Company Taxation in Germany
Taxes in Germany
Germany has the largest economy in Europe and is also one of the largest in the world. It has the largest population in the EU and is a federal republic, consisting of 16 states, called Bundesländer each of them having their own capital and own parliament.
The economy has been stable over the years, having met the global financial crisis in 2007/2008 easily. Germany has a highly skilled labour force, but still not enough to cover all needs. That is why big legal changes are being made in June 2019, as the new Fachkräfteeinwanderungsgesetz (Law on Migration of Highly Skilled People) has been adopted by the parliament. The county has a large capital stock, is known for the low level of corruption and its innovations. When thinking of Germany many think of its industry and quality behind it, why Germany is one of the biggest exporters in the world.
Another important thing to know is that Germany has not a single economic centre as one might think of the capital Berlin. German is the official language; English is spoken widely.
However, the German tax regime may be confusing to foreigners, it is easy to understand when knowing the main existing tax regimes in Germany:
- Körperschaftsteuer is the corporate income tax, being a tax charged on the income of a corporate
- Einkommensteuer is the income tax, being a tax charged on the income of individuals
- Umsatzsteuer is the value-added tax, being a tax charged on the provision of goods or services
- Gewerbesteuer is the trade tax, being a tax payable by businesses on their income, depending on the seat of the business
- Grunderwerbsteuer is the real estate transfer tax, being a tax paid when a property is transferred
Partnerships are tax-transparent what means that the shareholders are reliable for taxes, depending on their legal form. Individuals have to pay income tax, whereas corporates have to pay the corporate income tax.
In case of operating a foreign branch in Germany the profits of the foreign branch have to be taxed in Germany. The taxes depend on the legal form meaning that those taxes have to be paid which would apply for the branch if it would have a German legal form. The profits generated in Germany are then either exempted from taxation in the foreign country or they are subject to taxation there. In this case the taxes paid in Germany will be offset against the corresponding taxes in the foreign state.
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