Corporate Tax in Germany

In Germany, the corporate tax is applied to German companies’ global income or on foreign companies’ income made on German territory.  Germany’s average corporate tax revolves around 30%, but local municipalities levy lower tax rates.

Companies subject to the corporate tax in Germany

The most employed types of companies subject to the corporate tax (Körperschaftssteuer) are the German limited liability company (GmbH) and the stock corporation (AG). Separately, personal partnerships are subject to personal tax income (Einkommenssteuer) in Germany. The income tax is levied at the federal level. However, all types of structures are subject to the trade tax (Gewerbesteuer), levied at the municipal level.

 The corporate tax in Germany

The limited liability company (GmbH) and the stock corporation (AG) that make a profit or have a management board in Germany are subject to the corporate tax on the profit they make worldwide. Dividends that have been earned and taxed outside Germany are exempt from taxation. Foreign companies that do not have a registered office or a management board in Germany will be subject to the corporate tax on the profit they make in Germany. The corporate tax is set at a flat rate of 15% to which an additional solidarity charge applies (Solidaritätszuschlag). The solidarity surcharge was enforced in 1995 and it represents 5.5% of the corporate tax leading thus to a total corporate tax of 15.825%. German subsidiaries that repatriate profits to their parent-companies in other countries must pay a withholding tax (Kapitalertragssteuer) of 25%.

Germany has double taxation agreements with other countries in order to avoid double taxation on profits. Dividends paid based on double taxation agreements are taxed at reduced rates of 5, 10, or 15% or can be exempt from taxation.

Personal income tax on partnerships in Germany

All types of partnerships in Germany (civil law partnership (GbR), the general commercial partnership (oHG), or the limited partnership (KG) ) are subject to personal income tax. The personal income tax is levied in stages and starts with 14% on the annual turnover if the threshold of approximately 8,200 EUR is not exceeded, raises up to 42% if an approximately 53,000 EUR threshold is exceeded, and reaches 45% if an approximately 251,000 EUR threshold is exceeded. The additional 5.5% solidarity charge applies to the personal income tax as well.

Trade tax in Germany

All business entities in Germany are subject to the trade tax (Gewerbesteuer).  The trade tax is set at the municipal level and it varies between 7 and 17%. The German trade tax is calculated depending on the tax base which is 3.5% in Germany and the multiplier (Hebesatz) set separately by each municipality. The average multiplier is between 300 and 400% but no less than 200%.

If you want to open a company and need details about the taxation system you can contact our law firm in Germany.