In the fiercely competitive world of business, understanding the tax implications of every decision can be the difference between success and failure.
Whether you’re a small start-up looking to break into the German market or a large multinational corporation expanding your operations, understanding the ins and outs of corporate taxes in Germany is essential for your business’s long-term success.
Navigating the corporate taxes in Germany can be a daunting task, but with a deeper understanding of the various taxes and incentives available, businesses can make strategic decisions that can significantly impact their bottom line.
From the solidary surcharge to the trade tax and the corporate income tax, corporations must keep a close eye on their tax liabilities and take advantage of any incentives and exemptions available to them.
So, let’s delve into the complexities of 2023 German corporate taxes and explore the various taxes and incentives that businesses need to navigate to succeed in this dynamic marketplace.
Numerous Corporate Taxes in Germany
Germany is known for their strong economy, and many businesses are looking to establish themselves in this prosperous market. Eventually, all the corporations in Germany are liable to corporate income tax, which is around 15% of taxable profits.
In addition to the corporate income taxes in Germany, businesses are also subject to the solidarity surcharge, which is an additional 5.5% of the corporate income tax, and the trade tax, which relies on the location of the business.
Apart from these taxes, businesses may also be eligible for various incentives and exemptions to help reduce their tax liabilities. For example, small businesses in Germany may be eligible for reduced tax rates, while businesses that invest in research and development can take advantage of tax credits.
Overall, businesses operating in Germany must be aware of the various taxes and incentives available to them to maximize their success in this dynamic marketplace. With the right tax strategy in place, businesses can thrive in one of Europe’s strongest economies.
Below you will find the updated tax structure of the German corporate tax rate for February 2023.
| Tax type | Tax Rates | Tax Base |
| Corporate income tax | 15% (up to €1 million) & (above €1 million) 15% plus 5.5%. | Imposed on Taxable income |
| Solidarity surcharge | 5.5% | Calculated on the corporate income tax value |
| Value-added tax | 19% (Standard) | Net sales revenue |
| Capital gains tax | 25% | Calculated on the capital gains tax amount |
| Trade tax | Varies by the municipality but generally goes around 14% | Taxable profit adjusted with the municipal multiplier |
| Withholding tax | 25% (flat-rate) | Interest, dividends, and certain other income |
Who pays German corporate taxes?
In Germany, corporations are mandated to settle corporate tax on their earnings. This tax is known as the “Körperschaftsteuer”.
The following types of corporations are subject to German corporate taxes:
- Limited Liability Companies (Gesellschaft mit beschränkter Haftung or GmbH)
- Stock Corporations (Aktiengesellschaft or AG)
- Partnerships with a legal personality (Kommanditgesellschaft auf Aktien or KGaA)
- Cooperative Societies (Genossenschaften)
- European Companies (Societas Europaea or SE)
Limited Liability Companies (Gesellschaft mit beschränkter Haftung or GmbH): GmbHs are the most common type of corporation in Germany. They are taxed at a rate of 15% on their profits and are also subject to the solidarity surcharge and trade tax.
Stock Corporations (Aktiengesellschaft or AG): AGs are typically larger corporations with publicly traded shares. They are taxed at a rate of 15% on their profits and are also subject to the solidarity surcharge and trade tax.
Partnerships with a legal personality (Kommanditgesellschaft auf Aktien or KGaA): KGaAs are a hybrid between a partnership and a stock corporation. They are taxed at a rate of 15% on their profits and are also subject to the solidarity surcharge and trade tax.
Cooperative Societies (Genossenschaften): Genossenschaften are associations of individuals or companies that work together for a common purpose. They are taxed at a rate of 15% on their profits and are also subject to the solidarity surcharge and trade tax.
European Companies (Societas Europaea or SE): SEs are a type of corporation that can operate across multiple EU member states. They are taxed at a rate of 15% on their profits and are also subject to the solidarity surcharge and trade tax.
Sole proprietorships and partnerships without legal personality are not subject to corporate tax. Instead, the profits of these types of businesses are subject to taxation as the owners’ earnings.
Other forms of business taxes in Germany
There a distinct types of other business taxes in Germany, which include:
- Dividend tax
Certain businesses also have to make payments to dividend tax. As the dividends paid to resident and foreign companies in Germany generally are exempt from tax at 95% unless they are tax-deductible expenses for the person paying them.
- Solidarity surcharge
In addition to the corporate income tax, corporations in Germany are also required to pay a solidarity surcharge (Solidaritätszuschlag). This surcharge is currently set at 5.5% 9of the corporate income tax.
- Trade tax
Corporations in Germany are also subject to trade tax (Gewerbesteuer), which is imposed by regional administrations. The rate of trade tax can vary depending on the location of the corporation, but it is generally around 14%.
- Tax on capital gains
In general, the capital gains that companies earn those sell business assets are considered to be ordinary income. These gains can be utilized to defray the expense of replacing the building.
Things you must understand when filing your German corporate tax return
If you are a business owner or representative of a corporation in Germany, you are required to file a corporate tax return annually.
The actions you must take to submit your German company tax return are listed below:
- Determine your tax year
In Germany, the tax year lasts from January 1 until December 31. You will need to determine your tax year and ensure that your financial records cover this period.
- Prepare your financial statements
You will need to prepare your financial statements, which include your income statement, balance sheet, and profit and loss statement. In the preparation of these documents, German accounting principles must be followed.
- Calculate your taxable income
Once you have prepared your financial statements, you will need to calculate your taxable income. This is the amount of income subject to taxation after deducting allowable expenses.
- Fill out the tax return form
Germany has a standard tax return form called the “Körperschaftsteuererklärung” or “corporate tax return”. You will need to fill out this form, which is available in both German and English.
- Attach supporting documents
You will need to attach supporting documents, such as your financial statements, to your tax return form.
- Submit your tax return
Once you have completed the tax return form and attached all supporting documents, you can submit your tax return to the tax office. You can do this electronically or by mail.
- Pay any tax owed
If your tax return shows that you owe tax, you will need to pay this amount by the due date. The due date for corporate tax returns in Germany is July 31 the year after the tax year has passed.
Benefits of German corporate tax rate
There are several benefits to the corporate tax rate in Germany, which can make it an attractive destination for businesses looking to establish themselves in Europe.
The German corporate tax rate has several important advantages, including,
Low Corporate Tax Rate: Germany has a relatively low corporate tax rate of 15% on taxable profits, which can help businesses to keep their tax liabilities to a minimum, whereas the European OECD countries have a corporate tax rate of around 31%.
Incentives for Small Businesses: Germany offers several incentives for small businesses, including reduced tax rates and exemptions. Small companies with yearly sales of up to 1.4 million euros can take advantage of reduced tax rates.
Research and Development Tax Credits: In Germany companies that make R&D investments can receive tax credits, which can help to reduce their overall tax liabilities.
Stable and Predictable Tax Environment: Germany has a stable and predictable tax environment, which can help businesses to plan for the future and make strategic decisions with confidence.
Overall, the corporate tax rate in Germany offers several benefits for businesses, including a low tax rate, incentives for small businesses, tax credits for research and development, and a stable and predictable tax environment.
Conclusion
German corporate tax system is constantly evolving, with recent regulations and rules being presented regularly. As such, businesses need to stay up to date with the latest changes to ensure compliance and minimize tax liabilities.
At the same time, the German government has recognized the importance of creating a favorable tax environment for businesses, both large and small, to encourage growth, investment, and job creation.
In the end, the key to navigating corporate taxes in Germany is to work with experienced tax professionals of Odint Consultancy who can help businesses understand the complexities of the tax code and take advantage of any business taxes in Germany.