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Tax Specialist Group
Corporate Tax Guide: Germany
Germany

Members:

The information is valid for the entire country except where indicated. For example, in the case of Malaysia, Labuan is part of Malaysia but has a special tax regime, so this is noted.
Germany – entire country.
The corporate tax rate shown is the typical corporate tax rate that a domestic corporation owned by non-resident persons would pay. The tax rate does not include withholding tax on dividends, but does include a distribution tax shown separately if applicable. Certain countries have a low corporate tax rate, but charge an additional tax when a dividend is distributed. Because this tax is paid by the corporation, and not deducted from the amount of the dividend itself, it is not a dividend withholding tax. As a result, it typically cannot be reduced by an international tax treaty.
Corporate tax:
Uniform rate of 15% plus solidarity surcharge of 5.5%, combined tax of 15.825%.

In addition to corporate tax there exists trade tax. All commercial businesses are liable to trade tax. The trade tax base is determined by the relevant municipality. The average trade tax rates vary between 15% and 18%.
The basis of taxation for a corporation will typically be one of:
  • World income (i.e. income from all sources)
  • Territorial (i.e. only income from within the jurisdiction)
  • Territorial and remittance (income earned within the jurisdiction and income remitted into the jurisdiction)
Other basis of taxation are possible, and, if applicable, they are noted.
World income for unlimited taxpayers.

Limited taxpayers are subject to a restricted tax liability in Germany on certain specified earnings of domestic income.
Where non-resident corporation carries on business in a country, business profits may be subject to corporate tax. In addition, a branch profits tax may apply in lieu of dividend withholding tax. This branch profits tax applies to the after tax profits, typically at a fixed percentage. An international tax treaty may reduce the rate of branch profits tax, typically to the rate provided for dividend withholding.
There is no separate branch profits tax.
German branches of foreign corporations are subject to corporate and trade tax as German-based corporations. Tax rates are the same as under 2. above.
The common forms of business entity are noted. In addition, the entities which are flow through entities for U.S. tax purposes are indicated.
Stock company (AG), partnership limited by shares (KGaA), limited liability company (GmbH), entrepreneurial company (UG), Societas Europaea (SE) or partnerships (e.g., general partnership (OHG), limited partnership (KG)), which are tax-transparent for (corporate) income tax purposes.
Capital gains may be fully taxed, partially taxed or not at all. In certain countries, an exemption, called the participation exemption, will apply to exempt from tax a capital gain from disposition of a substantial holding of shares of a subsidiary. Where a participation exemption is applicable, it is noted together with a summary of the main conditions.
Corporate income deriving from the sale of shares is tax-exempt at the level of corporations. 5% of the capital gains are deemed to be a non-deductible business expense. There is no minimum holding period or minimum holding quota.
Certain countries allow group taxation, otherwise known as consolidated tax filing. Here the tax returns of a group of corporations in the country may be combined together, which can be useful. If group taxation is permitted, it is noted along with the main conditions.
Possible. A German parent entity must have more than 50% of the voting rights in a domestic subsidiary. In addition, the entities must conclude a profit and loss transfer agreement; the minimum duration is five years. The taxable income of the tax consolidation group is pooled (set off of profits and losses).
Countries offer various kinds of special exemptions and incentives. Examples are a reduced tax rate, a tax holiday, a tax credit on the purchase of equipment, special accelerated deductions for deprecation, incentives for R&D, and various others. Here the major items are noted.
Dividends that are paid by a corporation to its corporate shareholder(s) are tax-exempt (see 12 below).
Many countries have thin capitalization rules which limit or deny the deduction of interest expense in certain circumstances. For example, if debt exceeds three times equity, a proportionate amount of interest expense may not be deductible. Limitations take various forms, restricting the interest expense deduction to a percentage of profit, deeming the debt to be equity and the interest to be a payment of dividends, and various other rules which may blend of these principles. Where a country has thin capitalization rules, they are briefly described.
There is an interest earning stripping rule (“Zinsschranke”).
The interest paid is fully deductible in the amount of interest income. Furthermore, the net interest paid (excess of interest paid over interest received) is only deductible up to 30% of the “tax-EBITDA”. The starting point for the calculation of the “tax-EBITDA” is the taxable profit.

The interest earning stripping rule does not apply if the net interest paid is less than EUR 3 million.

Unused “tax-EBITDA” may be carried forward for five years. This carry forward is subject to the same principles as the tax loss carry forwards (see 14. below).
Many countries have transfer pricing rules. They very often follow the OECD guidelines and the arms length principle. Some countries have specific rules which apply in certain cases. In addition, some countries allow for a selection of the most appropriate transfer pricing methodology in the circumstances, while other countries follow a hierarchy of methods, with the CUP method (comparable uncontrolled price) often ranking first. The transfer pricing rules are briefly explained.
In principle, all transactions with foreign-related parties should be at arm’s length.
There are documentation obligations to show that the arm’s length principle is met.
If the documentation obligations are not met, the local tax authority can estimate the taxable income.
Many countries tax passive income earned in controlled foreign corporations (CFC’s) on an imputation basis while active income is not taxed. Such CFC rules are usually complex and vary significantly in what is considered passive income, and how foreign tax paid is taken into account. Some countries approach CFC rules on the basis of whether or not the foreign corporation is resident in a low tax jurisdiction or a tax haven. This may be done through a black list of countries.
The general overview of CFC rules is described in simple terms.
CFC Rules are applicable to low-taxed (< 25%), “passive” income of controlled foreign subsidiaries.
Profits repatriated by way of dividends from a subsidiary to a parent company are typically taxed in one of three ways:
  • The dividends are exempt of tax.
  • The dividends are deductible from taxable income, but not fully (90%, for example, of the dividend is deductible).
  • The dividend is taxable, grossed up to the pre-tax amount, and a foreign tax credit claimed for foreign taxes paid.
The applicable method is noted.
Dividends on significant shareholdings are exempt from corporate and trade tax. As an exception to this rule, the dividends are taxable if the amount of participation is less than 10% for corporate tax and less than 15% for trade tax purposes. 5% of the income is classified as non-deductible and is added back to taxable income liable to corporate and trade tax.
Most countries allow a foreign tax credit based on a formula, typically net foreign income over the net income times taxes payable. This limits the foreign tax credit to roughly the domestic tax otherwise applicable to the foreign income. There are numerous variations and technical rules in the details of foreign tax credit calculations. Where a foreign tax credit is allowed, the general principles are described.
If foreign-source income is not exempt from German taxation, German local tax law provides for a unilateral tax credit possibility on a per-country-limitation basis.
14. Losses
Losses typically can be carried forwards for a period of years, and sometimes can be carried back. Losses may be segregated into capital losses and non capital losses.
An optional tax loss carry back can be made to the previous year up to EUR 1 million.

The losses up to EUR 1 million can be carried forward to the following year. Additional losses can be carried forward up to 60% of the taxable income, which exceeds the amount of EUR 1 million. The remaining 40% of the taxable income is subject to corporate income and trade tax. There is no time limit with respect to loss carry forwards.

If 25% of shares are transferred in the period of five years to one acquirer (or one group of acquirers), this leads to a corresponding reduction in the tax loss carry forwards. If 50% of shares are transferred in the period of five years to one acquirer, the tax losses are forfeited.
As an exception to this rule, tax losses up to the amount of taxable hidden reserves in the company’s taxable net assets are maintained.
In addition, a forfeiture of losses does not take place if and insofar as (i) the company has filed a request for application of Sec. 8d KStG; (ii) the company has pursued the same business operation since its founding, or at least in a time period of three fiscal years before the fiscal year in which the detrimental sale of shares took place; and (iii) no event in the sense of Sec. 8d (2) KStG has taken place since the founding of the company, or at least in a time period of three fiscal years before the fiscal year in which the detrimental sale of shares took place.
It is not practical to list all of the tax treaties which a country has in a simple guide like this. Accordingly, a link is provided in each case to the tax treaties.
Some countries have entered into Tax Information Exchange Agreements (TIEA).
Treaties are more and more containing provisions that limit benefits (LOB provisions).
  • Tax Treaties: about 112
  • TIEA: 28
  • LOB provisions: some treaties have a LOB-clause, most do not.
Withholding tax rates vary considerably from treaty to treaty, and countries may have domestic exemptions applicable in certain circumstances (for example copyright royalties, interest paid to arm’s length persons, etc.). A table shows the typical rates but cannot adequately summarize all of the details. The applicable treaty should be consulted.
WHT in %
DividendsInterestRoyalties
Resident corporations2525 (only for interest paid by banks)0
Non-resident corporations:
  • EU corporations (payments to an EU parent company
000
  • Non-treaty corporations
2525Up to 15
Some countries allow for the selection of year-end while other countries specify a particular year-end which all business entities must have. Normally the taxation year cannot exceed 12 months. Where it can exceed 12 months, this is noted.
The tax year is the calendar year. Some corporations have a different financial year which deviates from the calendar year.
This is the due date for filing a tax return. Where extensions are available, this is noted.
Returns are due on 31 May of the following year. From assessment period 2018 returns are due on 31 July of the following year.
Automatic extension to 31 December for those filing with professional assistance. Further extension to 28 February in exceptional, duly justified cases.
The typical tax instalment requirements are noted.
Yes. Corporate instalments on 10 March, 10 June, 10 September and 10 December based on the estimated ultimate liability, which is usually the total tax due shown by the last assessment issued. Trade tax instalments are due on 15 February, 15 May, 15 August and 15 November.
This is the date when the corporate tax owing for the year must be paid. It may be different from the tax return filing due date.
Quarterly instalments during the year, based on the estimated ultimate liability. A final settlement when the assessment is issued.
This is the period after which the tax department cannot in normal circumstances reassess a taxation year. It is sometimes referenced to the end of the taxation year and sometimes to the date of the first assessment of that taxation year.
Tax returns are due on 31 May of the following year. From assessment period 2018 onwards tax returns are due on 31 July of the following year.
Automatic extension to 31 December for those filing with professional assistance. Further extension to 28 February in exceptional, duly justified cases.
If a country has exchange controls, this is noted, together with the main requirements.
No.
23. VAT
A VAT tax system typically provides that the supply of goods and services is classified as taxable, tax exempt, or zero rated. Where a business is engaged in an activity which is taxable, it must charge VAT on its revenue, and can claim a refund of VAT on its expenditures. Where the activity is exempt, it does not charge VAT on its revenue, and cannot claim back VAT paid. Where the entity is engaged in activities which are zero rated (typically agriculture, food services and exports), then it can claim back VAT which it has paid on its expenditures, and does not charge VAT on its revenue.
If a country has a typical VAT system, this is noted. If a country has no VAT system but a sales tax system, this is indicated. Some countries may have a mixture, and taxes may apply at different levels (federal and state for example).
Standard rate is 19%, but there is a lower rate of 7% on certain items, such as food and books.
Proceeds of sales and services effected in Germany are subject to VAT.
The taxpayer is entitled to deduct input VAT if the turnover is related to a turnover subject to VAT.
VAT is an annual tax.
Stamp duty, or land transfer tax, can apply on such things as the transfer of shares, land, or the issuance of bonds or debentures. This is described together with the applicable rates.
There is a real estate transfer tax. Rates vary in the German states between 3.5% and 6.5%. This tax is also levied on indirect transfers from the acquisition of at least 95% of the shares in property-owning companies or on a change of shareholders if at least 95% of the shares are then held by new shareholders.
If capital tax is payable, this is described. Capital tax may apply in specialized industries, such as banking and insurance, even if a country does not generally apply a capital tax to corporations.
There is no capital tax.
Where significant, other taxes are noted.
Customs Duties
  • rate is set at 0% on most imports from EU candidate countries and on many imports from countries with which the EU has an association agreement
  • for products from other countries, the rate generally lie between 0% and 10%
Excise taxes on
  • fuel
  • electric power
  • insurance
Property tax

Payroll tax
Anti-Avoidance Rules take many forms, the most common ones are a general anti-avoidance rule, treaty shopping limitations, the requirement for economic substance (or a business purpose in carrying out transaction) and specific anti-avoidance rules for particular purposes. A very brief overview of the anti-avoidance rules is described.
Yes, under Sec. 42 German Tax Code (“Abgabenordnung”), the tax acts cannot be circumvented by an abuse of legal forms.
Where a non-resident person holds shares of a corporation established in the country listed, the capital gain which results may be taxable or not taxable depending on the circumstances and, possibly, the existences of an international tax treaty. The general rules are noted.
Income from the sale of shares in other companies is not subject to corporation and trade tax. Therefore, losses are not deductible. However, 5% of the capital gains are classified as non-deductible, directly-related expenses and are added back to taxable income liable to corporate and trade tax.

VAT: If the sale of a corporation is qualified as a transfer of a business as a whole, it is not liable to VAT.
Where a corporation is acquired through the purchase of shares, sometimes a step up is allowed so that the cost of its assets can be revalued. The main rules are briefly summarized.
Step up only available on the acquisition of depreciable capital assets (Asset Deal).
In some countries, rulings are commonly used (and sometimes even required). In other countries the system is either unavailable or not commonly used except in special circumstances.
Upon application, tax offices and the Federal Central Tax Office grant binding rulings on the tax position to be taken on a precisely described matter.
31. Other
Other important aspects of the tax system are noted.
N/A