| Date: 17.04.2023
As an entrepreneur or businessperson looking to expand into Germany, it is important to be aware of the various taxes payable in the country. Amongst these, Germany's corporate, trade, and business tax rates are particularly relevant to UG and GmbH companies.
Despite the comparatively high tax rates, setting up a business in Germany can be worthwhile for entrepreneurs and businesspeople. The country offers a high level of prestige and global recognition, as well as excellent infrastructure and a prime location in Europe. The political environment is stable, and changes in the law are generally slow, providing advantages for companies operating in Germany. Additionally, the purchasing power of Germans remains strong, even in times of crisis or inflation.
With well-prepared and thought-out tax planning, UGs and GmbHs in Germany can save significant tax costs. For example, if you have a company in your home country with relatively lower tax rates, and you need a German company as a sales company, you may be able to transfer substantial profits to your other company and reduce your overall corporate tax rate in Germany. For this reason, many foreign companies choose to register a new company in Germany or open a new business branch in Germany as long as they are prepared to deal with complex accounting. You can also do quite a lot with licenses or marketing contracts to set up a tax-efficient operation.
Alternatively, there is another hybrid form of GmbH, known as the GmbH & Co. KG. In German, this is the Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft (English: limited liability company & limited partnership), which can provide significant tax relief in the right circumstances. However, these are only examples and not concrete tips on tax planning. Our recommendation is to seek the assistance of an international tax advisor for precise planning. With that in mind, please read on for an overview of German taxes and their impact on your business.
The corporation tax rate in Germany currently sits at 15%, with an additional solidarity surcharge of 5.5% of corporate income tax. German reunification costs are paid primarily through these solidarity surcharges, resulting in an effective corporate tax rate of 15.825%.
The trade tax in Germany, also known as Gewerbesteuer, is a local tax that companies pay after profit. Municipalities impose trade taxes differently, and the amount varies according to the city where your company is located. It is determined in the annual accounts and can range between 7-18%. To help entrepreneurs and business owners compare business tax rates in different cities, we have included a table below:
Finally, UGs and GmbHs in Germany also need to pay value-added tax (VAT). The VAT rate is currently 19% for most regular goods and services and 7% for certain goods such as food. VAT is paid based on advance VAT returns, which you must submit monthly, quarterly or annually, depending on how much turnover tax you earn in a year.
While the corporate tax rate in Germany is higher than in some other countries, it is important to note that Germany also offers many benefits that can help businesses thrive, such as numerous tax incentives and benefits for businesses. For example, companies can take advantage of tax credits for research and development and investments in new technologies and machinery. In addition, many programs and initiatives aim to support small and medium-sized businesses, including subsidies and grants for startups.
As a UG or GmbH company operating in Germany, it is crucial to know the various taxes payable and ensure compliance with all applicable tax laws and regulations. Working with a qualified tax advisor can help businesses navigate the complexities of the German tax system and optimize their tax position.
Tax professionals or financial advisors are essential if you plan to do business in Germany since they can help you navigate the country's tax system. You can build a successful business in one of the world's most dynamic and prosperous economies with the right guidance and support. So don't worry - we are always happy to consult with our clients and help them navigate all aspects of the German business environment, from registration to corporation taxes.