Corporate Income Tax in Germany
Corporation tax belongs to the direct taxes. Corporate tax must in Germany pay incorporated business (AG and GmbH), other associations of persons and conglomerations of property. Sole proprietorships and partnerships are not subject to corporation tax (individual partners pay personal income tax). Corporations domiciled or managed in Germany are deemed to have full corporation tax liability. This means that their domestic and foreign earnings are all taxable in Germany.
Taxable period and tax base
In Germany is taxable period the calendar year, the tax year ends also on December 31. The basis of taxation is the income earned by the corporation during the calendar year. Provisions of corporation tax law must be taken into account. In this respect allowance must be made especially for constructive dividends.
Tax due date
Corporation tax prepayments are made in accordance with a prepayment notice issued by the tax office based on the estimated tax liability for the year, which obliges the taxpayer to make quarterly advance payments on tax due (on 10 March, 10 June, 10 September and 10 December).
In 2008 is corporate federal rate of tax in Germany 15 % (in 2007 was 25 %). The corporations must pay trade tax too. Trade tax is charged by the local authorities, who are entitled to the entire amount. In 2008 is trade tax 14 %. The corporations must pay “solidarity tax”, which is 5.5 % of the normal rate payable. The tax is levied on corporations to the conditions specified in the law. Effective corporate tax rate, including trade tax and solidarity tax is 29 % - 32 %.
When dividends are paid to an individual person, capital yield tax at a rate of 20 % is charged and may be counted towards the shareholder’s personal income tax bill. Shareholders are only taxed on half their dividends. For an individual person is by law 50 % of the total dividend received from a company tax exempt. When dividends are paid to a firm with full corporation tax liability, the recipient business is largely exempted from paying tax on these revenues. In its tax assessment, merely 5 % of the dividends are added to profits as non-deductible operating expenses. The same applies if a taxable corporate enterprise sells shares in another company. Deducting tax from dividends paid by a subsidiary with full tax liability to a foreign parent domiciled in the EU is waived on certain conditions: the parent company has to have a direct holding in the subsidiary of at least 15 %.