Company tax in the EU –

Germany
The company tax rate for Germany is 15%. There is also a solidarity
surcharge of 5.5% levied on the corporate income tax and a municipal
surcharge of between 14% and 17% depending on municipalities. The
combined rate is between 30-33% approximately. More information can be
found on the national portal.
When you set up your business entity, you should ensure that you do the
following:
 Register for company tax

 Company tax return

 Make company tax advance payments by the deadline. Once the

amount is established, advance payments are due on a quarterly basis on 10
March, 10 June, 10 September and 10 December each year.

 File the company tax return by the deadline, i.e. in principle by 31 May
the following year.

What profits do you pay company tax on?

Taxable profits include the money your company or association makes from:
 Doing business

 Investments

 Selling assets for more than they cost (chargeable gains)

If your company is based in Germany, it must, in principle, pay company tax
in Germany on all its profits worldwide.
If your company is not based in Germany but has an office or branch
there, it only pays corporation tax and trade tax on the profits from its activities
in Germany.

Who pays corporate tax in Germany?

If the management office or registered office is located in Germany, the
following types of businesses are fully liable to pay corporate tax:

 Corporations;
 Cooperatives;
 Mutual insurance companies;
 Legal entities such as societies and trusts;
 Commercial enterprises run by public legal entities.

Companies that generate income in Germany, but don’t have management

or registered offices in the country, are only liable to pay corporate tax on
their German income.

Corporate tax for sole traders and limited companies

Business owners and self-employed workers in Germany must register

with their local tax office. 

You’ll need an official tax number, which must be included on all invoices.

Tradesmen will have registered with the trade office – the trade office will
pass on your details to the tax office, which will then issue your tax number.

Once you’ve registered, you’ll have to complete annual tax returns and pay
income tax in installments in advance. Profits are taxed at the personal tax
rate.

Many self-employed workers are exempt from making state social

security contributions in Germany, but as it’s the law to have health and
care insurance, you will have to make alternative arrangements.

Some self-employed people also need to pay contributions to the

state pension fund.

Self-employed workers can claim some services and items necessary for
their work as tax-deductible expenses. This includes things such as
stationery, office space and equipment, work-related travel, childcare costs
and health, pension and other insurance contributions.

You’ll need to save your receipts and other relevant documentation in order
to prove the expenses are real.
Corporate tax for freelancers

Things work a little differently for freelancers. They do not have to register at
the Commercial Registry, and also don’t have to become a member of or
contribute to the Chamber of Commerce.

In addition to this, freelancers don’t need to prepare annual financial

statements for taxation purposes or pay trade tax. Instead, a simple profit-
and-loss assessment is sufficient.

Freelancers in Germany need to register with the local tax authorities, their
professional association and an accident insurance company (if they employ
other people).

The tax authorities will assess your income tax quarterly payments, which is
based on your income after expenses have been deducted.

While freelancers are generally not liable to the German social security
system, they should consider making their own arrangements for things like:

 private health insurance;
 health insurance which also covers the risk of illness and the loss of
income should you become sick;
 disability insurance to cover the risk of monetary loss if illness means
you can’t continue working;
 life insurance to supplement retirement income.
Corporate tax for artists and journalists 

Artists and journalists have to make contributions to the government-backed

social security system. This covers pensions, a contribution to health
insurance and care insurance for old-age nursing care. 

If you don’t make these arrangements, a law called the Social Law for
Artists(Kuenstlersozialversicherungsgesetz) means freelance artists or
journalists who are not contributing to their social insurance, such as a
pension scheme, need to join the government’s Kuenstlersozialkasse.

The contributions depend on your income. There is also a ceiling on the total
annual income that contributors are able to make, which changes each year.
Like employees, freelancers need to pay 50% of the total contribution.

In 2020, the total contribution rates for Kuenstlersozialkasse are:

 Pension insurance: 18.6%. The 2020 annual income ceiling is

€82,800
  Health insurance: 14.6%. The 2020 annual income ceiling is
€56,250.
 Care insurance: 3.05% for parents, or 3.30% for those without
children. The 2020 annual income ceiling is €56,250.
See this guide to tax for freelanc

Corporate tax rates in Germany

Germany’s combined corporate income tax rate is the third highest among
European OECD countries, at 29.8%.

At a national level, the corporate tax rate is set at 15%, with additional local
trade taxes set by local municipalities.

The business tax is levied on a taxpayer’s business income; the municipal

business tax is charged as a lump-sum which may credited against income
tax.

The tax you owe is determined by applying the federal rate (Steuermesszahl)
to the taxable business income, which results in a basic tax amount.

The municipal coefficient (Hebesatz) is then applied to the basic tax amount
to determine the actual amount of tax that’s owed.

The municipalities fix the coefficient which varies according to their financial
needs.

Corporate tax exemptions and corporate tax

credits in Germany
Corporate tax exemptions in Germany

Several types of income are exempt from corporate tax in Germany. The
most important ones include:

 company level capital contributions upon the company’s formation or

capital increase. This is regardless of whether the contribution was in
return for shares, other membership rights or just in connection with
an increase in the capital reserves;
 shareholder level capital repayments from the company if they do not
contain dividend distributions. If they exceed the book value of the
shareholder’s investment, the amount that exceeds it is taxable;
 95% of domestic and foreign dividends;
 95% capital gains from the sale of shares in a company;
  investment grants for investments in the new federal states.
Corporate tax credits in Germany

Corporate taxpayers in Germany can claim a credit, which is calculated as

3.8 times the basic amount paid for the municipal business tax. 

The maximum amount of tax credits you can receive depends on how much
business income you make compared to the total taxable income. 

For example, take a taxpayer who earns 55% of their taxable income from
employment, and runs a business that provides the remaining 45% of
taxable income. If they have an income tax liability of €50,000, the
maximum business tax credit they’ll get is €22,500, which is 45% of
€50,000.

Tax credits cannot result in a refund of income tax, and cannot be set
against income tax of another year.

That being said, the municipal tax credit may result in overcompensation as
it can be greater than the municipal business tax that you owe. This means
the taxpayer can use the credit fully against their income tax liability for the
year.

As of 2020, a new research and development (R&D) tax credit is available;

businesses can claim a tax credit worth 25% of the wages and salaries paid
to research staff. 

The maximum R&D tax credit you can receive is €500,000.

VAT in Germany
Companies or individuals that earn €17,500 (gross) in one financial year, or
are likely to exceed €50,000 in the next financial year, must pay VAT
(Mehrwertsteuer) on goods and services.

Businesses pay VAT at a rate of 19%, but if you provide services such as
translating, journalism, supplying food or making artworks you can pay at
7%. 

You must include VAT as a separate entry on your invoices.

There are a few goods and services that are exempt from VAT in Germany,
these include:
  intra-EU deliveries (that’s because the EU customer pays VAT at their
end);
 services provided by certain professionals, such as doctors;
 financial and insurance services;
 buying and selling real estate.

As part of Germany’s Climate Action Program 2030, train travel will soon be
subject to the reduced VAT rate of 7%, and aviation tax will be increased. 

Corporate tax year in Germany

The German tax year is the same as the calendar year. Taxpayers can
choose a different financial year once they have registered the business in
the Commercial Register (Handelsregister).

Companies must pay tax on the profit in the calendar year when its financial
year ends. 

For instance, if a company’s financial year ends on 31 January 2020, it must

pay tax on the profit earned between 1 February 2019 and 13 January 2020
for the 2020 tax year. That’s despite the fact that it made most of the profit
in 2019.

As a result, this means the tax filing obligation is usually delayed by several
months.

How to file your corporate tax return in

Germany
Individuals, employers, entrepreneurs and associations can use the ELSTER
website (in German) to register, make tax declarations and pay tax online.

There are several steps in the registration process. After sending the
registration data, you must send a confirmation mail via the ELSTER portal
and an activation code by letter. 

Therefore, it’s best to register in plenty of time before the return is due on 31
May.

The ELSTER certificate authenticates the information you’ve provided, and

serves as an electronic signature for security.
The next step is for the tax office to decide how much tax you need to pay.
You’ll receive an assessment including a demand for payment, or information
on getting a refund for any tax you’ve overpaid.

Over-payment can occur because you have to pay the tax a year in advance,
in four installments. These are due on the 10th of March, June, September
and December.

Other types of business tax in Germany

Dividend tax

Some businesses will also have to pay dividend tax. Dividends for both
resident and foreign corporations in Germany are generally 95% tax exempt,
unless you include them as tax-deductible expenses for the payer.

Capital gains tax

In general, capital gains received by companies from selling business assets

are treated as ordinary income. The gains can be offset against the cost of a
replacement property.

Capital gains from the sale of investments are exempt from corporation and
trade taxes, and therefore any associated losses are not deductible.

Solidarity surcharge

The solidarity surcharge (Solidaritaetszuschlag) is an additional fee on

income tax, capital gains tax and corporate tax. 

This is charged at a flat rate of 5.5%, and is paid at the same time as the tax
is charged on; there’s no tax return required for reporting or paying it.

Trade tax

Trade tax must be paid by all commercial businesses in industry, trade,

crafts and services. 

There’s a 3.5% base rate throughout Germany, and then each municipality
adds a multiplier, which can vary. 

Partnerships have an annual tax free trade tax allowance of €24,500. Some
trade tax exceeding that can often be offset against personal income tax. 

Corporate tax advice in Germany

Corporate tax in Germany can be tricky, particularly if you have complicated
circumstances. Using the services of a professional accountant can help.

To find an appropriate professional near you, you can contact the German

Federal Chamber of Tax Consultants (Bundessteuerberaterkammer or
BSTBK; link in German) and the German Association of Tax
Advisors (Deutscher Steuerberaterverband or DStV).

American expats living in Germany who need to fill in their US tax return can
get support and advice on their tax obligations back home from Taxes For
Expats. 

Germany taxes its corporate residents on their worldwide income. However, most
double tax treaties (DTTs) exempt income attributable to a foreign permanent
establishment (PE). Non-residents with PE or property income are taxed by
assessment on German-source income; those earning royalties and dividends are
taxed by withholding at source. Interest paid abroad is, in most cases, free of German
tax altogether.

German business profits are subject to two taxes, corporation tax and trade tax.

Corporation tax (Körperschaftsteuer)

Corporation tax is levied at a uniform rate of 15% and is then subject to a surcharge of
5.5% (solidarity surcharge). This results in a total tax rate of 15.825%.

Trade tax (Gewerbesteuer)

The trade tax rate is a combination of a uniform tax rate of 3.5% (base rate) and a
municipal tax rate (Hebesatz) depending on where the PEs of the business are located.
Currently, municipalities with at least 80,000 inhabitants currently levy trade tax at a
rate of between 12.6% (Hebesatz of 360%) and 20.3% (Hebesatz  of 580%).

The basis for this tax is the adjusted profit for corporation tax purposes: in particular,
25% of all financing costs over 100,000 euros (EUR), including the implicit financing
costs in leasing, rental, and royalty payments, are added back to taxable income.

If the basis for the two taxes is identical (unlikely in practice), the overall burden on
corporate profits earned in Munich would be approximately 33%. In Frankfurt, the
burden would be 32%. In Berlin, it would be 30%.

Corporation tax[edit]
 German Tax Rate on Corporate Income 1995–2009
Corporation tax is charged first and foremost on corporate
enterprises, in particular public and private limited
companies, as well as other corporations such as e.g.
cooperatives, associations and foundations. Sole
proprietorships and partnerships are not subject to
corporation tax: profits earned by these set-ups are
attributed to their individual partners and then taxed in the
context of their personal income tax bills.
Corporations domiciled or managed in Germany are deemed
to have full corporation tax liability. This means that their
domestic and foreign earnings are all taxable in Germany.
Some corporate enterprises are exempted from corporation
tax, e.g. charitable foundations, Church institutions, and
sports clubs.
As of 1 January 2008, Germany's corporation tax rate is
15%. Counting both the solidarity surcharge (5.5% of
corporation tax) and trade tax (averaging 14% as of 2008),
tax on corporations in Germany is just below 30%.
Assessment base[edit]
The assessment base for the corporation tax charged is the
revenue which the corporate enterprise has earned during
the calendar year. Taxable profits are determined using the
result posted in the annual accounts (balance sheet and
Income statement) drawn up under the Commercial Code.
What is deemed income under tax law sometimes diverges
from the way earnings are determined under commercial
law, in which case tax law provisions prevail.
Dividends[edit]
When dividends are paid to an individual person, capital
yield tax at a rate of 25% is charged. Since 1 January 2009,
this tax is final for individuals who are residents of Germany.
Solidarity surcharge is also imposed on capital yields tax.
When dividends are paid to an enterprise with full
corporation tax liability, the recipient business is largely
exempted from paying tax on these revenues. In its tax
assessment, merely 5% of the dividends are added to profits
as non-deductible operating expenses. The same applies if a
taxable corporate enterprise sells shares in another
company.
Deducting tax from dividends paid by a subsidiary with full
tax liability to a foreign parent domiciled in the EU is waived
on certain conditions, e.g., the parent company has to have
a direct holding in the subsidiary of at least 15%.
Integrated fiscal units (group taxation)[edit]
Under German tax law, separate companies may be treated
as integrated fiscal units for tax purposes (Organschaft). In
an integrated fiscal unit, a legally independent company (the
controlled company) agrees under a profit and loss pooling
agreement to become dependent on another business (the
controlling company) in financial, economic and
organisational terms. The controlled company undertakes to
pay over its entire profits to the controlling company.
Another requirement is that the controlling company has to
hold the majority of voting rights in the controlled company.
In tax terms, recognition of a fiscal unit means that the
income of the controlled company is allocated to the
controlling company. This provides an opportunity to
balance profits and losses within the integrated fiscal unit.
Trade tax[edit]
Entrepreneurs engaging in business operations are subject
to trade tax (Gewerbesteuer) as well as income
tax/corporation tax. In contrast to the latter, trade tax is
charged by the local authorities or municipalities, who are
entitled to the entire amount. The rate levied is fixed by
each local authority separately within the range of rates
prescribed by the central government. As from 1 January
2008, the rate averages 14% of profits subject to trade tax.
Assessment procedure[edit]
The business entity has to file the trade tax return with the
tax office, like its other tax returns. Taking any allowances
into account, the local tax office (Finanzamt) calculates the
trade earnings and then gives the applicable figure for a
trade tax assessment to the local authority collecting the
tax. The underlying profit base, as well as the book-tax
differences for the local trade tax jurisdictions, may differ
from that used for the corporation tax. On the basis of the
collecting rate (Hebesatz) in force in its area, the local
authority calculates the trade tax payable.
Unincorporated enterprises[edit]
One-man businesses and members of a partnership may
deduct a large portion of trade tax from their personal
income tax bill.
Incorporated enterprises[edit]
As from 1 January 2008, corporate entities may no longer
deduct trade tax from their taxable profits.

Value-added tax[edit]
As a matter of principle, all services and products generated in Germany by a
business entity are subject to value-added tax (VAT). The German VAT is part of
the European Union value added taxsystem.

Exemptions[edit]
Certain goods and services are exempted from value-added tax by law; this
applies for German and foreign businesses alike.
For example, the following are exempted from German value-added tax:

 export deliveries[7]
 intra-Community supply of goods
 services provided by certain professional groups (e.g. doctors)
 financial services (e.g. granting loans)
 letting real estate in the long-term
 cultural services provided to the public (e.g. by public theatres,
museums, zoos, etc.),
 value-added by certain institutions providing general education or
vocational training
  services provided in an honorary or voluntary capacity.

Germany does not offer tax incentives except in very limited circumstances, not usually
of direct business relevance (e.g. special depreciation for buildings under a
conservation order). Partly, this is a question of the state budget, and partly, it reflects
the constitutional requirement for equal treatment of all taxpayers.

A law introducing a federal R&D subsidy was passed in 2019. According to this,a tax-
free subsidy of 25% of salaries and wages for certain R&D purposes shall be
guaranteed up to a limit of EUR 500,000 per annum.

Other incentives
Local authorities may offer e.g.  facilities on favourable terms, such as the provision of
cheap land on industrial estates as well as certain direct government aid.

Foreign tax credit

If foreign-source income is not exempt from German taxation, a credit will be given for
the foreign tax actually paid and not otherwise recoverable. However, the credit is
limited to the corporation tax (including the solidarity surcharge) on the net income after
deducting the related expense (a per-country limitation applies). Unused credit is lost,
as there are no provisions for carryforward or for offset against other taxes, such as
trade tax. There are still a few cases of fictitious foreign tax credits under tax treaties
with developing countries (to protect the treaty partner's investment incentives), but
German treaty policy is to abandon such provisions at the first opportunity.