BusinessTaxinGermany—CompleteCorporateTaxationGuide

What is Germany's effective corporate tax rate?

Approximately 28–33% combined (Körperschaftsteuer + solidarity surcharge + Gewerbesteuer). The exact rate depends on the municipality — Berlin (28.2%) is lower than Munich (32.2%).

Is the Solidaritätszuschlag still payable by German companies?

Yes. The Soli was reduced to 0% for most individual taxpayers in 2021, but it still applies to corporations. German GmbHs and AGs pay 5.5% of their Körperschaftsteuer liability as Solidaritätszuschlag, adding 0.825% to the effective corporate rate.

How does the German Gewerbesteuer (trade tax) work?

Gewerbesteuer is levied by municipalities. The base rate (Steuermesszahl) is 3.5%, multiplied by the municipal Hebesatz (multiplier). Berlin uses 410% → 14.35% effective GewSt. Munich uses 490% → 17.15%. You can legally choose your GmbH's registered municipality to optimise this.

Is VAT (Umsatzsteuer) a cost for German companies?

For most B2B companies, no. VAT at 19% is charged to customers and recoverable as Vorsteuer (input tax deduction) on purchases. Net cost is zero for VAT-registered businesses. VAT becomes a real cost only for businesses selling to end consumers (B2C) who cannot reclaim it.

What is the §8b KStG participation exemption?

Under §8b(1) and §8b(2) KStG, dividends and capital gains received by a German corporate shareholder from a 10%+ stake in another company are 95% tax-exempt. This makes German holding structures highly efficient — a GmbH holding company receives group dividends at an effective rate of ~1.5%.

What is the German tax loss carryforward rule for corporations?

German GmbHs can carry forward tax losses (Verlustvortrag) indefinitely under §10d EStG / §8 KStG. However, the Mindestbesteuerung (minimum taxation rule) limits the use of carried-forward losses to offsetting only up to €1 million plus 60% of taxable income above €1 million in any given year. A loss carryback is limited to 1 year and a maximum of €10 million.

What is a Betriebsprüfung and how should a German company prepare?

A Betriebsprüfung is a tax audit conducted by the Finanzamt. German companies with annual turnover above €750,000 can expect an audit roughly every 4 years. Auditors examine book-keeping (§238 HGB), transfer pricing, VAT compliance, and payroll taxes. Maintain complete digital records for at least 10 years (§147 AO). Having a Steuerberater prepare a Betriebsprüfungsakte (audit file) in advance significantly reduces risk.

Are managing director salaries (Geschäftsführergehalt) tax-deductible for the GmbH?

Yes — the Geschäftsführergehalt is a deductible operating expense (Betriebsausgabe) for the GmbH, reducing its taxable profit. However, salaries paid to a managing director who is also a majority shareholder (Gesellschafter-Geschäftsführer) are subject to the fremdüblich (arm's length) test. Excessive salaries will be recharacterised as a verdeckte Gewinnausschüttung (constructive dividend) and disallowed.

When must a German GmbH register for trade tax (Gewerbesteuer)?

Every GmbH is automatically subject to Gewerbesteuer from the date of commercial activity, which begins on Handelsregister entry. The GmbH is assigned a Gewerbesteuermessbetrag by the Finanzamt and receives Gewerbesteuer-Vorauszahlungen (advance payments) quarterly. Gewerbesteuer does not apply to the first €24,500 of taxable trade income for sole traders and partnerships, but there is no such exemption for GmbHs.

What is the German mandatory e-invoicing requirement from 2025?

From 1 January 2025, Germany introduced mandatory structured e-invoicing (elektronische Rechnung) for B2B transactions between German VAT-registered businesses under the new §14 UStG. An e-invoice must be in a structured machine-readable format (EN 16931 compliant: ZUGFeRD or XRechnung). Receiving e-invoices is mandatory from 1 January 2025. Sending e-invoices becomes mandatory for large companies from 2025, mid-sized from 2027, and all VAT-registered businesses from 2028.