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Gold and silver as business assets: How to account for them?

Gold and silver as business assets: Our big guide

Private individuals in Germany have the opportunity to invest in physical gold or silver. Companies also often have liquid funds that they would like to invest profitably for a certain period of time or even indefinitely. In this case, one option is the purchase of precious metals, which subsequently become part of the company's operating assets.

Table of contents

 

In this context, there are a number of points to consider, because in some respects a distinction must be made between gold and silver held as private and business assets. We would like to go into some points in our big guide, such as the topic of taxes. In addition, you will learn what opportunities and risks precious metals entail, why you should take advantage of exchange rate opportunities - instead of paying penalty interest - and the best way to buy and store gold, silver or other precious metals.

What are discretionary business assets?

When companies invest available capital in precious metals, such as gold and silver, or other tangible assets, they are often referred to in this context as "business assets at will". This means that the business assets do not only consist of necessary economic goods, which are necessary for the maintenance of the business activity. In addition, assets such as gold, which are not absolutely necessary for the performance of the business, can also be included in the business assets.

For more than 20 years, especially after a ruling of the German Federal Fiscal Court, it has often been the case that an optional business asset may be recorded in the balance sheet. The only prerequisite is that it can be attributed neither to private assets nor to necessary business assets. Furthermore, these business assets must be suitable for promoting the company in a certain way. For this purpose, it would already be sufficient if, for example, gold bars were either held as a liquidity reserve or if the investment generated a return that naturally benefited the company.

Tax treatment of precious metals, such as gold and silver, in business assets

From a tax perspective, there are a number of points that are worth noting in connection with precious metals held as business assets. For this reason, we would like to discuss the following aspects in this section, which belong to the major topic of taxes:

  1. Deducting/depreciating acquisition costs
  2. Value added tax on purchase
  3. Taxation on sale at a profit

Before we go into the individual points on the subject of taxation in more detail, we would like to give you a brief overview of the most important details:

  • Only the purchase of so-called investment gold is exempt from VAT
  • Purchase of silver bars is taxed with 19% VAT
  • At least partial depreciation is often possible
  • Acquisition costs can sometimes be deducted
  • Profit from sale is taxable for companies

Distinction between fixed and current assets

investment assets

Before we go into a little more detail about the individual taxes, we would like to briefly state one thing at the beginning: If you decide to acquire precious metals and they are to be part of your business assets, this may involve two types of assets. As is well known, in every company there are, on the one hand, fixed assets and, on the other hand, current assets. In which area gold and silver fall, depends above all on which goal you have with the acquisition of the bars or coins.

If it is a longer-term investment, for example, because you want to achieve a good long-term return with the gold bars or they serve as reserves, the stock is classified as fixed assets. If, on the other hand, the precious metal serves to secure liquidity or if there are frequent sales and renewed purchases, the precious metal is normally allocated to current assets.

Can acquisition costs be deducted when purchasing precious metals?

 

An interesting question that certainly concerns many companies that wish to hold precious metals as business assets relates to the acquisition costs and whether these can be claimed as business expenses for tax purposes. There are several rulings on this question, for example that of the Hesse Fiscal Court (FG Hessen). This clarifies in its ruling that with regard to the possible deductibility of the acquisition costs, it would depend above all on whether the precious metals are part of the fixed or current assets. In addition, the purpose of the respective company plays a major role.

If it is a company whose core purpose is to use a portfolio of, among other things, precious metals, the acquisition costs may well be deductible operating expenses. In the case before the FG Hessen, the owner of a GmbH & Co. KG sued for gold acquired for business assets to be deducted as business expenses. In the first "instance", however, the tax office decided that the precious metal would count as fixed assets, so that the acquisition costs could not be deducted.

In its ruling, the FG Hessen disagreed with this opinion, basing its decision in particular on Section 247 (2) of the German Commercial Code (HGB). This stipulates when an asset is to be regarded as a fixed asset and when it is not. The judges were thus of the opinion that the acquired precious metals would be business assets that are to be allocated to current assets. The decisive factor for this is that the company was still in the process of building up a portfolio and thus the acquired gold is to be allocated to current assets. Under this condition, there is a good chance for companies that the acquisition costs for purchased precious metals can be claimed as operating expenses. Therefore, the decisive factor is the purpose for which the asset is intended in the company. In this regard, there is also a ruling by the Federal Fiscal Court, for example from 13.12.2006 (VIII R 51/04).

Is value added tax payable by the company on the purchase?

Another tax issue in connection with business assets, some of which consist of precious metals, relates to the value added tax to be paid. Regardless of whether the purchase is made by private individuals or legal entities, no VAT is payable on the purchase of gold provided that it is so-called investment gold. This includes in particular bars as well as gold coins, which belong to the category of investment coins. These include, among others:

 

 

If, on the other hand, the coins are commemorative or collector coins, companies must also pay VAT on the purchase if they are not tax-exempt as investment gold coins. The purchase of silver, on the other hand, is always subject to VAT in principle, unless it is silver that is subject to differential taxation. However, there is an exception here for companies. For silver bars weighing one kilogram or more, the 19 percent VAT can be refunded by the tax office on condition that the delivery is made in accordance with Section 15 of the Value Added Tax Act. 

Paragraph 15 of the Value Added Tax Act primarily makes a distinction in the case of silver as to whether it is private or business property for tax purposes. If the latter is the case, an input tax deduction can be made. Accordingly, legal entities can usually expect to be allowed an input tax deduction. For two other precious metals, namely platinum and palladium, there are no such exceptions. In this case, companies must always pay the full VAT rate on purchases - both coins and bars. 

Do profits made on gold and silver have to be taxed as a business?

A third point with regard to taxes is also interesting in the case of precious metals held as business assets, namely whether profits realized through the sale are taxable. In this context, one often hears and reads that capital gains available through the sale of physical gold would be tax-free. However, this initially only applies to private assets and only if there is more than one year between the purchase and sale. Then such capital gains from private transactions are indeed tax-free.

The situation is different if the gold bars, gold coins, silver bars or silver coins are not part of private assets, but are part of business assets or once were. In such a case, the prevailing legal opinion is that the aforementioned period is extended from more than one to ten years. Thus, the sale of precious metals from business assets at a profit would only be tax-exempt if at least ten years have passed between purchase and sale. Otherwise, taxation takes place at the ordinary corporate tax rate of up to 55 percent, which also applies to other business profits.

In the following table, we would like to summarize the most important points on the subject of precious metals in business assets with regard to taxation:

Tax Details
Deduct acquisition price Precious metal in current assets =  yes, fixed assets = no
Value added tax on purchase Gold bars + bullion coins Gold = no VAT, collector coins = 19%
  Silver = 19% VAT for private assets, deductibility often for business assets
  Platinum + palladium = always 19% VAT
Taxation of profits Profits from sale usually tax free after 10 years of holding, otherwise taxable

 

Holding precious metals privately or as an entrepreneur

In principle, both private individuals and companies in Germany have the opportunity to acquire precious metals in physical form without restriction. However, there are differences with regard to taxation, as we explained in detail in the previous section. Furthermore, it makes a difference whether you want to use precious metals for your private assets or as part of your business assets.

If you buy gold or silver as a private person, the purchase usually serves the purpose of asset accumulation or long-term capital investment. Sometimes it is also speculation and the hope of rising gold prices that are the deciding factors for buying and selling. If, on the other hand, you want to acquire gold or other precious metals in your company in order to have them flow into the company's assets, you have a much greater responsibility - not least towards your employees.

It is true that gold has shown itself to be relatively stable on average over the past decades. Nevertheless, such an investment is naturally associated with a certain price risk. Therefore, you should first clearly define whether the precious metal is part of your current or fixed assets. If you would like to consider the precious metals as part of your business assets, which you want to invest in the long term, then you should remember that in case of premature access, the value of the precious metal can also be lower than at the time of purchase. If you are missing capital as a result, this can have very negative consequences for planned investments or also for the intended debt reduction.It is therefore important that you are even more careful with the investment in precious metals as an entrepreneur than if it were your private assets.

Opportunities and risks: Reserves as precious metals instead of bank deposits

There are now a number of companies that are specifically opting for precious metals as a capital investment and part of their business assets. This trend has increased in particular in the low-interest phase, since there are no longer any appreciable returns for safe and interest-bearing forms of investment. For this reason, many company managements are currently asking themselves what the opportunities and risks of precious metals as a reserve look like, especially in comparison to depositing assets, for example, in an overnight or fixed-term deposit account.

 

In the following table, we would therefore like to compare some classic and very safe forms of investment, which companies often opt for to invest their assets, with investment in precious metals. In doing so, we will address both the opportunities and risks of the respective form of investment for a long-term investment as well as some other characteristics. Afterwards, in the best case scenario, you will be able to get a good idea of whether precious metals are suitable as a reserve or for your company.

 

Form of investment Risk average yield per year Available Main advantage
Precious metals (physical) medium 6 - 8 % fast inflation-protected
Shares medium to high 7 - 9 % fast Price gains
Bonds low to high 1 - 10 % fast (stock exchange) Interest income
Time deposit very low 1 - 2 % after maturity fixed yield
Call money very low 0,3 - 0,8 % immediately immediately available
Funds low to high 1 - 8 % fast Diversification


A brief explanation of the average return for some types of investments: With bonds, for example, the range is very wide because the yield depends on the type of security. In the case of German government bonds, for example, you can currently hardly achieve a return of more than 1%, while in the case of bonds from issuers in the emerging markets, for example, you can certainly receive interest of eight or more percent - with a correspondingly high level of risk. Similarly, a distinction must be made in the case of funds, for example whether they are money market or equity funds. 

Price opportunities instead of penalty interest: Keeping an eye on opportunities and risks

A very similar topic to the one addressed in the previous section is the question of whether companies should take advantage of opportunities with precious metals instead of paying penalty interest on fixed-term deposits, for example. In fact, more and more banks are now moving toward charging minus interest on investment accounts held by legal entities, at least above a certain investment amount. This means that you pay interest on your balance to the bank instead of receiving an interest income from the credit institution. In this case, your capital would simply become less and less. 

For this reason, more and more self-employed people and companies are now thinking about investing existing investment and investment capital in the longer term in other forms of investment, such as:

  • Real estate
  • Fixed-interest securities, for example corporate bonds
  • Precious metals


There is one thing you should always keep in mind in this context: The investment in precious metals is of course associated with a higher risk than if you keep existing capital in a day, savings or time deposit account kept in euros. Serious disadvantages, however, are the already mentioned penalty interest or at least very low returns associated with such a very safe investment in a bank account. The higher risk associated with investing in gold and silver is offset by the chances of very good average returns, which for gold, for example, have been around six to eight percent annually in recent years.

Since reserves are built up over the long term on the one hand, but sometimes need to be drawn down quickly on the other, a "mix" is certainly the best choice for many companies. This means, for example, that 50 percent of the capital to be invested is deposited in an overnight or fixed-term deposit account, while the other half flows into precious metals as reserves.How the ratio is optimally structured must be decided by each company itself according to the circumstances and the expected development.

Buying and storing precious metals: What are the alternatives?

Companies that perhaps want to acquire precious metals for business assets for the first time do not necessarily know how and where they can buy gold and silver. In addition, there is often the question of where to store the inventory. When it comes to buying precious metals, there are currently the following three options in particular when it comes to purchasing physical gold, silver, palladium or platinum:

 

Banks have now relatively withdrawn from the business of buying and selling gold bars or silver bars. For this reason, among others, precious metal dealers are frequented much more frequently, either on site or as online dealers. Which way is the more recommendable, certainly also depends on how much capital the company wants to invest in precious metals.

The advantage with the local precious metal dealer is that there is in fact a direct "exchange" of money for precious metal. Thus, when you purchase, you do not run the risk that you may not receive the bars or coins you purchased. With online precious metal dealers, this risk exists, but only with dubious dealers. Therefore, it is important that you look for seriousness when choosing a precious metal boutique on the Internet. Then you can be sure that the ordered precious metals will actually be delivered.

How and where to store precious metals accounted for as business assets?

Another question, if you want to include precious metals in your business assets in the future, relates to the storage. In this regard, there are three alternatives, namely:

 

Storage in a bank safe is usually a safe method, but it has two possible disadvantages. The first is the cost, as it is not uncommon for somewhat larger bank safe deposit boxes in particular to cost between 300 and 800 euros in rent per year. In addition, there may be the problem that you would like to have somewhat larger stocks of bars or coins stored for your company, so that the bank cannot provide a sufficiently large safe deposit box. In addition, you must ensure that the safe deposit box is continuously insured according to the equivalent value of the contents. In most cases, safe deposit boxes are only insurable up to approximately 30,000 euros.

In this case, among others, the second alternative may make sense, namely storage organized by the precious metal dealer. Some, few online precious metal dealers cooperate with operators of high-security vaults, in which the storage of the stocks of all customers takes place. Here, again, it is important that you trust not only the online dealer, but also the storage facility, that your holdings are indeed safely stored there. Storage locations far outside the EU or Europe, such as in the Bahamas, would therefore be less recommendable.

If you are suspicious and the bank safe is out of the question for the reasons mentioned, a third option is to store your precious metal holdings in your company's own safe. Under this condition, however, you should make sure that the insurance sum is sufficient and that you have a safe with the highest possible resistance (security level). If you do not already have a safe, you will need to factor in the cost of purchasing one. The decision regarding storage is therefore relatively individual and depends on various factors.

Precious metals in business assets: our overall conclusion

In principle, it is certainly not a bad idea in times of extremely low interest rates for companies to include precious metals in their business assets or to increase holdings. Before doing so, however, some points should be considered with regard to tax, because gold and silver as a form of investment not only have advantages over other investment products. In addition, you should think in advance about where you want to buy and store the precious metals. In this respect, there are several alternatives to choose from. In principle, however, it can be stated that gold or silver in business assets is often a good idea and can be implemented in practice in the best possible way.

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