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Corporate Taxation

Germany offers a competitive system of corporate taxation. The average tax burden is just below 30 percent, with some municipalities offering rates of less than 23 percent. 

All corporations – including the limited liability company (GmbH), the stock corporation (AG) and German permanent establishments of foreign corporations – are subject to corporate income taxation. Income taxation of corporate companies generally consists of three components: corporate income tax, solidarity surcharge, and trade tax.

Due to locally set varying trade tax levels, there is no consistent nationwide tax rate for corporate income taxation. Corporate income tax rate plus solidarity surcharge are however determined nationwide. As a result, the total corporate tax burden can be as low as 22.83 percent in some municipalities. The German corporate tax average is 29.9 percent.

  • Corporate Income Tax

    All corporations are liable to corporate income tax. This is levied as a flat nationwide rate of 15 percent on the taxable profits of the company. 

    Companies Liable to Corporate Income Tax

    Corporate companies – such as the limited liability company (GmbH) or the stock corporatioon (AG) – based in Germany or with an executive board in Germany are liable to corporate income tax on globally generated income. Dividends that have been generated and taxed abroad may be exempt from taxation in Germany or taxes paid in a foreign country can be offset against taxation in Germany.

    Corporate companies who are not based in Germany nor have an executive board in Germany are only liable to corporate income tax on income generated inside Germany (e.g. via a permanent establishment, dividends or licenses).

    Corporate Income Tax Rate

    Corporate income tax is levied as a flat nationwide tax at a rate of 15 percent of taxable corporate income. Taxable income (i.e. annual business profit) forms the tax base for corporate income tax. Under German commercial law, corporate company annual profit is calculated according to the accrual basis accounting method. This is recorded in the annual financial statement and forms the basis for determining taxable income.

    However, German tax law provides different accounting options and income correction rules, meaning that the taxable income usually differs from the annual profit determined in the financial statement under commercial law. For more information please also refer to our chapter on tax deductions.

    Solidarity Surcharge 

    In addition, a solidarity surcharge (Solidaritätszuschlag) is added on top of the corporate income tax. The surcharge is a fixed and flat nationwide component of company taxation and set at a rate of 5.5 percent of the 15 percent corporate income tax (not the income); creating a total of 0.83 percent of taxable income. Taken together, the corporate income tax and solidarity surcharge amount to a total taxable rate of 15.83 percent.



  • Trade Tax

    All commercial business operations are liable to trade tax. Although trade tax is regulated by federal law, it is a municipal tax with rates varying at the municipal level.

    Trade Tax Rate

    Irrespective of their legal form, all commercial business operations in Germany are liable to trade tax (Gewerbesteuer). The trade tax rate is set by local authorities which means it can vary from one municipality to the next. 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 rate for all businesses within one municipality. The minimum trade tax rate must be at least seven percent. There is no statutory ceiling of the trade tax rate, but the German average trade tax rate is slightly above 14 percent. As a rule, the trade tax rate tends to be higher in urban locations than in rural areas. The solidarity surcharge is not levied on trade tax. 

    Determining the Trade Tax Rate

    The trade tax rate depends on two factors: 

    • the multiplier (Hebesatz) stipulated individually by every municipality
    • the tax base rate of 3.5 percent (across Germany)

    The taxable income of the company is multiplied with the tax base rate (3.5 percent) which results in the so-called tax base amount. The tax base amount is then multiplied with the applicable municipal multiplier; which results in the sum total of trade tax which is due. The multiplier is set by each municipality. On average, it is slightly above 400 percent, but may not total less than 200 percent. There is no upper limit for the municipal multiplier. 

    Model calculation: A GmbH with an annual taxable income of EUR 1,000,000 is based in city A. 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 the GmbH of EUR 140,000. 


  • Taxation of Dividends

    Germany provides an extensive network of double taxation agreements to ensure that double taxation in international business can be avoided.

    Corporate Shareholders - Withholding Tax 

    If a German subsidiary company distributes profits to its foreign parent corporation (a dividend payment) then a 25 percent rate of withholding tax (Kapitalertragssteuer) is payable in Germany. 

    Within the EU, dividend payments between a corporate domestic subsidiary company and a corporate foreign parent company are tax-free over and above a 10 percent stake.

    In the event of the existence of a double taxation agreement (DTA) between the Federal Republic of Germany and another country, the withholding tax in the DTAs is usually levied at a significantly lower rate, e.g. 15, 10, 5 or even 0 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 payments by partnerships. 

    In cases where there is no applicable DTA between Germany and the foreign nation, two fifths of the withholding tax paid can be reimbursed if the creditor of the dividend-paying German corporation is a foreign corporation. 

    Private Shareholders – Final Withholding Tax

    Profits which are distributed to private shareholders are liable to a final withholding tax (Abgeltungssteuer) of 25 percent plus the solidarity surcharge. The final withholding tax is retained by the debtor of the dividend or the institution managing the deposit (for instance a bank) and then paid to the tax office. However, the application of a DTA may lead to a lower withholding tax if the private stockholder resides in another country.

  • Value-added Tax

    Value-added tax (VAT) is a consumption tax on the exchange of goods and services. Companies are obliged to add VAT to their prices and to invoice their customers accordingly.

    Value-added Tax within Germany

    VAT is a consumption tax, which is ultimately borne by the final consumer of a product or service. It is charged as a percentage of the price. At present, the normal rate in Germany is 19 percent. 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) are completely VAT exempt.

    Companies must add the applicable VAT tax rate to value their prices. On purchasing goods or making use of services, companies regularly have to pay value-added tax themselves. The taxes collected and paid can be balanced out via input VAT deduction (Vorsteuerabzug). Companies submit periodic VAT reports online to the tax authorities (Umsatzsteuer-Voranmeldung) on a monthly or quarterly basis using Germany’s ELSTER online tax office system.  The frequency depends on the company’s level of turnover. In addition, an annual VAT return (Umsatzsteuer-Jahreserklärung) must be submitted. 

    In specific business-to-business transactions, the business customer has to transfer the VAT to the tax authority – so-called reverse charge procedure. This is applicable, for instance, to certain types of construction work carried out by subcontractors.

    Example: How input VAT is balanced 


    A car dealer has sold ten vehicles in one month, each at a gross price of EUR 17,850 (net cost EUR 15,000). For each sale, the dealer receives EUR 2,850 in VAT from the customer. At the end of the month, the dealer therefore owes the tax authorities EUR 28,500.


    However, in the same period, the car dealer also bought ten cars from the car manufacturer. The net cost of each car was EUR 10,000. The car manufacturer added 19 percent VAT to this amount. The dealer therefore transferred EUR 119,000 (including EUR 19,000 in VAT) to the manufacturer.


    The car dealer has therefore received EUR 28,500 in VAT and paid out EUR 19,000 in VAT. These totals are communicated to the tax office (Finanzamt), and only the difference of EUR 9,500 must be transferred by the car dealer to the tax authorities.

    Cross-border Trade within the EU

    Trade within the EU is free from customs and other restrictions. However, goods traded between different EU member states are subject to a so-called acquisition tax (Erwerbssteuer). The reverse charge procedure is in general applicable to intra-community sales of goods and services between entrepreneurs in different EU states. This means that these customers pay VAT on the goods/ services received at the applicable rate in their country. For detailed information about cross-border VAT in the EU please see the dedicated EU website.

    Acquisition tax is payable by the recipient of the goods. If an EU company exports goods to a company located in another EU member state, the delivering company therefore must not charge VAT. Accordingly, the company in the other EU member state receiving the goods accordingly has to pay acquisition tax. Acquisition tax rates correspond with the VAT tax rates of the country where the recipient of the goods is located. Companies can however reclaim acquisition tax like regular VAT.

    In the case of intra-community deliveries of goods from a company to a private consumer, however, the private consumer is generally charged the respective sales tax of the country in which the selling company is based.

    If a company intends to deliver goods to/import goods from other EU member states, it requires a VAT identification number (Umsatzsteuer-Identifikationsnummer). The VAT identification number application can also be filed online or combined with the regular tax number application. The German Federal Central Tax Office provides initial online information on VAT procedures in Germany. 

    Trade with Non-EU Member States

    Goods imported from non-EU states are liable to import VAT called import turnover tax (Einfuhrumsatzsteuer). The import turnover tax rate equals the VAT rates of 19 percent or 7 percent and is paid to the customs authority.

    The import turnover tax on goods imported from non-EU states can also be deducted as input tax (Vorsteuer). As a prerequisite, the company must have the necessary import documents with customs proof of payment (import declaration). Exports are exempt from VAT. 

  • Taxation of Property

    Every property owner in Germany is liable to pay real property tax (Grundsteuer). The tax rate depends on the type of real property.

    Real Property Tax

    Real property in Germany is sorted into two distinct categories. The real property tax rate depends on the category the property belongs to. Accordingly, real property tax is categorized as follows: Real property tax "A": Real property used for agriculture and forestry. Real property tax "B": Constructible real property or real property with buildings. Due to a fundamental real property tax reform, a real property tax type "C" will be introduced from 2025 onward. Municipalities can impose it for undeveloped areas that are ready for development.

    Real Property Tax Rate

    The real property tax burden is calculated by multiplying the assessed value of the real property with the real property tax rate and the municipal multiplier.

    The assessed real property value is determined by the tax authorities according to the German Assessment Code (Bewertungsgesetz). The German Assessment Code refers to historical property values that are usually significantly lower than current market value. The tax rate varies between 0.26 percent and 1 percent depending on the Federal State (the real property is located at) and the use of the property.

    Similar to the municipal multiplier applied in the trade tax case, the municipal multiplier applied to real property tax is stipulated by each municipality. Municipalities determine a municipal multiplier for both real property tax "A" and real property tax "B", with the rate for "B" usually being higher.

    The Real Property Tax Reform

    The reform of real property tax maintains the three-step system for calculating the real property tax rate but makes provision for a new assessment of real property values as of January 1, 2022. The reform also simplifies the calculation from 2025 onward, because it largely relies on average and statistical data to calculate the assessed value of the real property.

    The German federal states are free to introduce their own deviating provisions in order to impose and calculate real property tax.

    Example: How real property tax burden is determined

    Real property tax burden for a commercial building in a municipality in a western German federal state with an average real property tax "B" collection rate of 464 percent:

    Assessed Value EUR 1,000,000 x Basic real property tax rate x 0.35 percent x Muncipal multiplier "B" x 464 percent = Real property tax burden = EUR 16,240 (or approx. 1.62%)

    Due to a reform of real property tax, the basic real property tax rate ”B“ will be lowered to 0.034 percent from 2025.

    Real Property Transfer Tax

    When domestic real estate is sold or changes owner, a one-time real property transfer tax (Grunderwerbssteuer) of the purchase price is levied if the purchase price or consideration exceeds EUR 2,500. Real property transfer tax is usually paid by the buyer. Real property transfer tax also applies to a real property-owning partnership if 95 percent of the shareholders change within five years. The tax rate varies from federal state to federal state. Please see the table below for more information.

    Real Property Transfer Tax Rates in the Respective Federal States 2020

    3.5%: Bavaria, Saxony

    4.5%: Hamburg

    5.0%: Baden-Württemberg, Bremen, Mecklenburg-Vorpommern, Niedersachsen, Rheinland-Pfalz, Saxony- Anhalt

    6.0%: Berlin, Hessen

    6.5%: Brandenburg, North Rhine-Westphalia, Saarland, Schleswig-Holstein, Thuringia


  • Tax Declarations

    Companies must submit a tax return to the tax authority once a year. The tax office at the location in which the corresponding company has its (German) head office is responsible.

    Registration at the Tax Office

    A regular tax number for the purposes of German income tax and national German VAT is issued by the competent local tax authority. A tax assessment questionnaire (Fragebogen zur steuerlichen Erfassung) must be filled in before a tax number is issued. The questionnaire is sent to newly established companies by the tax office once they have been established (or once they have registered their business).


    Tax Collection and Deadlines

    With the most important types of tax (corporate income, personal income, trade, and value-added tax) collection is made via advance payments (normally monthly or quarterly) which are offset against the actual tax liability in the annual tax declaration. The tax declaration has to be submitted by May 31 of the following year. However, this deadline can be extended on request. Subject to the expected amount of taxes to be paid, the tax authorities can determine the period when tax payments are due. The tax authorities provide information on tax issues. However, companies in particular should seek the services of a tax consultant to ensure the tax return is completed as favorably as possible. The German Association of Tax Advisers (Bundessteuerberaterkammer) provides a register of tax advisors.


    Payment of Wage Tax

    Employees pay wage tax (Lohnsteuer) - a special term for the income tax paid by employees. The employer is obliged to deduct the wage tax due directly from the salary of the employee and to pay it to the tax office on a monthly basis. For this reason, employees who do not get earnings from non-wage incomes may not be obliged to submit an annual tax declaration.


    Electronic Tax Declaration

    Tax declarations on income tax, wage tax, and value-added tax can easily be submitted to the tax office electronically. The electronically submitted tax declaration is mandatory for business operators. Information, forms, and software products for submission of an electronic tax declaration are available at the dedicated Elster website. Information on the subject of tax declarations is provided in detail at the website of the Central Office of Taxes.


  • Tax Deductions

    The German tax system offers companies tax deduction possibilities to lower their annual tax burden - provided certain preconditions exist. 

    As a result of the government’s economic stimulus package there are currently improved opportunities for companies to depreciate assets.


    Loss Carry-Back and Loss Carry-Forward

    Losses for corporate income tax purposes can be carried back for one year, limited to a total loss amount of EUR one million. The maximum amount of a tax loss carry-back has been increased to EUR 5 million in 2020 and 2021. It is also be possible to make use of this provision in the 2019 tax return, for example by establishing a "corona reserve."


    Losses for corporate income tax can be carried forward with no time restriction. Up to an amount of EUR one million loss carry-forward is possible - free from any restrictions. For sums in excess of EUR one million, at least 40 percent of the taxable income must remain subject to taxation. In other words, a maximum 60 percent of taxable earnings exceeding EUR one million can be offset against incurred losses.


    Deductibility of Interest Payments

    Generally, interest payments are fully deductible as operating expenditure. However, some special rules apply for corporate groups. If the amount of interest payments exceeds the amount of interest earnings for more than EUR 3 million, these exceeding interest payments are only deductible up to an amount of 30 percent of the EBITDA (earnings before interest, taxes, depreciation and amortization).


    Straight Line Depreciation

    Depreciation on movable and fixed assets is calculated on the straight-line method over the asset’s estimated anticipated useful life. Every asset has a different depreciation period, stipulated in a depreciation table (AfA-Tabelle) by the the Federal Ministry of Finance. Low value assets –below EUR 800 net value - can be depreciated in full immediately.


    Accelerated Depreciation - Temporary Introduced

    For moveable assets acquired or made in 2020 and 2021, a temporary accelerated depreciation method according to the declining balance method has been introduced. The applicable depreciation factor is up to 2.5 compared to the currently applicable depreciation rates - capped at a 25 percentage annually. This means that companies will enjoy a higher rate of depreciation in the first years of use of the assets, thereby leading to higher deductible expenses.


    Fiscal Unity Concept

    The German fiscal unity concept allows for profit and loss pooling of different corporations at the level of a dominant (parent) company to determine the overall profit for taxation purposes. To do so, the dominant company must have its place of business management in Germany and must be subject to taxation in Germany. It can either be a German company or a permanent establishment of a foreign (dominant) company in Germany.

    The fiscal unity concept covers corporate subsidiaries from Germany or other EU/EEA member states if they have their place of business management in Germany. The dominant company in Germany must hold more than 50 percent of the voting rights of the subsidiary or subsidiaries. In addition, a profit and loss pooling agreement must exist with a duration of at least five years. The agreement has to be registered with the commercial register. Further requirements may apply.

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