Saving tax as a business owner or managing director: the §7g lever alongside your company

Anyone running a sole proprietorship or holding a stake in a commercial partnership pays personal tax on the full profit in the year it arises, regardless of how much is actually drawn; every additional euro is taxed at up to 47.5 %. Yet the strongest tax instrument for investments, the investment deduction (Investitionsabzugsbetrag, IAB) under §7g EStG, is regularly blocked in a well-running company: from €200,000 of profit in the year of formation, the IAB is ruled out there. The way out lies not inside the company but next to it: in a separate investment business with a profit cap of its own. How that works, in order.

Why is so little left of the business profit?

Because full progression always stands on the way from business profit to private wealth. For the sole proprietorship and the commercial partnership it is income from a trade or business (§15 EStG): from around €68,000 of taxable income the top rate of 42 % applies, from around €278,000 the surcharge rate of 45 %, each plus the solidarity surcharge; at the top, around 47.5 %. What is taxed is the full profit in the year it arises, not the drawings. Trade tax comes on top, but is largely neutralised in the overall burden through the credit under §35 EStG.

In a GmbH the arithmetic looks different, but not better once money is meant to arrive privately: the company pays around 30 % corporate and trade tax on its profits. Your director's salary and bonus (Tantieme) are employment income and run through the same progression as above; a distribution costs an additional 26.375 % withholding tax after the company's 30 %, around 48 % in total. Retaining profits lowers the running burden but only defers the problem: the capital is then locked inside the company.

The classic levers are quickly exhausted: investments in your own company need a genuine operational purpose, pension contributions are capped, and a holding structure only pays off with profits retained for the long term. Where these levers for high earners rank by effect is set out in Legally reducing your tax: the most effective strategies. That leaves the lever with the largest single effect: §7g EStG.

Can I use the investment deduction although my company makes more than €200,000 profit?

Yes, because the €200,000 profit cap of §7g EStG applies per business, and an energy direct investment is a separate, newly founded commercial business with a cap of its own. Your operating company indeed cannot form an investment deduction in good years: if its profit in the year of formation exceeds €200,000, the IAB is ruled out there. But the business acquiring the energy asset is a different one: your own energy direct investment, which acquires a battery storage system or a photovoltaic plant. This business starts without legacy profits, its profit cap is reliably met, and the IAB, special depreciation and declining-balance depreciation work through loss offsetting against your personal top tax rate. All requirements are covered in Investitionsabzugsbetrag: all §7g EStG requirements, and who can use it; the full mechanics with numbers are shown in IAB under §7g EStG: example calculation for battery storage.

Why not simply invest inside my own company?

Because the same profit cap blocks it: above €200,000 of profit, the IAB is ruled out in the operating business for any asset, including the photovoltaic plant on your own company roof. Below that, the company can form an IAB itself; but then the asset moves into the business assets of the core operation, hangs on its risks, and has to be transferred along or carved out in a later sale or succession. The separate investment business keeps the two apart: its own profit determination, its own cap, and the operating company remains untouched. That matters in growth years too: whoever sits just below the cap today can slip above it in the year of formation; the cap of the newly founded investment business, by contrast, remains plannable.

For partners in a partnership there is one more level: the profit cap applies to the partnership as a whole, not to the individual share. A company with four partners and €800,000 of total profit is above the cap even if each individual share stays below it. That is one more reason the direct investment is held personally, as the individual partner's own business, and is not subscribed through the company; it belongs neither in the joint assets nor in special business assets. How to implement the separation cleanly belongs on your tax advisor's desk before subscribing.

I run a GmbH: do I invest privately or through the company?

That depends on where the capital sits and which tax rate the IAB is meant to work against. Privately it works against up to 47.5 %: director's salary and bonus are income taxed at the progressive scale, and the loss the investment business generates through the IAB and depreciation offsets it directly. Inside the GmbH the same IAB works against roughly 30 % corporate and trade tax; in return, the capital does not first have to be distributed at 26.375 % withholding tax. As a rule of thumb: whoever draws salary and bonus at the top tax rate and has private liquidity usually does better on the private route; whoever would have to tap retained profits calculates both routes. The full comparison, including the holding structure and a worked example, is shown in Invest through your GmbH or privately? The honest tax comparison.

Does the investment turn into a second company I have to run?

No. You already run a company; the direct investment is deliberately not one that ties up your time. It is set up as a passive capital and tax structure: professional asset management takes over the technical and commercial operation of the plant, from direct marketing of the electricity through maintenance and insurance to the annual reporting for your tax return. Your own time is concentrated in the decision phase: project selection, financing, subscription. How that path runs from the first conversation to closing is shown in From first enquiry to closing: how a direct investment works step by step; what happens after closing over 20 to 30 years of operation is described in What happens after closing: reporting, asset management and why a partner is not a broker.

The paperwork also stays manageable: the profit determination and tax reporting of the direct investment are prepared professionally, and your personal tax return takes over the assessed figures. Where the IAB and depreciation are actually entered is shown in The IAB in your German tax return: where and how to actually claim it. And the financing does not have to come out of the company: how bank loan and promotional loan can be combined for a direct investment is shown in Financing a direct investment: bank loan, KfW 270 and the pitfalls.

What does it deliver in concrete tax terms? The worked example

Starting point: a business owner with taxable income of €200,000 at the top tax rate (44.3 % including solidarity surcharge, without church tax). He invests €300,000 in an energy direct investment acquiring a grid-scale battery storage system; the IAB is formed in the year before acquisition, special and declining-balance depreciation apply in the acquisition year:

A good 40 % of the investment volume flows back as tax relief in the first year in this constellation; the individual positions and the pitfalls behind them are broken down in IAB under §7g EStG: example calculation for battery storage. Since energy projects are typically financed 60 to 75 % through the asset itself, the actual equity deployed is far below the nominal amount; how tax refund and project financing net out to the effective input is shown in How much equity is actually required?. Whether special and declining-balance depreciation are taken in full in year one or stretched is a question of individual tax planning; the trade-off is covered in Sonder-AfA §7g (5) vs. declining-balance AfA §7 (2): which combination, when?. All variants presuppose a business the tax office recognises; what that depends on is shown in Liebhaberei and profit intention: when the tax office cancels the tax lever.

What applies to external managing directors, smaller businesses and freelancers?

Employed managing directors without an ownership stake can use the §7g lever too, just not through their salary: as for all employees, access runs through a direct investment of their own, which as a business of its own creates business income; the IAB and depreciation work through loss offsetting against total income. The complete route, from loss offsetting to the wage-tax withholding allowance, is shown in Saving tax as a high-earning employee: the §7g lever alongside your salary; the requirements are covered in Investitionsabzugsbetrag: all §7g EStG requirements, and who can use it. Companies with less than €200,000 profit, by contrast, can form the IAB directly in their own business, for assets the business itself uses; the separate investment business remains the cleaner solution when the plant does not belong in the core operation or profit is likely to grow past the cap in the coming years. For freelancers the same mechanics apply with one additional trap, the commercial infection of their partnership: Saving tax as a physician or dentist: the §7g lever alongside the practice shows it using the medical practice, Saving tax as a lawyer or law-firm partner: the §7g lever alongside the firm using the law firm. Solo professionals without a chamber, from IT freelancers to engineers, are often below the profit cap and fail on something else, the missing asset inside their own business; that is covered in Saving tax as a freelancer or self-employed professional: the §7g lever alongside your own practice.

How does this fit with fluctuating profits and the eventual company sale?

Better than most rigid instruments, because the IAB can be dosed anew every year. Business profits fluctuate: a strong year, a one-off effect, a released provision, and taxable income jumps. The IAB can be formed deliberately in such years and skipped in weaker ones; over several years this can grow into a diversified energy portfolio, the strategy is described in Using the investment deduction every year: building a portfolio over multiple years. And at the end of an entrepreneur's career there is one more special case with particularly large leverage: in the year the company is sold, the capital gain, the reduced tax rate and the IAB meet; how that combination computes is shown in Selling a practice or business: optimising the tax and reinvesting the proceeds sensibly.

Whether the structure fits your situation depends on legal form, income and liquidity, and on a project that stands on its own even without the tax effect. That is exactly what we examine in a no-obligation first conversation: tax effect, effective equity input and project risk, discussed against your numbers and in coordination with your tax advisor. We do not give return promises.