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Germany

Gesellschaft mit beschränkter Haftung, GmbH (Private company with limited liability)

Taxes

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

Country details

Germany
EUR
Berlin
Europe
d e
81802257

Tax treaties

Country Type Date Signed
Ecuador DTC  1982-12-07
Former Yugoslav Republic of Macedonia DTC  2006-07-13
Kenya DTC  1977-05-17
Morocco DTC  1972-06-07
Netherlands DTC  1959-06-16
Tajikistan DTC  2003-03-27
Belgium DTC  1967-04-11
Korea, Republic of DTC  2000-03-10
Hungary DTC  2011-02-28
Liechtenstein TIEA 2009-09-02
Bangladesh DTC  1990-05-29
Italy DTC  1989-10-18
Kyrgyzstan DTC  2005-12-01
Kazakhstan DTC  1997-11-26
Latvia DTC  1997-02-21
Serbia DTC  1987-03-26
Bahamas, The TIEA 2010-04-09
Kuwait DTC  1999-05-18
Czech Republic DTC  1980-12-19
India DTC  1995-06-19
South Africa DTC  1973-01-25
Jamaica DTC  1974-10-08
Finland DTC  1979-07-05
Oman DTC  2012-08-15
Iceland DTC  1971-03-18
Denmark DTC  1995-11-22
Georgia DTC  2006-06-01
Philippines DTC  1983-07-22
Trinidad and Tobago DTC  1973-04-04
Costa Rica DTC  2014-02-13
Bosnia and Herzegovina DTC  1987-03-26
Isle of Man TIEA 2009-03-02
Mauritius DTC  2011-10-07
Romania DTC  2001-07-04
Austria DTC  2000-08-24
Namibia DTC  1993-12-02
Greece DTC  1966-04-18
United States DTC  1989-08-29
Azerbaijan DTC  2004-08-25
Uruguay DTC  2010-03-09
United Kingdom DTC  2010-05-30
Malta DTC  2001-03-08
Liberia DTC  1970-11-25
Cyprus DTC  2011-02-18
Côte d'Ivoire DTC  1979-07-03
Slovakia DTC  1980-12-19
Luxembourg DTC  2012-04-23
Turks and Caicos Islands TIEA 2010-06-04
Iran DTC  1968-12-20
Syrian Arab Republic DTC  2010-02-17
Albania DTC  2010-04-06
New Zealand DTC  1978-10-20
Saint Lucia TIEA 2010-06-07
China DTC  2014-03-28
Venezuela DTC  1995-02-08
Jersey TIEA 2008-07-04
Switzerland DTC  1971-08-11
Chinese Taipei DTC  2011-12-28
Grenada TIEA 2011-02-11
Armenia DTC  1981-11-24
France DTC  1959-07-21
Dominica TIEA 2010-09-21
Israel DTC  1962-07-09
Lithuania DTC  1997-07-22
Pakistan DTC  1994-07-14
Indonesia DTC  1990-10-30
Slovenia DTC  2006-05-03
Turkey DTC  2011-09-22
Sweden DTC  1992-07-14
Australia DTC  1972-11-24
Mongolia DTC  1994-08-22
Zambia DTC  1973-05-30
Ukraine DTC  1995-07-03
United Arab Emirates DTC  2010-07-01
Montserrat TIEA 2011-10-28
Bulgaria DTC  2010-01-25
Japan DTC  1966-04-22
Uzbekistan DTC  1999-09-07
Tunisia DTC  1975-12-23
Estonia DTC  1996-11-29
Sri Lanka DTC  1979-09-13
Poland DTC  2003-05-14
Anguilla TIEA 2010-03-19
Ghana DTC  2004-08-12
Saint Vincent and the Grenadines TIEA 2010-03-29
Zimbabwe DTC  1988-04-22
Andorra TIEA 2010-11-25
Russian Federation DTC  1996-05-29
Argentina DTC  1978-07-13
San Marino TIEA 2010-06-21
Canada DTC  2001-04-19
Egypt DTC  1987-12-08
Norway DTC  1991-10-04
Antigua and Barbuda TIEA 2010-10-19
Algeria DTC  2007-11-12
Bolivia DTC  1992-09-30
Viet nam DTC  1995-11-16
Belarus DTC  2005-09-30
Croatia DTC  2006-02-06
Ireland DTC  2011-05-30
Gibraltar TIEA 2009-08-13
Bermuda TIEA 2009-09-03
Singapore DTC  2004-06-28
Guernsey TIEA 2009-03-26
Malaysia DTC  2010-02-23
Cook Islands TIEA 2012-04-03
Saint Kitts and Nevis TIEA 2010-10-13
Monaco TIEA 2010-07-27
Mexico DTC  2008-07-09
Turkmenistan DTC  1981-11-24
Spain DTC  2011-02-03
Portugal DTC  1980-07-15
Moldova, Republic of DTC  1981-11-24
Thailand DTC  1967-07-10
Cayman Islands TIEA 2010-05-27

Procedures

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