Gesellschaft mit beschränkter Haftung, GmbH (Private company with limited liability)
Country code – DE
Legal Basis – Civil law
Legal framework – Companies with Limited Liability Act, Commercial Code
Company form – Private company with limited liability (Gesellschaft mit beschränkter Haftung, GmbH)
Liability - The liability of the shareholders is limited to the unpaid amount of their shareholdings.
Share Capital – The minimum share capital of a German GmbH is EUR 25,000. At least EUR 12,500 must be deposited when registering the company.
Shareholders – A GmbH may be incorporated by one or more shareholders, who can be resident or non-resident, natural or juristic persons. Details of the shareholders are available to the public.
Directors – There must be at least 1 director, who must be an individual, resident or non-resident, and can be the shareholder. Details of the directors are available publicly.
Secretary – Appointing a secretary is not required.
Registered Address – A company must have a registered office in Germany.
General Meeting – A GmbH is required to hold an annual general general meeting, which can be in Germany or elsewhere.
Electronic Signature – Permitted.
Re-domiciliation – Inward/outward re-domiciliation is generally not allowed.
Compliance – Companies must annually file tax returns for corporate income, trade and value added tax with the competent tax authorities.
Companies must also file annual accounts with the German Federal Gazette (Bundesanzeiger). File financial statements audited are mandatory for large and medium-sized GmbHs.
- Shareholders not disclosed
- Directors not disclosed
- Corporate shareholders permitted
- Corporate directors permitted
- Local director required
- Secretary required
- Local secretary required
- Annual general meetings required
- Redomiciliation permitted
- Electronic signature
- Annual return
- Audited accounts
- Audited accounts exemption
- Exchange controls
- Civil law Legal basis
- 1 Minimum shareholders
- 1 Minimum directors
- EUR 25,000 Minimum issued capital
- EUR 12,500 Minimum paid up capital
- EUR Capital currency
- Anywhere Location of annual general meeting
- 2017 AEOI
Tax residency – A company is tax resident in Germany if it maintains its registered office or place of effective management in Germany.
Basis – Tax resident entities are taxed on their worldwide income.
Tax rate – The corporate income tax rate is 15%. There is also a 5.5% solidarity surcharge levied on the corporation tax and a municipal trade tax which ranges between 14% and 17%. The effective corporate tax rate is usually between 30% and 33%.
Capital gains – Generally, capital gains are treated as ordinary income and subject to the standard rates. Capital gains from the sale of investments in other corporations may be exempt from corporation and trade taxes. However, 5% of the capital gains are added back to taxable income as non-deductible expenses.
Dividends – Dividends received are exempt from corporate tax provided that the recipient entity holds at least 10% of the shareholdings. For trade tax purposes, in addition of the 10% shareholding, other requirements must be met, such as an active income test for dividends from foreign-sources. Portfolio dividends or dividends from securities held for trading are treated as ordinary income and taxed at standard rates.
5% of the tax-free gross dividend is added back to taxable income as non-deductible expenses.
Interests – Interests received are subject to corporate and trade taxes at standard rates.
Royalties – Royalties received are subject to corporate and trade taxes at standard rates.
Withholding Taxes – Dividends paid to non-residents are subject to 25% withholding tax (26.375% including solidarity surcharge). However a 40% refund for non-resident corporations is usually available, being an effective tax rate of 15.825%, unless rate is reduced due to a tax treaty, or dividends qualify for a tax exemption under the EU parent-subsidiary directive.
Interests from publicly traded debt, interests from financial institutions, convertible bonds and certain interests from profit participating loans paid abroad are subject to a 26.375% withholding tax unless rate is reduced under a tax treaty or the EU interests and royalties directive applies.
Royalties paid to non-residents are subject to a 15.825% withholding tax, unless reduced due to a tax treaty or the EU interests and royalties directive applies.
Foreign-source income – Foreign-source income is generally subject to corporate income tax, unless a tax treaty provides otherwise. However, a total or partial tax relief in the form of tax credits or exemptions is available for foreign tax paid.
Income from foreign branches or partnerships is usually not subject to trade tax.
Foreign-source investment income from a EU/EEA subsidiary may not be attributable, provided that the subsidiary conducts commercial activities.
Losses – Losses may be carried forward indefinitely and may be carried back 1 year. Losses may be offset against profits up to EUR 1m without restriction. Profits exceeding EUR 1M may be offset by 60%.
Inventory – Inventory may be valued at lower cost, market selling value, or replacement price. Last in First Out (LIFO) is allowed. First in First Out (FIFO) is usually not allowed for tax purposes.
Anti-avoidance rules – Transactions between related entities must be conducted at arm’s length following the OECD’s principles and they must be properly documented. An exit tax may be imposed on the profit potential that is deemed to be transferred, based on the discounted cash flow value of the subsidiary before and after the restructuring.
There are no thin capitalization rules. However, interest expenses may be deductible up to 30% of taxable income before net interest expense, regular depreciation and amortization (EBITDA). The difference between 30% of the EBITDA and the net interest expense may be carried forward and used in the following five years. This limitation does not apply if the interest burden is less than EUR 3M, the taxpayer is not a part of group of companies and the equity ratio of the German borrower does not fall short by more than two percentage points of the worldwide group’s equity ratio.
There are also controlled foreign company rules, passive income from subsidiaries subject to an effective tax rate of less than 25% may be attributed to the German shareholder, if the German shareholder holds more than 50% of the subsidiary.
Labor taxes – Employers and employees must contribute to the several social security funds and insurances:
Pension insurance: 9.3% and 9.3% on employee’s gross salary, respectively.
Unemployment insurance: 1.5% and 1.5% on employee’s gross salary, respectively.
Health insurance: 7.3% and 7.3% on employee’s gross salary, respectively.
Invalidity insurance: 1.275%, and 1.275% on employee’s gross salary, respectively.
The upper monthly salary limits are EUR 6,500 for the pension and unemployment insurances and EUR 4,425 for the health and invalidity insurances.
Tax Credits and Incentives – There are no relevant tax credits and incentives, other than a foreign tax credit for foreign tax paid.
Personal income tax – An individual is considered tax resident in Germany, if he or she is domiciled (permanent accommodation) or has habitual abode (spends more than 6 months) in Germany.
Tax residents are subject to tax on their worldwide income.
Income tax rates are progressive up to 45% plus a solidarity surcharge of 5.5%, resulting in a top marginal tax rate of 47.5%. There is also a church tax of 9%. Investment income, such as dividends or capital gains are generally taxed at an effective tax rate of 26.375%. Although individuals may opt to be taxed for their investment income at standard rates.
Other taxes – There is a real property tax levied by municipalities at a rate of 0.35% of the tax value of the property, multiplied by a municipal coefficient. Transfer of real properties is taxed between 3.5% to 6.5% of the sales price/ value of the property.
Inheritance and gift are subject to tax at progressive rates from 7% to 50%, although under certain conditions the inheritance of business property may be tax free.
The V.A.T. standard tax rate is 19%, with a reduced rate of 7% for certain goods and services. Certain transactions are exempt from V.A.T.
- Offshore Income Tax Exemption
- Offshore capital gains tax exemption
- Offshore dividends tax exemption
- CFC Rules
- Thin Capitalisation Rules
- Patent Box
- Tax Incentives & Credits
- Property Tax
- Wealth tax
- Estate inheritance tax
- Transfer tax
- Capital duties
- 33% Offshore Income Tax Rate
- 33% Corporate Tax Rate
- 33% Capital Gains Tax Rate
- 33% Dividends Received
- 26.375% Dividends Withholding Tax Rate
- 26.375% Interests Withholding Tax Rate
- 15.825% Royalties Withholding Tax Rate
- 1 Losses carryback (years)
- Indefinitely Losses carryforward (years)
- Average costLIFO Inventory methods permitted
- 218 Tax time (hours)
- 9 Tax payments per year
- 19.375% Social Security Employee
- 19.375% Social Security Employer
- 56.5% Personal Income Tax Rate
- 19% VAT Rate
- 115 Tax Treaties
Tax treaties Map
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