INVESTOR’S BASICS

Corporate Taxation
All corporations – including the limited liability company(GmbH), the stock corporation (AG) and German permanentestablishments of foreign corporations – are subject tocorporate income taxation. Income taxation of corporatecompanies generally consists of three components:· Corporate income tax· Solidarity surcharge· Trade tax
There is no consistent nationwide tax rate for corporate
income taxation due to locally set varying trade tax levels.
Corporate income tax rate plus solidarity surcharge are,however, determined nationwide. Many municipalities offer
combined corporate tax rates below 25 percent. The German corporate tax average is 29.9 percent. Germany Trade& Invest can support you in identifying attractive locationsin Germany. For more detailed information on the taxationof branch offices as permanent establishments of foreign
corporations in Germany, please refer to the folder of thispublication.

Trade Tax
Even though trade tax (Gewerbesteuer) is regulated byfederal law, it is a municipal tax. 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 for all
businesses within one municipality. However, the tax rateapplicable in a municipality is individually determined byeach municipality. The individual trade tax rate of a specificsite is therefore the decisive factor for the overall corporate
tax burden. The minimum trade tax rate must be at least
seven percent. There is no statutory ceiling of the tradetax rate, but the German average trade tax rate is slightly
above 14 percent (2022). As a rule, the trade tax rate tends
to be higher in urban than in rural areas. The solidarity surcharge is not levied on trade tax.
Calculating Trade Tax
The individual trade tax amount depends on two factors:· the multiplier (Hebesatz) stipulated individuallyby every municipality,

Corporate Income Tax· the tax base rate of 3.5 percent (across Germany).

Corporate income tax (Körperschaftsteuer) is levied as aflat nationwide tax at a rate of 15 percent of the taxable
corporate income. Taxable income (i.e. annual business profits) forms the tax base for corporate income tax. Under German commercial law, corporate companies' annual profits arecalculated and recorded in the annual financial statement.
This also forms the basis for determining taxable income.
However, German tax law provides different accounting
options and income correction rules, meaning that thetaxable income usually differs from the annual profit determined in the financial statement under commercial law.

The taxable income is multiplied with the tax base rate
resulting in the so-called tax base amount. This tax baseamount is then multiplied by the applicable municipal multiplier. The multiplier is set by each municipality. On average, itis slightly above 400 percent, but may not total less than 200percent. There is no upper limit for the municipal multiplier.

Model Calculation – Trade Tax· A GmbH with an annual taxable income of EUR 1,000,000
is based in city A.

Solidarity Surcharge
The solidarity surcharge (Solidaritätszuschlag) is a fixedand flat nationwide component of company taxation. It isadded to the corporate income tax and set at a rate of 5.5
percent of the corporate income tax rate (and not 5.5 percentof income). Taken together, the corporate income tax andsolidarity surcharge amount to a total taxable rate of 15.8percent.

· City A has stipulated a municipal multiplier of 400 percent.
· The tax base amount for the GmbH is 3.5 percent of its
annual taxable earnings or EUR 35,000.
· The EUR 35,000 is multiplied by the municipal multiplier of
400 percent, resulting in a total trade tax amount for theGmbH of EUR 140,000.

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INVESTOR’S BASICS

Taxation of Dividends
Germany provides an extensive network of double taxationagreements to ensure that double taxation in international
business relations is ruled out. If a German subsidiary pays
out dividends to a foreign parent corporation, generally awithholding tax (Kapitalertragsteuer) of 25 percent plus
solidarity surchage is due.
In the case of an existing double taxation agreement (DTA)
with a foreign country, the withholding tax is usually levied
at a significantly lower rate, e.g. 15, 10 or 5 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 paymentsby partnerships.
→ The double taxation agreement with the USA, for example,

even allows a reduction of dividend taxation to zero percent
where certain requirements are fulfilled. Moreover, EU law,under certain conditions, allows tax-free transfer of dividends between all EU member states.

Input VAT Deduction
Companies themselves regularly pay VAT when they purchase goods or services. The taxes collected and paid canbe balanced out in the VAT return as input VAT deduction(Vorsteuerabzug). For companies, value-added tax represents
a transitory item only.

Value-added Tax in Selected European Countries
standard rate in percent

Germany
France20

Belgium

21

Netherlands

21

Spain21

Italy

Value-added Tax (VAT)
Value-added tax (VAT) is a tax on the exchange of goods
and services. Companies are generally obliged to add valueadded tax to the prices of their goods or services and toinvoice their customers accordingly.
In specific business-to-business transactions, the businessclient has to transfer the VAT to the tax authority – so-called
reverse charge procedure (applicable for example to certain
types of construction work carried out by subcontractors).
The reverse charge procedure is also generally applicable for
intra-community supplies, i.e. the sale of goods or services
from an entrepreneur in one EU member state to a commercial customer in another EU member state. In general, thecommercial customer has to pay VAT in his or her EU member
state in cases of intra-community acquisitions.
VAT Rate
The 19 percent VAT rate in Germany is below the Europeanaverage. 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) arecompletely VAT exempt. Value-added tax which is collected
has to be paid to the responsible tax office on a monthly,quarterly or annual basis. The exact time frame depends
on the company’s level of turnover.

19Poland22
23

SwedenHungary25
27

Source: European Commission, Taxes in Europe database, February 2024

Tax Office RegistrationAll companies have to register with the local tax authority (Finanzamt) in order to be issued with a tax
number required for corporate income taxation as wellas national German VAT purposes. A tax assessment
questionnaire must be completed within one monthafter establishing a company or a permanent establishment. Where the company intends to deliver/import goods to or from other EU member states, it requires a specific VAT identification number issued bythe Federal Central Tax Office. The VAT identification
number application can be filed online or even be combined with the application for the regular tax number.

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