A General Owerview of Commercial Tax System of Germany

Business taxes in Germany result in companies facing various types of taxes depending on their size, structure and activities. Tax obligations are determined both at the federal level and at the local level, and the tax system in Germany includes comprehensive regulations for both international companies and local businesses. The most important types of taxes on business activities are the following:

1. Corporate Income Tax (Körperschaftsteuer)

Corporate income tax is a tax levied on the income of capital companies resident in Germany, i.e. joint stock companies (AG) and limited liability companies (GmbH). The tax rate is as follows:

Rate: A flat 15% corporate income tax applies

In addition, a solidarity surcharge (Solidaritätszuschlag) of 5.5% is levied on the corporate income tax. This surtax was initiated for the reconstruction of the eastern part of Germany, but applies nationwide.

Effective tax rate: Together with the solidarity tax, the total effective corporate tax rate is 15.825 per cent.

2. Trade tax (Gewerbesteuer)

Trade tax is a local tax that must be paid by every business operating in Germany and is payable to the municipality in which the business is located. The rate of trade tax can vary from municipality to municipality, but there are minimum rates set at federal level.

The rate The trade tax varies depending on the company's commercial earnings. The tax rate is based on a coefficient (Hebesatz) set by the municipality multiplied by the basic rate of 3.5%. This coefficient can vary between 200% and 900%.

For example, in Berlin the business tax coefficient is around 410 per cent, while in Frankfurt it is 460 per cent.

Effective rate: Depending on the municipality, the effective rate of trade tax usually varies between 7% and 17%.

3. Value Added Tax (VAT - Umsatzsteuer)

VAT is a tax levied on sales of goods and services in Germany and businesses collect VAT from the end consumer and pay it to the government.

Rate: The standard VAT rate in Germany is 19%. However, a reduced rate of 7% applies to certain goods and services (for example, foodstuffs and books).

Exemptions: Some sectors and transactions (e.g. health care, education, financial services) are exempt from VAT.

4. Capital Gains Tax (Kapitalertragsteuer)

Capital gains tax is levied on investment income and capital gains of enterprises.

Rate In Germany, the capital gains tax rate is fixed at 25%. In addition, a solidarity tax (5.5 per cent) also applies, so that the effective rate is 26.375 per cent.

This tax generally applies to dividends, interest income and gains from the sale of capital assets.

5. Property tax (Grundsteuer)

If a business owns property, it has to pay property tax on the property in Germany. The property tax is determined at the local level and is calculated on the value of the property.

The rate The property tax rate depends on the municipality in which the property is located. The tax calculation is usually based on an assessment of the value of the property (Einheitswert) and varies according to the coefficient applied by each municipality.

6. Value Added Tax (VAT) Refund and Other Exemptions

Businesses doing business in Germany can claim VAT refunds for various costs and investment expenditures. In addition, some international business activities and export transactions are exempt from VAT.

Conclusion

The tax obligations for businesses operating in Germany are multifaceted, with the main taxes payable at federal level, such as corporate income tax, trade tax and value added tax. Trade tax varies by municipality, so businesses should carefully consider the tax rates of their location when tax planning. In addition, factors such as capital gains and property ownership also affect the amount of tax payable by companies.