Summary on tax obligations of a new corporation
1. Application with financial authority and trade office
Right after the registration within the companies register the new company has to apply for a tax number with the appropriate finance authority. If asked for the company would also receive a VAT-Number.
Basically all companies has to register with the trade office as well.
2. Company Taxes
Germany taxes its corporate residents on their worldwide income. However, most double tax treaties (DTTs) exempt income attributable to a foreign permanent establishment (PE). Non-residents with PE or property income are taxed by assessment on German-source income; those earning royalties and dividends are taxed by withholding at source. Interest paid abroad is, in most cases, free of German tax altogether.
German business profits are subject to two taxes, corporation tax and trade tax.
Corporation tax (Körperschaftsteuer)
Corporation tax is levied at a uniform rate of 15% and is then subject to a surcharge of 5.5% (solidarity surcharge). This results in a total tax rate of 15.825%.
Trade tax (Gewerbesteuer)
The trade tax rate is a combination of a uniform tax rate of 3.5% (base rate) and a municipal tax rate (Hebesatz) depending on where the PEs of the business are located. Currently, municipalities with at least 80,000 inhabitants currently levy trade tax at a rate of between 12.6% (Hebesatz of 360%) and 20.3% (Hebesatz of 580%).
The basis for this tax is the adjusted profit for corporation tax purposes: in particular, 25% of all financing costs over 100,000 euros (EUR), including the implicit financing costs in leasing, rental, and royalty payments, are added back to taxable income.
If the basis for the two taxes is identical (unlikely in practice), the overall burden on corporate profits earned in Munich would be approximately 33%. In Frankfurt, the burden would be 32%. In Berlin, it would be 30%.
As an example the following taxes apply to a company:
- Value Added Tax (VAT) – basically 19 %, except for groceries or newspapers
- Corporate Tax – 15 % of annual profits
- Solidarity tax – 5,5 % of the Corporate Tax
- Trade Tax – depends on two factors: for one thing from the annual profits as well, for another thing on the local tax factor on the city where the company is registered. (Eg. Munich’s tax factor is about 490 %, Frankfurt/Main’s tax factor is about 460 %, Berlin’s tax factor is about 410 %) On average it is to say the commercial tax might be about 17 %
3. Annual obligations
Corporations are obliged on to doing balancing and accounting. Particularly every corporation has to cover an annual financial statement as well as prepare and file an annual tax declaration.
Besides a corporation has to regularly file a turnover tax advance return. To cover all tax issues we recommend on hiring a tax consultant. Please contact us on further questions.