Tax Environment

Tax Environment

Due to the locally varying trade tax, Germany has a very competitive tax system. The average overall tax burden for corporate companies amounts to 29.83 percent.

To understand the German tax system, it is important to note that there is no consistent nationwide corporate tax burden. Instead, the overall tax burden for corporate companies can differ from municipality to municipality. The abovementioned overall tax burden rate of 29.83 percent is an average amount. Significantly lower tax rates are available in certain German municipalities – up to eight percent less.

The taxation of corporations consists of the following components:

The first component is the corporate income tax with a flat nationwide tax rate of 15 percent. The second component is the solidarity surcharge with a nationwide rate of 0.825 percent. The third component is the trade tax which is a municipal tax. The trade tax rate is therefore set by each municipality individually. The trade tax rate must at least be seven percent but there is no statutory ceiling.

As such, the overall tax burden of all three components can therefore be as low as 22.83 percent in some German municipalities. This puts Germany in a position where it is even able to compete with low tax countries in Europe and overseas.

Overall Tax Burden by Municipal Multiplier 
 Minimal Municipal MultiplierGerman Average
Taxable Corporate Income
(EUR)
1,000,0001,000,000
Trade Tax
(3.5% x Municipal Multiplier)
-70,000
(mun. multiplier: 200%)
Trade Tax Rate
7%
-140,000
(mun. multiplier: 400%)
Trade Tax Rate
14%
Corporate Income Tax
(Tax Rate 15%)
-150,000
Corporate Income Tax 15%
-150,000
Corporate Income Tax 15%
Solidarity Surcharge
(5.5% of Corporate Income Tax)
-8,250
Solidarity Surcharge 0.825%
-8,250
Solidarity Surcharge 0.825%
Net Income (EUR)771,750701,700
Overall Tax Burden22.83%29.83%


Data refers to 2014.

Source: German Federal Ministry of Finance, Germany Trade & Invest GmbH (2015)



Moreover, Germany provides an extensive network of double taxation agreements (DTA) ensuring that double taxation is ruled out, e.g. when dividends are transferred from a German subsidiary company to the foreign parent company.

The DTA between Germany and the US, for example, reduces taxes on dividends paid by a German subsidiary to its US parent company to only five percent if the US parent company holds at least ten percent of the German subsidiary. This five percent withholding tax paid in Germany can then be offset against taxes to be paid in the US.

The tax on dividends can even be reduced to zero percent if the US parent company holds at least 80 percent of the shares of the German subsidiary company for a period of at least twelve months and certain other criteria are fulfilled (e.g., the US company is a stock corporation listed on a US stock exchange).

Reduction of Double Taxation via US-Agreement 
Tax Rate0%5%15%
RequirementsParent company must be a corporate company holding at least 80% of the dividend paying company for a period of at least 12 months and some further requirements must be fulfilled*.Parent company must be a corporate company holding at least 10% of the dividend paying company.No requirement necessary.


Data refers to 2015.

*The 100% tax exemption is e.g. granted if the parent company is a special kind of listed stock cooperation. Source: Germany Trade & Invest (2015)

Funktionen

Silvia Obajdin Silvia Obajdin | © Silvia Obajdin privat

Kontakt

Silvia Obajdin

‎+49 30 200 099 555

Alexander Walter Alexander Walter | © GTAI/Illing & Vossbeck Fotografie

Kontakt

Alexander Walter

‎+49 30 200 099 510

E-Service

The Tax System

Germany sets itself apart from other leading industrial nations with extremely generous tax reforms. By significantly reducing its corporate tax levels, indirect labor costs are extremely low and the window of opportunity for your business is wide open.

Mehr