FUNDAMENTAL PRINCIPLES OF CORPORATE TAX LAW

Germany has a multilayered tax system that reliably governs the taxes payable by companies and offers a high level of legal security.

Basics of tax laws for companies

Germany has a complex tax system that reliably governs the tax burden for companies and is characterized by a high level of legal security. The overall tax burden in Germany is an average of 29.8 percent lower than that of France, Spain, Italy or the United Kingdom.

Companies are taxed in Germany as follows:

  • Corporations (AG or GmbH) are subject to a tax of currently 15 percent. Possible distributions of profits to shareholders are subject to tax in the amount of 60 percent and are subject to a final withholding tax (income tax) in the amount of 25 percent. In a pay-out another 15 percent tax add on.
  • Partnerships (GbR, oHG or KG) are not subject to corporation tax. The profit shares of the Company are attributable to individual shareholders and to income tax with the respective personal progressive tax rate in these.
  • Bodies and private companies also pay a business tax. It is a municipal tax, where the tax rates are determined individually by the municipality in the location of the company.

The social security system in Germany is financed by an assessment system. The contributions provide both employers and employees. The local government sets (for accident insurance) and the legislature (for pension insurance, unemployment insurance, health insurance and nursing care insurance) contribution rates fixed by law. For the entire workforce compulsory social insurance. Social security contributions are drawn directly by the social insurance carrier.