This page will introduce you to corporate taxation in Germany. In other words, you will find out who is subject to Körperschaftssteuer.
What constitutes a corporation in German tax law?
Corporation tax is a particular type of income tax for juristic persons, associations and funds/estates (§1 KStG). Just like income tax for private persons, the corporation tax belongs to the direct taxes and is a personal tax, which cannot be deducted from the income. Subjects for corporate tax are:
- joint stock company (Aktiengesellschaft, AG),
- limited liability corporation (Gesellschaft mit beschränkter Haftung, GmbH),
- entrepreneurial corporation (Unternehmergesellschaft, UG, € 1 GmbH),
- association (Verein, e.V.),
- partnership companies (Partnerschaftsgesellschaft, PartG, "... & Partner"),
- private partnership limited by shares (Kommanditgesellschaft),
So my GbR will be also subject to corporate tax?
No, certainly not. Corporations are associations based on the membership of persons; they are organized on a membership basis and exist independent of the change of the individual members. The legal form "corporation" is a legal person, whose "body" exists of individual natural or other legal persons. A GbR is mixture exactly between a collaboration and a legal entity at all. This is also true for an oHG. When it comes to "levying taxes" on a GbR, the individual members will be liable for their own taxes though the profit will officially be taxed in an individual proceeding. In other words, a "joint P&L for the group" is to be submitted, while the individuals are taxed based upon their personal circumstances. The assessment arising thereupon is basis for the personal taxation of the individual members.
What is the fiscal year in Germany? Is it also January to February?
Yup. The first year, i.e. the year of founding, however may be shorter.
What are the general requirements for a corporation like GmbH, UG and the like for taxation purposes?
GmbHs, and UGs as trading companies are required to keep account books and issue financial closings at the end of the year. This is one of the director’s main statutory duties. Financial closings consist of P&L (profit & loss), and balance sheets. The balance sheets are to be issued pursuant to the principles of orderly bookkeeping and show a real picture of the property, financial position of the company and the results of its operation and its cash flows (§§242, 243 HGB). In certain cases, an amendment with explanations will be needed (§ 264 HGB). All this must be submitted in German (§244 HGB). N.B. The bookkeeping itself, can be in any living language but not the financial closings!
I heard something that my company will not only need to hire a tax consulting expert but also an auditor. Huh? Is Germany so broke that it cannot afford its own auditor?
The opinion, if Germany should or could afford any more auditors from inside the authority, is a question that is heavily discussed. The law provides that the financial closings and the amendments are to be tested by independent auditors (Wirtschaftsprüfer maybe also by vereidigte Buchprüfer). This is true for mid-sized and large corporations (§316 HGB) – having a million or more turnover. These auditors have to be shown everything (books, cash box slips, lists of securities, etc.. They have to issue a non-partisan, written report on their test after discussing the results with you – their client. If you have no differing arguments, they will affirm the good records of your company. Just as all lawyers, tax consultants, their professional law demands them to maintain strict privacy.
A creditor of mine threatened to tell a tale on me just because my company did not publish its annual closings. What the heck… I understand and respect that the tax authorities want to know everything, but my company’s closings are none of his business. What arguments do you have that I can shut him up?
Sorry, but we have to disappoint you! It is indeed a legal duty to disclose your annual closings. They are to be electronically submitted to the Federal Gazette (§325 HGB). Neglecting to obey this obligation can make the company as wells as the director liable for fines from 2,500 up to 25,000. No, this fine is not a crime but a misdemeanor and does not lead to expulsion.
How do we determine the taxable income?
Taxable income is based on the result of the commercial accounting in accordance to the Commercial Code and corrected by Income Tax Act. What is deemed income and what deductible is determined by the Income Tax Act. In addition, there are some special regulations of the corporate income tax act that must also be considered. In particular, constructive dividends (verdeckte Gewinnausschüttungen = vGA) must be taken into consideration. The basis of taxation for corporation tax is - just as for income tax – the taxable income, which has been accrued within the fiscal year.
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How are the partners or shareholders of a corporation taxed for their dividends? I heard of a half-income method. Does this mean that the partner’s income will be halved and the fiscal authority pays half of the tax bill?
When the profit leaves the corporation to be distributed to a physical person, the half-income method applies. On the level of the shareholders, the prior corporate tax burden of distributed profits is taken into consideration by the fact that only half of the dividends are included to compute the taxable income for this person’s income tax return (so-called half-income method, Halbeinkünfteverfahren). Profits from the sale of shares are also subject to the half income method.