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Business Taxation for Expats in Germany

Submitted: January 2014

This guide covers tax issues for limited companies. For tax issues for self-employment please see: Taxation - Employment Taxation for Expats in Germany.

The authorities responsible for German Tax are the Ministry of Finance (Bundesministerium der Finanzen (BMF)) and the Federal Central Office for Taxes (Bundeszentralamt für Steuern (BZSt)). The website for the BMF is here, and the BZSt website is here.


Registration

For expats the most common form of business structure in Germany is the limited liability company (Gesellschaft mit beschränkter Haftung (GmbH)), and for small businesses, the sole proprietorship. A GmbH requires a minimum share capital is €25,000. There is also mini GmbH (UG haftungsbeschränkt), with a minimum share capital of €1, and reduced set up costs; as it can use a standard set of by-laws. Forming either company means that your liabilities are limited to your equity in the company. The business income is subject to trade tax and is also taxed at the corporate tax rate. Another possible choice is a sole proprietorship (Eingetragener Kaufmann (eK)), however with these your liability extends to your own personal assets. The business income is subject to trade tax, and personal income tax.

All German companies must be registered with the Commercial Register at the local court (Amtsgericht), the municipality (Gewerbeamt), and at the regional Chamber of Commerce (Industrie und Handelskammer). Registration with the tax authorities is also required in order to acquire a taxpayer identification number (TIN). It is necessary to employ a notary to register your company; they should be able to provide all the information to ensure that your registration is done correctly.


Corporate Income Tax

The German tax year for companies runs from 1 January to 31 December. If a company’s accounting period is different to the tax year, all profits in the accounting period are allocated to whichever tax year the end of the accounting period falls into. A company may change its accounting period to fit with the tax year without asking for permission, but permission must be obtained to change the accounting year away from the standard tax year. German resident companies are liable for corporate income tax on their worldwide income and capital gains. Non-resident companies are generally only liable for corporate income tax on their German source income and gains.

The corporate income tax rate is 15% (plus a solidarity surcharge of 5.5% of the tax payable).

All businesses in Germany are also required to pay a municipal trade tax, generally at a rate of between 14% and 17% depending on location.  

In Germany capital gains are treated as ordinary income and taxed as such. Capital losses can be used to offset trading gains, and can be carried forward indefinitely and set off against future capital or trading gains. Up to €1m in capital losses can also be carried back for one year.

Companies must file their German corporate income tax returns by 31 May of the year following the year in which the income was generated. Returns may be filed electronically.

Advance payments of corporate and trade tax must be made in instalments four times a year, the timings a different for the two taxes. The amount payable is based on the previous year’s assessment. There is also a final balancing tax payment (if applicable) which must be made once the actual amount due is calculated. This must be paid by the filing return date. Refunds are paid immediately following assessment. Penalties apply for late payment of tax.

 

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