Taxes and Accounting

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Taxes and Accounting

In this page: Corporate Taxes | Accounting Rules | Consumption Taxes | Individual Taxes | Double Taxation Treaties | Sources of Fiscal Information

Corporate Taxes

Tax Base For Resident and Foreign Companies
Same tax treatment

Tax Rate

Corporate Tax (Körperschaftssteuer)Standard rate is 15% (15.825% including a 5.5% solidarity surcharge). Effective rate including trade tax (assessed independently by each municipality from 7% to 17.5%) is about 30-33%.
Trade tax (Gewerbesteuer) is levied on companies and individuals carrying out commercial activities through a subsidiary or a permanent establishment in Germany.Rates are typically between 14% and 17%, up to a maximum of 19%
Tax Rate For Foreign Companies
There is no distinction between German companies and foreign companies. A company is resident for tax purposes in Germany if it is effectively managed or registered in Germany. The place of incorporation is irrelevant.
Capital Gains Taxation
Capital gains are typically taxed at the same rate as ordinary income at 15%. A 95% tax exemption applies to the sale of shares, except for banks, financial institutions and finance companies, life or health insurance companies and pension funds.
Main Allowable Deductions and Tax Credits
In general, all expenses incurred in the course of business operations are deductible. Germany offers unilateral tax relief, allowing companies to credit foreign taxes paid up to the amount that is subject to domestic tax or to deduct foreign tax as a business expense. Deduction of net interest expense is generally limited to 30% tax EBITDA. For more information, refer to Deloitte's tax guide.
Other Corporate Taxes
Municipal taxes (averaging at 14-17%), real property tax (0.35% multiplied by a municipal coefficient), real estate transfer tax (3.5-6.5%) and various environmental taxes are levied.
Other Domestic Resources
Consult Doing Business Website, Summary of taxes and mandatory contributions

Country Comparison For Corporate Taxation

 Germany
Number of Payments of Taxes per Year9.0
Time Taken For Administrative Formalities (Hours)218.0
Total Share of Taxes (% of Profit)48.9

Source: Doing Business - 2017.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.

 

Accounting Rules

Accounting System

Accounting Standards
Accounting standards and regulations can be found in the ‘German Accounting Standards’- GAS (Deutsche Rechnungslegungs Standards – DRS), which is published by the German Standardisation Bureau (Deutsches Rechnungslegungs Standards Committee- DRSC). There is no mandate for an official accounting plan; it is up to each company to choose the form, language and currency utilised. European companies listed on the stock exchange must establish their annual consolidated accounts on the basis of IAS/IFRS standards.
Accounting Regulation Bodies
DRSC, Deutsches Rechnungslegungs Standards Committee (German Standardisation Bureau) 
Accounting Law
The main legal sources of German accounting are: 
- the Stock Corporation Law of 1965 (AktG) 
- book III of the German Commercial Code (Handelsgesetzbuch - HGB).
Difference Between National and International Standards (IAS/IFRS)
The national system is near the international standards.
Accounting News
International Accounting News on Germany 

Accounting Practices

Tax Year
The tax year is 12 months or the period for which accounts are prepared, if shorter. The tax accounting period may not exceed 12 months in total.
Accounting Reports
Unlimited liability companies, partial liability companies (Einzelkaufleute, OHG, KG), and limited liability companies (Gmbh and AG) must draw up the following accounting documents: 
- a balance sheet (Bilanz) in the format decreed by the 4th European Directive of 1978, adapted to German law in 1985 
- a profit and loss account (Gewinnund Verlustrechnung) 

Limited liability companies (Gmbh and AG) must also draw up the following documents: 
- notes to the accounts (Anhang) 
- an annual report (Lagebericht) 

The financial flow table or cash flow table is obligatory only for companies listed on the stock exchange.

 

Taxpayers are required to maintain their books in Germany, although electronic bookkeeping may be transferred abroad if prior approval is obtained from the tax authorities.

Publication Requirements
The reporting obligations of companies depend on their legal form: small, medium, or large company (as determined according to its balance sheet, net turnover and staff employed). 

Limited liability companies (Gmbh and AG), with the exception of small companies and groups of companies, must publish annual accounts and have them inspected by an outside auditor. 
Unlimited liability companies (except KGaA) have no obligation to publish their accounts or to have them audited.

 

Large and medium-sized entities (corporations and certain partnerships) must prepare their annual financial statements, together with a management report, within three months from the end of the financial year. For small entities, the period is extended to up to six months and a management report need not be prepared. Small entities are entities that do not exceed two of the following three criteria for at least two consecutive financial years on their balance sheet dates: net turnover of EUR 12 million, total assets of EUR 6 million and an annual average of 50 employees. Listed companies and companies that have issued debt securities as domestic issuers additionally have to prepare a half-yearly financial report covering the first six months of the financial year.The financial statements and the management report of large and medium-sized entities need to be audited by a statutory auditor before they can be adopted by the board or the shareholders. All companies, except certain partnerships, are obliged to publish their financial statements and their management report without delay after presenting them to the shareholders, but not later than 12 months from the end of the financial year, by submitting them electroncally to the electronic federal gazette. For listed companies and companies that have issued debt securities as domestic issuers, the time limit for publication is four months from the end of the financial year. Half-yearly financial reports generally must be published within two months after the end of the reporting period and be submitted to the electronic company register. Penalties are imposed if the deadlines are not met.

Accountancy Profession

Accountants
The accountancy services (Book-keeping, accounting, controlling, payroll) and related services can be offered by companies or individuals adhering to one of the following (legally regulated) professions: Public Accountants, Management Accountants, Independent Accountants, Commercial Accountants, etc. A valid business license is required to provide such services. The type of licence defines the scope of services allowed.
Professional Accountancy Bodies
WPK - Wirtschaftsprüferkammer, Chamber of Auditors 
IDW - Institut der Wirtschaftsprüfer, Institute of Chartered Accountants 
Member of the International Federation of Accountants (IFAC)
Germany is a member of the International Federation of Accountants (IFAC).
Member of Other Federation of Accountants
Member of the Federation of European chartered accountants.
Audit Bodies
The preparation of the annual accounts must take within three months after the end of the financial year for medium and large companies, and within six months later for small companies. You can contact an external auditor: PriceWaterhouseCoopersErnst & YoungKPMGDeloitte 

 

Consumption Taxes

Nature of the Tax
Value Added Tax (VAT), also refered to as Umsatzsteuer (USt) or Mehrwertsteuer (MwSt). 
Standard Rate
19%
Reduced Tax Rate
Food, public transport, books and magazines, hotels and entertainment and other consumer goods and everyday services receive a reduced rate of 7%. Intra-EU supplies, exports to non-EU countries, cross-border transport of goods to and from non-EU countries are generally zero-rated.
Exclusion From Taxation
Certain financial transactions and services, medical services, cultural and educational services as well as transactions covered by property tax are exempted from VAT. Small businesses with a total turnover of less than EUR 17,500 in the previous year and an estimated turnover below EUR 50,000 in the current year are also exempt.
Method of Calculation, Declaration and Settlement
VAT is calculated on the selling price and generally levied on supplies of goods and services in Germany, on intra-EU acquisitions and certain imports from outside the EU. To obtain a VAT refund, a company must have a tax identity number.
Other Consumption Taxes
General insurance premiums also incur a 19% tax. A motor vehicle tax is imposed on the ownership of motor vehicles. 
For more information refer to German Trade and Invest.

 

Individual Taxes

Tax Base For Residents and Non-Residents
Income tax is payable by German resident individuals on their worldwide income. Non-resident individuals are only required to pay tax on German sourced income.

Tax Rate

Personal Income TaxProgressive rate from 14% to 45%
From EUR 0 to EUR 8,8200%
From EUR 8,652 to EUR 54,058Progressive rates between 14% and 42%
From EUR 54,058 to EUR 256,30442%
From EUR 250,30445%
Solidarity Contribution is added as a mandatory surcharge.5.5% of the amount of the income tax
Church Tax (applicable to resident members of certain officially recognised German churches)8 or 9%  of the annual income tax liability. It varies according to the district of residence.
Allowable Deductions and Tax Credits
Statutory pension contributions, certain private insurance contributions, education and training expenses, alimony, donations and church tax are deductable. Additionally, resident taxpayers are granted personal allowances of EUR 8,354 or EUR 16,708 for married couples filing a joint return. Taxpayers also receive a monthly benefit payment of EUR 190 for each of their first two children, EUR 196 for the third child and EUR 221 for each additional child. For employment-related expenses, a lump-sum flat-rate deduction of EUR 1,000 is available; if a higher deduction is claimed, evidence of the actual expenses incurred must be provided. 
For more information, please refer to Deloitte's guide.
Special Expatriate Tax Regime
Germany has signed avoidance of double taxation agreements with many countries in the world. For more information refer to the Ministry of Finance.
Capital Tax Rate
Inheritance and gift tax range from 7 - 50% with conditional exemptions.

 

Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
Federal Ministry of Finance, List of double Taxation Treaties signed by Germany 
Withholding Taxes
Dividends: 25% (26.375% with solidary surcharge), Interest: 0%, Royalties: 15% (15.825% with solidarity surcharge)

 

Sources of Fiscal Information

Tax Authorities
Federal Central Tax Office 
Federal States' Fiscal Authority 
Federal Fiscal Authority 
Federal Customs Administration 
Bundesministerium der Finanzen, Website of the Federal Ministry of Finance 
Other Domestic Resources
Tax Information Centre 
Country Guides
Deloitte Guide 

 

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Learn more about Taxes and Accounting in Germany on Globaltrade.net, the Directory for International Trade Service Providers.

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Last Updates: September 2017