Anyone who is required to keep books and records under laws other than tax laws that are relevant to taxation must also fulfill the obligations incumbent on him under the other laws for taxation purposes. This therefore applies not only to a German but also to a foreign accounting obligation.
According to the German Commercial Code, every merchant is obliged to keep books and to present his commercial transactions and the situation of his assets in these books in accordance with the principles of proper accounting. Companies which, by their nature or size, do not require business operations set up in a commercial manner are not required to keep accounts. Nevertheless, all German commercial companies (OHG, KG, AG and GmbH) and all companies entered in the commercial register are always required to keep accounts.
If there is no accounting obligation, then companies must prepare a revenue surplus statement for tax purposes.
The commercial balance sheet forms the basis for determining the tax balance sheet. If there are no adjustments under tax law, then the commercial balance sheet is also used for tax purposes and it is referred to as a unified balance sheet.
Business activities may be subject to income tax or corporate tax.
The following corporations, associations of persons and estates are subject to corporate tax:
1. Corporations (in particular European companies, stock corporations, partnerships limited by shares, limited liability companies) including opting companies within the meaning of § 1a KStG;
2. Cooperatives including European cooperatives;
3. Mutual insurance and pension fund associations;
4. Other legal entities under private law;
5. Non-legal associations, institutions, foundations and other special-purpose assets under private law;
6. Businesses of a commercial nature of legal persons under public law.
Individuals and partnerships may be subject to income tax.
Corporations are subject to unlimited corporate income tax liability if they have their management or registered office in Germany. Corporations abroad have limited tax liability for their business activities in Germany.
Tax residency for Individuals and partnerships is based on domicile or substancial presence in Germany (see Income Tax Guide).
In the case of corporations with unlimited tax liability, all income is to be treated as income from business operations. Taxable income is determined on the basis of the annual financial statements, taking into account any tax adjustments.
Business activities of individuals and partnerships are allocated according to the corresponding type of income under the Income Tax Act.
Tax Rates for Germany
Corporate income tax is 15 percent of taxable income. A solidarity surcharge of 5.5% of the tax amount is levied on the income tax as a supplementary levy.
Regarding income tax rates, please see our income tax guide.
Business activities classified as Income from business operations are additionally charged with trade tax. The amount of trade tax depends on the tax rate of the municipality. For individuals and partnerships there is a reduction in income tax for income from business operations. Depending on the level of the tax rate of the municipality, the business tax may be completely absorbed by the income tax reduction. Business tax rates range from approximately 8-21%.
Simplified scheme for the tax burden of corporations:
|Trade Tax||from 8 to 21|
|Income after Tax||from 76.175 to 63.175|
|Tax burden||from 23.825% to 36.825%|
Corporate Tax Schedule
Corporate tax is an annual tax. The basis for its assessment is determined for each calendar year.
The deadline for filing the corporate/income tax returns prepared by the taxpayer himself/herself is July 31 of the following year. Due to the Corona pandemic, the deadlines for 2021 have been extended to October 2022 and for 2022 to September 2023. Tax advisors may submit the income/corporate tax return by the end of February of the year after next. For 2021 it is the end of August 2023 and for 2022 it is the end of July 2024.
Tax payments are due 1 month following the income tax notice. The late payment surcharge is 1% of the tax amount per month.
Late filing penalties are 0.25 % of taxes per month, and is limited to no more than EUR 25,000. Starting 15 month after the end of the calendar year in which the tax arose, interest is assessed at 0.5 % per month. Due to the Corona pandemic, the interest period begins after 20 months in 2021 and after 19 months in 2022.
In contrast to all other transaction taxes, VAT does not cover specific transactions in legal and commercial transactions. Rather, it applies to all transactions carried out by businesses, which can be both the supply of goods and the provision of services. Turnover by persons who are not regarded as entrepreneurs for VAT purposes, on the other hand, is not subject to VAT.
Due to the all-phase sales taxation, every purchase of goods or services is subject to sales tax, regardless of the type of recipient. However, this is not the result desired by the legislator. Only the end consumer is to be definitively burdened. Technically, this is done by relieving businesses of the VAT they themselves have been charged: businesses can deduct the VAT charged to them by other businesses as input tax from their own VAT liability.
The system of VAT in Germany is based on the EU Directive of November 28, 2006 on the common system of VAT and is therefore harmonized with the EU VAT system.
The current standard tax rate in Germany is 19%. For some products and services the reduced tax rate of 7% applies.
Real Estate Transfer Tax
Legal transactions are subject to real estate transfer tax insofar as they relate to domestic real estate. This can be, for example, the purchase or the acquisition in the compulsory auction.
If the assets of a corporation or partnership include a domestic plot of land and if, within ten years, the number of shareholders changes directly or indirectly in such a way that at least 90 percent of the shares in the company are transferred to new shareholders, this is deemed to be a legal transaction aimed at the transfer of ownership of land.
The tax is calculated on the basis of the value of the consideration. The tax rate for real estate transfer tax is generally 3.5% of the basis of assessment. However, each federal state is granted the right to set a different tax rate. In fact, the tax rates therefore range from 3.5% to 6.5% (2020).