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Germany

Financial Year – 1 January – 31 December
Currency – Euro (EUR)

Corporate Tax Summary

Residence – Resident companies are those whose registered seat or place of management is located in Germany.

Basis of Taxation – Resident companies are subject to unlimited taxation on worldwide income, including patent royalties and interest from resident companies. Non-resident companies are subject to taxation only on income derived from German sources.

Reference
Corporate Income Tax Rate (%) 15% 15% (15.83% including 5.5% solidarity surcharge) Corporate income tax plus municipal trade tax which typically ranges between 14% and 17% (the minimum rate is 7%). The effective overall corporate tax rate (including solidarity surcharge and trade tax) typically ranges between 30% and 33%.

Capital gains are generally included in taxable income. Capital gains derived from the sale of a domestic or foreign corporate subsidiary are generally 95% tax-exempt.

Branch Tax Rate (%) 15% 15% (15.83% including 5.5% solidarity surcharge), plus municipal trade tax of 7%-17%
Withholding Tax Rate:
Dividends – Franked 25% 25% (26.375% including the solidarity surcharge). Tax refunds or tax exemptions are granted on the tax rate applicable under double taxation agreements. National regulations to avoid treaty shopping must be observed.
Dividends – Unfranked 25% A statutory rate of 25% (26.375%, including the solidarity surcharge) applies.
Dividends – Conduit Foreign Income 0% No tax is levied on dividends qualifying under the EU parent-subsidiary directive.
Interest 0% Generally 0%

25% (26.38% including 5.5% solidarity surcharge) on interest from convertible bonds, profit-sharing bonds, participation loans, and income from the participation of silent partners in trade or business. Tax reduction to 15% is possible, subject certain requirements.

0% for EU associated companies (Interest and Royalties Directive)

Royalties from Intellectual Property 15% 15% (15.83% including 5.5% solidarity surcharge) if registered in Germany or utilised in a PE, unless the EU interest and royalties directive applies (0%) or the rate is reduced under a tax treaty.
Fund Payments from Managed Investment Trusts 25% 25% (26.375% including surcharge)
Branch Remittance Tax No
Net Operating Losses (Years)
Carry Back Yes, losses up to EUR 1 million (temporarily EUR 5 million in 2020 and 2021) may be carried back to the preceding year (corporate income tax only, not trade tax)
Carry Forward Losses may be carried forward indefinitely with restrictions

Individual Tax Summary

Residence – An individual is a resident of Germany if his domicile or habitual place of abode is in Germany.

An individual’s domicile is the place where he occupies a home in circumstances which indicate that he will retain and use it. Decisive here are only facts and not the personal intention of the taxpayer.

An individual’s habitual place of abode is the place where he is present in circumstances which indicate that his stay is not just temporary. A habitual place of abode is deemed to exist if an individual has been continuously present in Germany for a period of more than 6 months.

Basis of Taxation – Resident individuals are subject to income tax on their worldwide income falling under one or several of the following categories (Sec. 2 para 1 German Income Tax Act):

  1. Income from agriculture and forestry
  2. Income from a trade or business
  3. Income from independent personal services
  4. Income from employment, including compensation from past employment
  5. Income from capital investment
  6. Rental income from immovable property and certain tangible movable property and income from royalties
  7. Other income (gains from private transactions, alimony, annuities, etc.)

Individuals carrying on a trade or business are also subject to trade tax. Furthermore there is a tax on capital gains.

The taxable period is the calendar year. The income tax rate structure is progressive, up to a marginal rate of 45% with a basic allowance incorporated. A special regime for expatriates exists under the provisions of the Foreign Tax Act (AStG).

Foreign residents are subject to limited taxation, i.e. only on income derived from German sources.

Filing Status – The tax return must generally be filed electronically by 31 July of the year following the tax year. An extension of the filing deadline to the last day of February of the second year following the tax year is typically granted if a tax advisor is involved. Quarterly prepayments of trade tax are due in February, May, August and November, whereas quarterly prepayments of corporate income tax are due in March, June, September and December.

The tax year is the calendar year. However, for income from a trade or business the taxpayer may choose a tax year that is different from the calendar year (financial year). In this case, the income from the financial year is taxed as income of the calendar year in which the financial year ends.

Personal Income Tax Rates

Progressive income tax rate from 14% up to 42%/45%. Furthermore, there is a 5.5% solidarity surcharge, levied on the amount of tax.

Goods and Services Tax (GST)

Rate 19%/7% (temporarily 16%/5% from 1 July until 31 December 2020)
Taxable Transactions
  • The supply of goods and services carried out by an entrepreneur within Germany in the course of his business activities. The tax liability remains in effect if the transaction is executed on the basis of a statutory or government directive, or is deemed to be executed in accordance with a statutory regulation.
  • The importation of goods into Germany or the Austrian territories of Jungholz and Mittelberg (import VAT).
Registration German entrepreneurs must generally register for VAT purposes. Nonresidents making taxable supplies of goods or services in Germany also must register.
Filing and Payment The tax year is the calendar year. The entrepreneur must file an electronic monthly or quarterly preliminary VAT return by the 10th day of the following month and pay the VAT in due course. If the tax for the previous year did not exceeded EUR 1,000, the tax authorities may relieve entrepreneurs of the obligation to submit preliminary VAT returns.

Other Taxes Payable

Tax Reference
Payroll Tax There is no payroll tax, but the employer is required to withhold wage tax on a monthly basis from an employee´s income and remit it to the tax authorities. Wage tax certificates must be transmitted electronically and must be authenticated by the employer.
Stamp Duty Real Estate Transfer Tax (RETT) of 3.5% to 6.5% according to the value or remuneration paid for the property located in Germany. The tax is also due if the immovable assets are transferred as part of a reorganisation (merger, demerger, contribution), or if at least 95% of the shares in a real estate holding company are transferred, or if shares (95%) are unified in one hand. Exceptions may apply for certain intragroup restructurings.
Land Tax Real Property Tax. The tax is levied by the municipality in which the real estate is located at a rate of 0.35% of the tax value of the property, multiplied by a municipal coefficient.

Inheritance and gift tax rates for individuals range from 7% to 50%, with various exemptions available. Business property/assets are valued at fair market value. Under certain conditions, the inheritance of business property can be 85% or 100% tax-exempt.

Last updated: 30.07.2020