Germany is one of the largest and most developed economies in Europe. It attracts entrepreneurs from all over the world due to its stability and business-friendly environment. However, as in most countries, businesses in Germany are required to pay various taxes. In this guide we will look at the main business tax in Germany types and their features.
For those who decide to establish their own company in Germany, German legislation offers various organizational and legal forms for doing business. The most attractive are GmbH, UG and AG.
GmbH is the most common form, an analogue of the many countries limited liability corporation. In a GmbH, the liability of the founders for the debts of the enterprise is limited to the amount of their contributions to the authorized capital. The authorized capital deductions must be 25,000 euros, of which at least half must be paid immediately upon opening, and the rest can be added in subsequent years. The advantage is that it is allowed to fill the company’s authorized capital with ownership rights to things, real estate, pledges and other material assets.
AG is a joint stock corporation. The company’s authorized capital is converted into shares, which are distributed among the owners. The minimum initial capital is 50,000 euros. This form is most suitable for large or rapidly growing companies, since the advantage of a joint stock company over a limited liability corporation is the ability to attract investment through the issue of shares.
UG in its legal status is not much different from GmbH and is essentially only the initial form of GmbH. UG is of the greatest interest to entrepreneurs, since it allows them to open a business in Germany for those who do not have large start-up capital, because the amount of authorized capital can be either 2 euros or 24,999 euros.
The procedure for registering a company is quite simple; it can be divided into several stages:
Depending on the chosen organizational and legal form, different packages of documents for registration will be required. From the moment the documents are signed, the corporation can begin to work: enter into contracts, rent premises, etc. All this time, the company’s liability is limited to the personal property of each company founder (if there are several of them, in proportion to the shares in the authorized capital).
The Trade Register is a list of all companies and entrepreneurs, which is publicly available to anyone who wishes to view it. From the moment the company is published in the trade register, the corporation is liable to third parties only for the amount of the authorized capital, that is, the founders will be responsible for the corporation only with the property that they contributed to the authorized capital.
After receiving an extract from the trade register, it is possible to submit company documents to further organizations:
| customs | Zoll |
| tax office | Finanzamt |
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Corporate tax Germany has a single flat rate of 15%. A solidarity surcharge (Solidaritätszuschlag) of 5.5% of corporate tax is also added to it. The solidarity surcharge was introduced after German reunification to finance the less developed eastern states.
Trade tax (Gewerbesteuer) is also levied on business income. This is a municipal tax, the rate of which varies depending on the region. It is calculated using the formula: fishing tax rate = base rate 3.5% × municipal multiplier. The general fishing tax rate varies from 7 to 14%. All companies that receive income from commercial activities are required to pay company tax Germany.
Corporation tax Germany is paid in advance payments, which are paid quarterly – March 10, June 10, September 10 and December 10. To accurately determine the amount of tax filing, the taxpayer must complete a six-page tax return by July 31 of the following year. The declaration, together with the annual financial statements, is submitted online to the tax office.
Based on the results of the audit, the payer is sent a corporate tax assessment, which indicates the amount of the refund or additional payment. If the taxpayer overpaid the tax, the tax service will return the money to him. In case of underpayment, you will have to pay an additional amount.
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From a corporate tax in Germany system point of view, the Federal Republic of Germany is not a low-tax jurisdiction. However, the tax filing system in Germany is quite simple to understand and one of the most favorable among other large European countries when it comes to international tax planning. Thus, it is very profitable to use a German corporation as a link in international planning schemes. One of the benefits is that Germany is an attractive country for registering a company for tax planning purposes, as it has concluded double tax treaties with more than 70 countries.
Regarding Germany corporate tax and its income, it is worth noting that Germany does not have a uniform national rate for taxing corporate income. Instead, company taxation consists of the following main components:
Corporate income tax and solidarity surcharge always have a fixed corporate tax rate Germany, while the amount of trade tax varies depending on the region. The total amount of these tax components forms the total tax burden on the enterprise. The fishing German corporate tax rate is determined individually by each municipality, so its size plays a decisive role in shaping the total tax burden.
As for immigration to Germany due to conducting business activities on its territory, a businessman can obtain a residence permit if:
— there is an economic need for any region of Germany to develop precisely this type of business activity;
— the business will have a positive impact on the German economy;
— the entrepreneur has sufficient funds to conduct business (has his own assets or guarantees from creditors).
Such provisions and benefits came into force in 2012 due to the entry into force of a new immigration law supporting business immigration.
To summarize our guide, we can say that doing business in Germany has a number of advantages. Firstly, a favorable investment climate coupled with a stable German economy gives confidence in the future. Secondly, a business owner in Germany has the opportunity to obtain a residence permit not only for himself, but also for his family. Thirdly, the owner of a company in Germany can freely open branches and representative offices throughout the European Union, without encountering bureaucratic red tape, as well as take out loans and advances from German banks, where interest rates are much lower than in many other countries.
According to our overview, doing business in Germany has unconditional advantages both for making a profit from the corporation’s activities and for forming your own positive image and prestige.
The main business tax types in Germany include corporate tax and trade tax. Corporations, cooperatives, foundations, associations, public corporations, and other legal entities of private law are required to pay these taxes.
The corporate tax rate in Germany is a flat 15%, with an additional solidarity surcharge of 5.5% of the corporate tax amount. The trade tax rate varies depending on the region, calculated using a formula that incorporates the base rate and municipal multiplier.
Corporate tax in Germany is paid in advance payments quarterly, with specific deadlines on March 10, June 10, September 10, and December 10. Taxpayers must file a six-page tax return by July 31 of the following year, along with their annual financial statements, submitted online to the tax office.
Corporations such as AG, KGaA, GmbH, cooperatives, foundations, associations, public corporations engaged in commercial activities, and other legal entities of private law are liable to pay corporation tax in Germany.
Despite not being a low-tax jurisdiction, Germany’s tax system is favorable for international tax planning. It offers simplicity and advantages such as double tax treaties with over 70 countries, making it attractive for registering companies for tax planning purposes.
The trade tax is a municipal tax, and its rate varies by region. It forms part of the total tax burden on enterprises, along with corporate income tax and the solidarity surcharge, contributing to the overall tax liability of businesses.
Germany offers various legal forms for businesses, including GmbH (limited liability company), UG (entrepreneurial company), and AG (joint stock corporation), each with its own requirements and advantages.
The Trade Register is a public list of all companies and entrepreneurs in Germany, accessible to anyone. Once a company is listed in the Trade Register, its liability to third parties is limited to the amount of authorized capital.
Germany introduced provisions supporting business immigration in 2012, allowing entrepreneurs to obtain a residence permit if their business activities have economic significance, positively impact the German economy, and the entrepreneur has sufficient funds for business operations.
Doing business in Germany offers advantages such as a stable economy, favorable investment climate, opportunity for obtaining residence permits for entrepreneurs and their families, and access to the wider European market with minimal bureaucratic obstacles.
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