Corporate Taxation

Companies Liable to Corporate Income Tax

Corporate companies – such as the limited liability company (GmbH) or the stock corporation (AG) – based in Germany or with an executive board in Germany are liable to corporate income tax on globally generated income. Dividends that have been generated and taxed abroad may be exempt from taxation in Germany or taxes paid in a foreign country can be offset against taxation in Germany.

Corporate companies who are not based in Germany and do not have an executive board in Germany are only liable to corporate income tax on income generated inside Germany (e.g. via a permanent establishment, dividends or licenses).

Corporate Income Tax Rate

Corporate income tax is levied as a flat nationwide tax at a rate of 15 percent of taxable corporate income. Taxable income (i.e. annual business profit) forms the tax base for corporate income tax. Under German commercial law, corporate company annual profit is calculated according to the accrual basis accounting method. This is recorded in the annual financial statement and forms the basis for determining taxable income.

However, German tax law provides different accounting options and income correction rules, meaning that the taxable income usually differs from the annual profit determined in the financial statement under commercial law. For more information please also refer to our chapter on tax deductions.

Solidarity Surcharge 

In addition, a solidarity surcharge (Solidaritätszuschlag) is added on top of the corporate income tax. The surcharge is a fixed and flat nationwide component of company taxation and set at a rate of 5.5 percent of the 15 percent corporate income tax (not the income); creating a total of around 0.8 percent of taxable income. Taken together, the corporate income tax and solidarity surcharge amount to a total taxable rate of around 15.8 percent.

Trade Tax Rate

Irrespective of their legal form, all commercial business operations in Germany are liable to trade tax (Gewerbesteuer). The trade tax rate is set by local authorities which means it can vary from one municipality to the next. The rules for determining the taxable income (business profits plus certain statutory additions and allowances) are the same throughout Germany. Moreover, the trade tax rate is the same rate for all businesses within one municipality. The minimum trade tax rate must be at least seven percent. There is no statutory ceiling of the trade tax rate, but the German average trade tax rate is slightly above 14 percent. As a rule, the trade tax rate tends to be higher in urban locations than in rural areas. The solidarity surcharge is not levied on trade tax. 

Determining the Trade Tax Rate

The trade tax rate depends on two factors: 

• the multiplier (Hebesatz) stipulated individually by every municipality
• the tax base rate of 3.5 percent (across Germany)

The taxable income of the company is multiplied with the tax base rate (3.5 percent) which results in the so-called tax base amount. The tax base amount is then multiplied with the applicable municipal multiplier; which results in the sum total of trade tax which is due. The multiplier is set by each municipality. On average, it is slightly above 400 percent, but may not total less than 200 percent. There is no upper limit for the municipal multiplier. 

Corporate Shareholders - Withholding Tax 

If a German subsidiary company distributes profits to its foreign parent corporation (a dividend payment) then a 25 percent rate of withholding tax (Kapitalertragssteuer) plus solidarity surcharge is payable in Germany. 

Within the EU, dividend payments between a corporate domestic subsidiary company and most corporate foreign parent companies are tax-free over and above a 10 percent stake.

In the event of the existence of a double taxation agreement (DTA) between the Federal Republic of Germany and another country, the withholding tax in the DTAs is usually levied at a significantly lower rate (e.g. 15, 10, 5 or even 0 percent). Withholding tax still paid in Germany can be credited against existing foreign tax obligations or the parent company has been exempted from dividend-payable tax in the respective DTA state. Different rules may apply for dividend payments by partnerships. 

In cases where there is no applicable DTA between Germany and the foreign nation, two fifths of the withholding tax paid can be reimbursed if the creditor of the dividend-paying German corporation is a foreign corporation. 

Private Shareholders – Final Withholding Tax

Profits which are distributed to private shareholders are liable to a final withholding tax (Abgeltungssteuer) of 25 percent plus the solidarity surcharge. The final withholding tax is retained by the debtor of the dividend or the institution managing the deposit (for instance a bank) and then paid to the tax office. However, the application of a DTA may lead to a lower withholding tax if the private stockholder resides in another country.

Value-added Tax within Germany

VAT is a consumption tax that is ultimately borne by the final consumer of a product or service. It is charged as a percentage of the price. At present, the normal rate of VAT in Germany is set at 19 percent. A reduced rate of seven percent applies to certain consumer goods and everyday services (such as food, newspapers, local public transport, and hotel stays). Some services (such as bank and health services or community work) are completely VAT exempt.

Companies must add the applicable VAT tax rate to value their prices. On purchasing goods or making use of services, companies regularly have to pay value-added tax themselves. The taxes collected and paid can be balanced out via input VAT deduction (Vorsteuerabzug). Companies submit periodic VAT reports online to the tax authorities (Umsatzsteuer-Voranmeldung) on a monthly or quarterly basis using Germany’s ELSTER online tax office system.  The frequency depends on the company’s level of turnover. In addition, an annual VAT return (Umsatzsteuer-Jahreserklärung) must be submitted. 

In specific business-to-business transactions, the business customer has to transfer the VAT to the tax authority – the so-called reverse charge procedure. This is applicable, for instance, to certain types of construction work carried out by subcontractors.

Cross-border Trade within the EU

Trade within the EU is free from customs and other restrictions. However, goods traded between different EU member states are subject to a so-called acquisition tax (Erwerbssteuer). The reverse charge procedure is in general applicable to intra-community sales of goods and services between entrepreneurs in different EU states. This means that these customers pay VAT on the goods/services received at the applicable rate in their country. For detailed information about cross-border VAT in the EU please see the dedicated EU website.

Acquisition tax is payable by the recipient of the goods. If an EU company exports goods to a company located in another EU member state, the delivering company therefore must not charge VAT. Accordingly, the company in the other EU member state receiving the goods accordingly has to pay acquisition tax. Acquisition tax rates correspond with the VAT tax rates of the country where the recipient of the goods is located. Companies can however reclaim acquisition tax like regular VAT.

In the case of intra-community deliveries of goods from a company to a private consumer, VAT generally has to paid by the seller in the EU country where the consumer is based, if the delivery is based on an intra-EU distance sale. If the EU consumer picks up the goods himself at the seller’s premises in another EU member state, VAT is generally due in the seller’s EU country. There are various special scenarios that cannot be presented here, for instance chain transactions or the provision of services.

If a company intends to deliver goods to or import goods from other EU member states, it requires a VAT identification number (Umsatzsteuer-Identifikationsnummer). The VAT identification number application can also be filed online or combined with the regular tax number application. The German Federal Central Tax Office provides initial online information on VAT procedures in Germany. 

Trade with Non-EU Member States

Goods imported from non-EU states are liable to import VAT called import turnover tax (Einfuhrumsatzsteuer). The import turnover tax rate equals the VAT rates of 19 percent or 7 percent and is paid to the customs authority.

The import turnover tax on goods imported from non-EU states can also be deducted as input tax (Vorsteuer). As a prerequisite, the company must have the necessary import documents with customs proof of payment (import declaration). Exports are exempt from VAT. 

Real Property Tax

Real property in Germany is sorted into two distinct categories. The real property tax rate depends on the category assigned to the property. Accordingly, real property tax is categorized as follows:

Real property tax "A": Real property used for agriculture and forestry

Real property tax "B": Constructible real property or real property with buildings

A real property tax type "C" will be introduced from 2025 onward as the result of a fundamental real property tax reform. Municipalities can impose the real property tax type "C" for undeveloped areas that are ready for development.

Real Property Tax Rate

The real property tax burden is calculated by multiplying the assessed value of the real property with the real property tax rate and the municipal multiplier.

The assessed real property value is determined by the tax authorities according to the German Assessment Code (Bewertungsgesetz). The German Assessment Code refers to historical property values that are usually significantly lower than current market value. The tax rate varies between 0.26 percent and 1 percent depending on the Federal State (the real property is located at) and the use of the property.

Similar to the municipal multiplier applied in the trade tax case, the municipal multiplier applied to real property tax is stipulated by each municipality. Municipalities determine a municipal multiplier for both real property tax "A" and real property tax "B," with the rate for "B" usually being higher.

The Real Property Tax Reform

The reform of real property tax maintains the three-step system for calculating the real property tax rate but makes provision for a new assessment of real property values as of January 1, 2022. The reform also simplifies the calculation from 2025 onward, because it largely relies on average and statistical data to calculate the assessed value of the real property.

The German federal states are free to introduce their own deviating provisions in order to impose and calculate real property tax.

Real Property Transfer Tax

When domestic real estate is sold or changes owner, a one-time real property transfer tax (Grunderwerbsteuer) of the purchase price is levied if the purchase price or consideration exceeds EUR 2,500. Real property transfer tax is usually paid by the buyer. Real property transfer tax also applies to a real property-owning company if 90 percent of the shareholders change within ten years. The tax rate varies from federal state to federal state. Please see the table below for more information.

Real Property Transfer Tax Rates in the Respective Federal States 2024

3.5%: Bavaria

5.0%: Baden-Württemberg, Bremen, Niedersachsen, Rhineland-Palatinate, Saxony-Anhalt, Thuringia

5.5%: Hamburg, Saxony

6.0%: Berlin, Hessen, Mecklenburg-Vorpommern

6.5%: Brandenburg, North Rhine-Westphalia, Saarland, Schleswig-Holstein

Registration at the Tax Office

A regular tax number for the purposes of German income tax and national German VAT is issued by the competent local tax authority. Within one month of establishing a company or permanent establishment, a tax assessment questionnaire (Fragebogen zur steuerlichen Erfassung) must generally be filled in online via the official German tax portal ELSTER (German language only).

Tax Collection and Deadlines

With the most important types of tax (corporate income, personal income, trade, and value-added tax) collection is made via advance payments (normally monthly or quarterly) which are offset against the actual tax liability in the annual tax declaration. The tax declaration has to be submitted by July 31 of the following year. However, this deadline can be extended on request. Eased requirements apply for the fiscal years from 2020 to 2023 thanks to economic stimulus regulations of the German government.

Subject to the expected amount of taxes to be paid, the tax authorities can determine the period when tax payments are due. The tax authorities provide information on tax issues. However, companies in particular should seek the services of a tax consultant to ensure the tax return is completed as favorably as possible. The German Association of Tax Advisers (Bundessteuerberaterkammer) provides a register of tax advisors.

Payment of Wage Tax

Employees pay wage tax (Lohnsteuer) - a special term for the income tax paid by employees. The employer is obliged to deduct the wage tax due directly from the salary of the employee and to pay it to the tax office on a monthly basis. For this reason, employees who do not get earnings from non-wage incomes may not be obliged to submit an annual tax declaration.

Electronic Tax Declaration

Tax declarations on income tax, wage tax, and value-added tax can easily be submitted to the tax office electronically. The electronically submitted tax declaration is mandatory for business operators. Information, forms, and software products for submission of an electronic tax declaration are available at the dedicated Elster website.

The Growth Opportunities Act provides improved opportunities for companies to carry back losses and depreciate assets.

Loss Carry-Back and Loss Carry-Forward

Losses for corporate income tax purposes can be carried back for one year - limited to a total loss amount of EUR one million. 

Losses for corporate income tax can be carried forward with no time restriction. An amount of up to EUR one million loss carry-forward free from any restrictions is possible. For sums in excess of EUR one million, the Growth Opportunities Act increases the available options for companies for the years 2024 to 2027: A maximum 70 percent of taxable earnings exceeding EUR one million can be offset against losses carried forward in previous years. From 2028 onward, the percentage rate will be 60 percent - the equivalent rate for the period before the Growth Opportunities Act came into force.  

Deductibility of Interest Payments

Generally, interest payments are fully deductible as operating expenditure. However, some special rules apply for corporate groups. Where the amount of interest payments exceeds the amount of interest earnings for sums more than EUR 3 million, these exceeding interest payments are only deductible up to an amount of 30 percent of the EBITDA (earnings before interest, taxes, depreciation and amortization).

Straight Line Depreciation

Depreciation on movable and fixed assets is calculated on the straight-line method over the asset’s estimated anticipated useful life. Every asset has a different depreciation period, stipulated in a depreciation table (AfA-Tabelle) by the Federal Ministry of Finance. Low value assets –with a net value below EUR 800 - can be depreciated in full immediately.

Accelerated Depreciation - Temporary Policy

For moveable assets acquired or made between April and December 2024, a temporary accelerated depreciation method according to the declining balance method has been introduced by the Growth Opportunities Act. The applicable depreciation factor can be up to twice as high as the currently applicable straight line depreciation rates - capped at a 20 percentage annually. This means that companies enjoy a higher rate of depreciation in the first years of use of the assets, thereby leading to higher deductible expenses.

Fiscal Unity Concept

The German fiscal unity concept allows for profit and loss pooling of different corporations at the level of a dominant (parent) company to determine the overall profit for taxation purposes. To do so, the dominant company must have its place of business management in Germany and must be subject to taxation in Germany. It can either be a German company or a permanent establishment of a foreign (dominant) company in Germany.

The fiscal unity concept covers corporate subsidiaries from Germany or other EU/EEA member states if they have their place of business management in Germany. The dominant company in Germany must hold more than 50 percent of the voting rights of the subsidiary or subsidiaries. In addition, a profit and loss pooling agreement must exist with a duration of at least five years. The agreement has to be registered with the commercial register. Further requirements may apply.