Germany

Basic taxes (briefly)

Personal tax 14% - 45%
Corporate tax (in detail) Income tax is levied at a rate of 15%. The general income and trade tax rates can be around 30% in Berlin and 33% in Munich.
Capital gains tax. Details Capital gains derived from the sale of a domestic or foreign corporate subsidiary are effectively 95% tax-exempt.
VAT. Details The standard VAT rate is 19%. For some types of goods and services - 7%.
Other taxes Real property tax, inheritance tax, transfer tax, municipal trade tax, social security contribution
Government fee No
Stamp duty No

International tax agreement

Tax treaties entered Albania, Algeria, Argentina, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Bolivia, Bosnia and Herzegovina, Bulgaria, Canada, China, Chinese Taipei, Costa Rica, Croatia, Cyprus, Czech Republic, Côte d'Ivoire, Denmark, Ecuador, Egypt, Estonia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Ghana, Greece, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Kenya, Korea (Republic of), Kuwait, Kyrgyzstan, Latvia, Liberia, Liechtenstein, Lithuania, Luxembourg, Malaysia, Malta, Mauritius, Mexico, Moldova (Republic of), Mongolia, Morocco, Namibia, Netherlands, New Zealand, Norway, Oman, Pakistan, Philippines, Poland, Portugal, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Syrian Arab Republic, Tajikistan, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Venezuela, Viet nam, Zambia, Zimbabwe
   
Tax Exchange Information Agreement (TEIA) Andorra, Anguilla, Antigua and Barbuda, Bahamas, Bermuda, Cayman Islands, Cook Islands, Dominica, Gibraltar, Grenada, Guernsey, Isle of Man, Jersey, Liechtenstein, Monaco, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, San Marino, Turks and Caicos Islands, Virgin Islands (British)


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TAXATION

General Info

LLCs are subject to corporation tax, capital gains tax, trade tax, solidarity surcharge and turnover tax.

Individual Taxation

German residents are taxed on their worldwide income; nonresidents are taxed only on German-source income.
An individual is resident if he/she is domiciled or has a habitual abode in Germany. A habitual abode is deemed to exist if the individual spends more than six months in Germany. Domicile can be presumed where an individual has a permanent accommodation at his/her disposal in Germany; it is not necessary that the individual actually uses the accommodation.
Taxable income is the sum of income from employment, the exercise of a trade or profession, agriculture and forestry, capital, rent and leasing or other income. Private investment income, including capital gains, is subject to a 25% (26.375%, including the solidarity surcharge) final withholding tax.
Sales of real estate and rights to private property (not business property) are subject to tax if the taxpayer owned the property for less than 10 years. The sale of other assets is taxable if the taxpayer held the assets for less than one year.
Rates are progressive up to 45%. A solidarity surcharge of 5.5% (resulting in a top rate of 47.5%) and a church tax of 9% (8% in Bavaria and Baden-Württemberg) are levied on the income tax.
The tax year generally is the calendar year. The return must be filed by 31 May of the following year. The final tax is assessed after filing of the tax return. If an individual receives income other than employment income, quarterly installments are assessed and must be paid.

Corporate Income Tax

Residents are taxed on worldwide income; nonresidents are taxed only on German-source income. Branches are taxed the same as subsidiaries.
Taxable income includes company's profits, which consist of business/trading income, passive income and capital gains. Business expenses may be deducted in computing taxable income.
The effective corporate rate (including the solidarity surcharge and trade tax) typically ranges between 23% and 33%.

Surtax

A 5.5% solidarity surcharge is levied on the income tax or corporate income tax.

Capital Gains Tax

Capital gains derived from the sale of a domestic or foreign corporate subsidiary are effectively 95% tax-exempt.

Dividends

Dividends received by a German resident corporation (from both resident and foreign corporations) are effectively 95% tax exempt (the exemption is not applicable if the shares are held by banks and financial service institutions for trade purposes). Minimum shareholding requirements may apply.

Losses

Losses may be carried back one year and carried forward indefinitely. However, minimum taxation applies: losses may be offset against profits up to EUR 1 million without restriction, but only 60% of income exceeding EUR 1 million may be offset against loss carryforwards. A direct or indirect change in ownership of more than 25%/50% to one shareholder results in a partial/complete forfeiture of all tax loss carryforwards. Loss carryforwards will not be forfeited if a single person or entity owns directly or indirectly 100% of the shares in the transferring and the receiving company.

Tax Year

The tax year is 12 months or the period for which accounts are prepared, if shorter. The tax accounting period may not exceed 12 months in total.

Withholding Tax

Dividends: A statutory rate of 25% (26.375%, including the solidarity surcharge) applies, with a possible 40% refund for nonresident corporations, giving rise to an effective rate of 15.825%, unless the rate is reduced under a tax treaty. No tax is levied on dividends qualifying under the EU parent- subsidiary directive.
Interest: Withholding tax generally is not levied on interest, except for interest on deposits with German banks/financial institutions (25%) and certain hybrid instruments.
Royalties: The withholding tax on royalties paid to a nonresident corporation or individual is 15% (15.825%, including the solidarity surcharge), unless the EU interest and royalties directive applies or the rate is reduced under a tax treaty.
Technical service fees: no
Branch remittance tax: no

VAT

VAT is levied on the sale of goods and the provision of services.
The standard VAT rate is 19%, with a reduced rate of 7% applying to specified transactions. Certain transactions are exempt.

VAT Registration

German entrepreneurs generally must register for VAT purposes. The registration threshold is turnover of EUR 17,500 in the previous calendar year and estimated turnover of EUR 50,000 in the current calendar year.
Nonresidents that make taxable supplies of goods or services in Germany also must register.

VAT Tax Period and Returns

The tax year is the calendar year. The entrepreneur must file an electronic quarterly preliminary VAT return by the 10th day of the following month and pay the tax due. A refund will be paid if the input tax exceeds the VAT. If the tax for the previous calendar year was more than EUR 7,500, monthly preliminary returns must be filed.

Stamp Duty

Stamp duty is not levied in Germany.

Government Fee

There are no government fees applicable.

Other Taxes and Duties

Real property tax Tax is levied by the municipality in which real estate is located. The general rate is 0.35% of the tax value of the property, multiplied by a municipal coefficient.
Inheritance/estate tax Inheritance and gift tax rates range from 7% to 50%, with various exemptions available. Business property/assets are valued at fair market value. Under certain conditions, the inheritance of business property can be 85% or 100% tax free.
Transfer tax A real estate transfer tax of 3.5% to 6.5% of the sales price/value of transferred real estate is levied. The rate depends on the federal state where the real estate is located.
Municipal trade tax Municipal trade tax is an income tax levied by municipalities at a minimum rate of 7%. All entrepreneurs with commercial activities carried out through a subsidiary or a nonresident’s commercial permanent establishment in Germany are liable for trade tax. Corporations are always deemed to carry on commercial enterprises (trade or business), regardless of actual activities. The municipal trade tax rate varies from community to community, but averages between 14% and 17% of income. The trade tax is based on taxable income as calculated for corporate income tax purposes, but several income adjustments apply.
Social security contribution Employed individuals are required to make a contribution for pension, health and unemployment insurance. The employer bears 50% of the total contribution.

Other Taxes and Duties

Real property tax Tax is levied by the municipality in which real estate is located. The general rate is 0.35% of the tax value of the property, multiplied by a municipal coefficient.
Inheritance/estate tax Inheritance and gift tax rates range from 7% to 50%, with various exemptions available. Business property/assets are valued at fair market value. Under certain conditions, the inheritance of business property can be 85% or 100% tax free.
Transfer tax A real estate transfer tax of 3.5% to 6.5% of the sales price/value of transferred real estate is levied. The rate depends on the federal state where the real estate is located.
Municipal trade tax Municipal trade tax is an income tax levied by municipalities at a minimum rate of 7%. All entrepreneurs with commercial activities carried out through a subsidiary or a nonresident’s commercial permanent establishment in Germany are liable for trade tax. Corporations are always deemed to carry on commercial enterprises (trade or business), regardless of actual activities. The municipal trade tax rate varies from community to community, but averages between 14% and 17% of income. The trade tax is based on taxable income as calculated for corporate income tax purposes, but several income adjustments apply.
Social security contribution Employed individuals are required to make a contribution for pension, health and unemployment insurance. The employer bears 50% of the total contribution.

Anti-Avoidance Rules

Transfer pricing: Business dealings between related persons must be in accordance with transactions that would have been agreed upon by independent third parties dealing at arm's length, whereby the underlying principle is the normal degree of commercial prudence shown by a sound and conscientious business manager. Taxpayers are required to document all facts and evidence that support their positions. Specific transfer pricing rules apply to cross-border intragroup transfers of functions. An exit tax will be imposed on the "profit potential" that is deemed to be transferred based on the discounted cash flow value of the subsidiary before and after the restructuring.
Thin capitalization: A taxpayer may immediately deduct (net) interest expense up to 30% of annual pre-interest, pre-loss- carryforward profits for tax purposes, increased by the tax depreciation incurred (EBITDA). An EBITDA carryforward is generated if the taxpayer has net interest expense lower than 30% of the EBITDA for tax purposes. The difference between 30% of the EBITDA and the net interest expense (the excess EBITDA) may be carried forward and used in the following five years when the net interest expense exceeds 30% of current EBITDA. The limitation does not apply where the annual (net) interest burden is less than EUR 3 million, where the taxpayer is not part of a group of companies or where it can demonstrate that the equity ratio of the German borrower is at least equal to the worldwide group's equity ratio (there is a tolerance of two percentage points). Excess interest may be carried forward indefinitely (however, change-in-ownership rules apply). Disallowed interest expense will not trigger withholding tax.
Controlled foreign companies: Passive income of subsidiaries in low- or no-tax jurisdictions will be attributed to a German shareholder that holds directly or indirectly more than 50% of the subsidiary (lower ownership percentages apply where the low- taxed CFC generates passive investment income). Passive income includes income from the rental of real estate, income from licensing or income from the lending of capital. A jurisdiction is regarded as a low-tax jurisdiction if the income of the subsidiary is subject to an effective tax rate of less than 25%. Credit and refunds at the shareholder level are taken into account when determining whether the effective tax rate abroad falls below the 25% threshold. Credit for tax paid on attributed income can be granted upon application of the taxpayer.
Disclosure requirements: A taxpayer generally must disclose all facts relevant for taxation, especially regarding transactions with foreign related parties.

Double Tax Agreements

Germany has exchange of information relationships with 116 jurisdictions through:

  • 96 DTC: Albania, Algeria, Argentina, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Bolivia, Bosnia and Herzegovina, Bulgaria, Canada, China, Chinese Taipei, Costa Rica, Croatia, Cyprus, Czech Republic, Côte d'Ivoire, Denmark, Ecuador, Egypt, Estonia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Ghana, Greece, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Kenya, Korea (Republic of), Kuwait, Kyrgyzstan, Latvia, Liberia, Liechtenstein, Lithuania, Luxembourg, Malaysia, Malta, Mauritius, Mexico, Moldova (Republic of), Mongolia, Morocco, Namibia, Netherlands, New Zealand, Norway, Oman, Pakistan, Philippines, Poland, Portugal, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Syrian Arab Republic, Tajikistan, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Venezuela, Viet nam, Zambia, Zimbabwe.
  • 22 TIEA: Andorra, Anguilla, Antigua and Barbuda, Bahamas, Bermuda, Cayman Islands, Cook Islands, Dominica, Gibraltar, Grenada, Guernsey, Isle of Man, Jersey, Liechtenstein, Monaco, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, San Marino, Turks and Caicos Islands, Virgin Islands (British)

Foreign exchange control

No restrictions are imposed on the import or export of capital; however, it is necessary to file a declaration with customs for transfers of more than EUR 10,000.

ACCOUNTS

Accounts

The duration of the fiscal year results from the Shareholders’ Agreement. However, it may not exceed 12 months. The first fiscal year may be shortened (curtailed fiscal year).
As a trading company, the GmbH is obliged to keep trading books. It is obliged to draw up a balance sheet (annual balance sheet) and a profit and loss account at the end of every fiscal year. In addition, the annual financial statements are to be extended by notes with explanations. They must be drawn up in the German language.
The annual financial statements are to observe the principles of proper accounting and give a picture of the asset, finance and profit situation corresponding to the facts.
§§ 325-329 of the German Commercial Code (HGB) contain strict regulations for the disclosure of annual financial statements for capital companies. The directives are also applicable to trading companies (general partnerships, oHG) and limited commercial partnerships (KG), in which no natural entity is a personally liable partner.

Audit

Auditing of the annual financial statements is mandatory for large and medium-sized LLCs.
Auditors and auditing companies are responsible for auditing the statements and chartered accountants and chartered accounts’ companies for the annual financial statements and management reports of medium-sized companies.
The auditors have an extensive right to information and insight into books, cash in hand, stocks of securities and goods etc. They are obliged to unconditional confidentiality. They are to make a neutral written audit report on their auditing. If no objections are to be raised, the auditors are to give an audit certificate.

Annual Return

There is a statutory requirement for GmbHs to prepare and file annual return.
Annual return is publicly accessible.

Tax Returns

The tax year is 12 months or the period for which accounts are prepared, if shorter. The tax accounting period may not exceed 12 months in total.
The tax return generally must be filed by 31 May of the year following the tax year; extension of the filing deadline to 31 December of the year following the tax year typically is granted if a tax advisor is involved. Quarterly advance payments of corporate tax are due in March, June, September and December.
Penalties may be imposed for late filing (up to 10% of the tax due and a maximum of EUR 25,000), as well as for late payment of assessed taxes (1% on the outstanding rounded down tax amount per month or part thereof). Findings in tax audits generally do not result in penalties. However, taxes assessed as a result of an audit are subject to interest of 0.5% per month (6% per year). The interest calculation begins 15 months after the calendar year in which the assessment became effective. Penalties also can be imposed if the taxpayer does not comply with the transfer pricing documentation requirements. If the taxpayer fails to submit, or submits inadequate documentation, an additional charge between 5% and 10% of any transfer pricing adjustment (a minimum of EUR 5,000) can be assessed. An additional charge for the late submission of documentation can be assessed of at least EUR 100 per day, up to EUR 1 million.

    Taxes of Germany

    Min. rate for corporate tax ~30%
    Capital gains tax Regular rate
    VAT 19%
    Withholding tax 25%/0%/15%
    Exchange control No
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