Paying Corporate Income Tax in Germany

Whether you own a GmBH, UG or AG company in Germany, you are going to be obliged to pay corporate income tax or “Koerperschaftsteuer” in German. If you own a foreign corporation that has establishments or offices in the country, it also makes you liable to pay taxes there.

Each and every type of company has its own taxable profit determined by certain regulations. The sum of the profit that has to be paid can rise depending on different types of expenses. Such expenses in Germany are non-deductible and are specified by the profit and loss statement. These include:

  • Expenses based on foreign-source income
  • Solidarity surcharge, corporate- and business tax fees
  • The company handing out a gift to a client that costs more than €35 counts as expense
  • Bewirtungen – 30% of the supply of drink or food to business associates in expenses
  • Fines such as monetary, warning and administrative
  • Aufsichtsratsverguetungen 50% of renumeration salary that supports the supervisory board
  • Bestechungsgelder – Money spent on bribing should be accounted for as well

How Much is Corporate Tax in Germany?

Corporate tax for all types of companies opened in Germany is 15%. This means that all the profits generated by the company suffer a 15 percent cut. This is true whether the profit generated by the company stays in the company (gets accumulated) or gets distributed instead.

On top of this, there is an additional 5.5% that has to be paid as solidarity surcharge.

How and When do Companies Pay Corporate Tax?

Every company in Germany gets assigned to a tax office once it is registered. That is where they need to pay their corporate tax within the deadline which is every quarter year. After every full year, their corporate tax return is formalized by an annual statement.

What Counts as a Hidden Distribution of Profit?

The shareholders and affiliate companies of a corporation also need to be paid. In Germany, you need to be careful about handling these payments. In case these payments become excessive, it will be noticed by the tax office.

As a result, each of them will be labelled as a hidden distribution of profit. There are certain risky distributions of profit that can be made by the parent company to the subsidiaries. For example, it can be risky to pay an excessive amount for delivered goods, loans or cost compensations that are not as common.

The tax office can determine at any time that these payments fall into the “hidden distribution of profit” category. As a result, these all add up as extra taxable income, either all of them or only a part of them. This increase in corporate tax can come off as an unpleasant surprise.

Companies affected by this overplus in tax are typically the internationally active ones. They often deal with a range of companies with agreed upon invoicing prices that are non-standard. According to tax offices, there is a normal cost for invoicing prices when it comes to third parties that is not advisable to exceed.

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