrAVG,
• whether a transfer requires a split between the earned and the future portion,
• what wage tax consequence a transfer to a support fund has,
• how a waiver of an entitlement without value, or of a future entitlement only, should be treated and how it affects the GmbH's income overall,
• what further arm's length criteria apply to a buyout before a sale, and whether it counts as compensation under § 24 no. 1 EStG,
• how a buyout in connection with handing over shares to a child should be assessed,
• how the pension obligation affects the purchase price and the share value for gift tax.

We have not reviewed administrative guidance or further case law on these questions. The choice between an asset deal and a share deal is deliberately left out.

If you would like to work through your pension commitment in an orderly way before a sale or handover, we are happy to discuss it with you. You can reach us via Contact or Book an appointment.

Sources and assumptions

Statutory texts (retrieved: 13 November 2026):

• § 3 EStG, § 4d EStG, § 4e EStG, § 6 EStG, § 6a EStG, § 17 EStG, § 19 EStG, § 20 EStG, § 24 EStG, § 32a EStG, § 34 EStG
• § 8 KStG
• § 249 HGB, § 253 HGB
• § 1 BetrAVG, § 1b BetrAVG, § 3 BetrAVG, § 7 BetrAVG, § 17 BetrAVG
• § 397 BGB
• § 7 ErbStG

Case law:

• BFH, judgment of 23 August 2017, VI R 4/16: waiver of an earned pension entitlement with value, hidden capital contribution, receipt of wages equal to the going-concern value where the commitment stems from the service agreement, one-fifth rule
• BFH, decision of 17 September 2025, VIII R 17/23, not designated for official publication: buyout paid to the controlling shareholder before the pension becomes payable, business reasons, double arm's length test

Throughout, the article assumes the fictional case of Mr Berger: a German GmbH as the grantor of the commitment, a sole shareholder holding the shares as private assets, residence in Germany, a written commitment under § 6a para. 1 EStG, and an entitlement that has been partly earned and has value. Amounts, interest rates and discounts are deliberately not quantified.