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Company Taxation In Germany

 In this article, our colleague from Gurcan Dusseldorf Office, Att. and Tax Advisor Tobias Sebastian Klümper will mention Company Taxation in Germany with all required steps and process.

The German company-taxation system differentiates between transparent and non-transparent taxation. Transparent taxation is the direct allocation to and taxation of profits at the shareholder. Whereas non-transparent taxation is the allocation and taxation of the company itself.

The essential aspect of the taxation method is the legal structure of the company. Legal entities like GmbHs (limited liability company-A Gesellschaft mit beschränkter Haftung in German), AGs (joint-stock company) etc. corporations are taxed in a non-transparent way.

Tax Basis Of The German Companies

Taxation of the German Companies is based on the profit from the balance sheet or surplus income statement of each company, which is corrected on the basis of income tax and corporate tax law.

There are no differences between foreign companies and German companies. A company is resident for tax purposes in Germany if it is effectively registered or managed in Germany. The place of incorporation is irrelevant.

Their profits are taxed with corporate-tax:

1. Gewerbesteuer (Local Business Tax) and
2. Solidaritätszuschlag on the Corporate-tax.

The Gewerbesteuer is a municipal tax. Its hight is decided directly by the local city council. The minimum height is 7%, but the average height is about 13%-14%, whereby there is a wide regional variation.

Therefore a corporation can save in tax expenses by choosing the residency.

Gurcan Consultancy provides wide-scope tax consultation for all clients before they incorporate in Germany. Pre-consultation may save your company from a good amount of taxes.

The Solidaritätszuschlag (The solidarity surcharge) is a surcharge on the corporate-tax for the renewal of the former DDR. The solidarity surcharge is  % 5.50  of the tax payment for all taxpayers in Germany.

How Much % Should Be Paid From The Earning?

Example:

Before dividend payment, the effective tax rate for the corporation is about 30%.

In case of a dividend payment to the shareholder, the dividend is taxed with 25% Kapitalertragsteuer (Capital Gains Tax).

How Much % Should Be Paid From The Earning By Shareholders?

Example:

The corporate-tax does not apply if the earnings are retained within the corporation.

Under certain conditions, an application for the non-applicability of the corporate-tax may be successful even so the dividend payment is received by the shareholder. These conditions – e.g. are ownership structure and state of residence of the parent company– have to be checked for every company and in every case individually.

To learn the steps of the company formation in Germany, please read our article on Company Formation in Germany.

Please check Frequently Asked Questions about Company Formation in Germany.

All the needs of Company Taxation in Germany, our international team is ready to help you. Please do not hesitate to contact us.

Tax Authorities in Germany:

1. Federal Central Tax Office
2. Federal States’ Fiscal Authority
3. Federal Customs Administration
4. Federal Fiscal Authority