Deductions are granted for such things as children under 18, specified insurance premiums, political contributions up to certain limits and unavoidable extraordinary expenses, such as for illnesses. Business Income Taxes Corporations and other legal entities also pay an income tax. There are no nationality or residence requirement for either the stockholders or the directors of a German entity. The resident company, which is either incorporated or controlled in Germany, is liable for a corporate income tax on its worldwide income, unless a double tax treaty provides otherwise. Other companies are non-resident and are taxed only on German source income.
Taxable income is based on the profit shown in the company's annual statement.
Resident companies are taxed at 45 percent of undistributed profits. In addition to the various forms of income tax there are also a series of sales taxes that impact heavily on both individuals and businesses. The Mehrwertsteuer puts a levy on each step in the production and delivery of most of the things you buy. Let us say you are buying a wardrobe cabinet. The people who cut the timber for it add this tax to the bill they present to the sawmill, and are required to forward this sum to the Finanzamt.