Germany Country Profile

Germany Country Profile

Key tax factors for efficient cross-border business and investment involving Germany.

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EU Member State

Yes.

Double Tax Treaties

With:

Albania Ecuador Kazakhstan Namibia Syria
Algeria Egypt Kenya Netherlands Taiwan
Argentina Estonia
Rep. of Korea New Zealand Tajikistan
Armenia Finland
Kosovo Norway Thailand
Australia France
Kuwait Oman(b) Trinidad &Tobago
Austria Georgia
Kyrgyzstan Pakistan
Tunisia
Azerbaijan Ghana
Latvia Philippines
Turkey
Bangladesh  Greece
Liberia Poland
Turkmenistan
Belarus Hungary
Liechtenstein Portugal
UK
Belgium Iceland
Lithuania Romania
Ukraine
Bolivia India
Luxembourg Russia
United Arab Emirates
Bosnia &
Herzegovina
Indonesia
Macedonia Serbia
Uruguay
Bulgaria Iran
Malaysia Singapore
US
Canada Rep. of
Ireland
Malta Slovakia
Uzbekistan
China(a) Israel
Mauritius Slovenia Venezuela
Costa Rica Italy
Mexico South Africa
Vietnam
Croatia Ivory Coast Moldova Spain Zambia
Cyprus Jamaica Mongolia Sri Lanka
Zimbabwe
Czech Rep. Japan Montenegro Sweden
 
Denmark Jersey Morocco Switzerland
 

 

Notes: (a) Treaty with China is not applicable to Hong Kong and Macau.

           (b) Treaty not yet in force

Forms of doing business

Stock corporation (AG)

Limited company (GmbH)

Limited partnership with a limited company as general partner (GmbH & Co. KG)

Limited partnership (KG)

General partnership (OHG)

Societas Europae (SE)

Legal entity capital requirements

AG: EUR 50,000

GmbH: EUR 25,000

SE: EUR 120,000

Residence and tax system

A corporate entity is resident in Germany for tax purposes if either its place of incorporation (registered seat) or its place of central management is in Germany. Resident companies are taxed on their worldwide income. Non-residents are taxed only on their German source income, as defined in German tax law.

Compliance requirements for CIT purposes

Companies can choose their balance sheet date at will, meaning that the fiscal year does not have to coincide with the calendar year. The fiscal year should not however exceed 12 months. Changing from a fiscal year which coincides with the calendar year to a fiscal year which deviates from the calendar year is subject to approval by the tax authorities.

In general, CIT returns have to be filed within five months of the end of the calendar year, i.e. by May 31 of the following year. An extension to December 31 is available for tax returns prepared by tax advisors and a further extension to the end of February of the subsequent year for the German federal state of Hesse.

CIT generally accrues at the end of the fiscal year. However, when assessed, there are four advance payments due (March 10, June 10, September 10, December 10). Electronic filing of the CIT return required.

Tax rate

24-35 percent (i.e. 15.825 percent CIT rate including solidarity surcharge and 8-19 percent trade tax depending on local trade tax multiplier).

Withholding tax rates

On dividends paid to non-resident companies

Generally 26.4 percent, i.e. 25 percent withholding tax (“WHT”) plus 5.5 percent solidarity surcharge on WHT (exemptions available under the EU Parent-Subsidiary Directive, if applicable and certain requirements are fulfilled). Reduction of WHT is available under most German tax treaties for qualified dividends (ownership threshold). In addition, foreign corporations may claim a refund of two-fifths of the WHT on the basis of domestic German tax law(subject to certain substance requirements).

On interest paid to non-resident companies

Generally no WHT under domestic law (certain exceptions apply).

On patent royalties and certain copyright royalties paid to non-resident companies

Generally 15.825 percent (exemptions available under the EU Interest-Royalties Directive, if applicable and certain requirements are fulfilled). Reduction of WHT under most German tax treaties available.

On fees for technical services

No

On other payments

Unless modified by a tax treaty: Supervisory board fees are subject to withholding tax at a rate of 30 percent. Income from artistic, athletic, acrobatic or similar performances performed in Germany and income from the utilization of such performances is subject to withholding tax at a rate of 15 percent. 

Residents in the EU/EEA can choose to deduct business expenses directly related to the payments mentioned above (net taxation). Where tax is withheld on the net amount, a standard tax rate of 30 percent applies for individuals and 15 percent for non-resident corporate entities. A solidarity surcharge of 5.5 percent of the tax rate applies.

Branch withholding taxes

No

Holding rules

Dividend received from resident/non-resident subsidiaries

Exemption method (effectively 95 percent), special rules for trade tax purposes, but participation exemption under a tax treaty may be available:

  • Participation requirement: 10 percent for corporate income tax at the beginning of the tax assessment period (from resident/non-resident subsidiaries); 15 percent for trade tax as of the beginning of the tax assessment period (from non-resident subsidiaries) (10 percent for participations in EU/EEA corporations at the beginning of the tax assessment period); 15 percent for trade tax at the beginning of the tax assessment period (from resident subsidiaries).
  • Minimum holding period: none for corporate income tax; as of the beginning of the calendar year for trade tax (none for participations in domestic and EU/EEA corporations);
  • Taxation requirement: none for corporate income tax and trade tax;
  • Active income requirement: none for corporate income tax; for trade tax purposes, active income requirement applies to dividends received from a non-EU subsidiary. However, an applicable tax treaty might overrule the active income requirement under domestic law;
  • In principle, an anti-hybrid rule applies for German CIT purposes which implies that the effective 95 percent participation exemption for a dividend is not available at the level of the German company receiving the dividend if the payment was treated as a tax-deductible expense at the level of the foreign distributing entity ("corresponding principle"). The anti-hybrid rules also apply to recently concluded and future DTTs.

Capital gains obtained from resident/non-resident subsidiaries

Exemption (effectively 95 percent) applies for CIT as well as trade tax purposes.

Tax losses

Carry-forward: losses may be carried forward indefinitely.

Carry-back: As of fiscal year 2013 losses up to an amount of EUR 1,000,000 can be offset against the profits of the preceding year for CIT purposes. Losses for trade tax purposes cannot be carried back.

Minimum taxation: 40 percent of the income exceeding EUR 1,000,000 cannot be sheltered by tax loss carry-forwards, but is subject to taxation at regular rates.

Restrictions: a direct or indirect transfer of shares or voting rights in the loss making company may restrict the utilization of losses for corporate and trade tax purposes unless the group exemption applies (change-of-control-rules). Unused tax losses are not forfeited upon a share transfer up to the amount of the loss company’s built-in gains that are taxable in Germany. An exception also applies for share transfers outside a group scenario, if the transfer is performed after December 31, 2015 and provided that the transferred entity has maintained the same business operations since its formation or for a period of at least 3 years prior to the transfer. 

Tax consolidation rules/Group relief rules

Yes, if certain requirements are fulfilled and a profit and loss pooling agreement is entered into for a minimum period of 5 years, profits/losses of a controlled company are attributed to the controlling company. However, tax consolidation is only possible with subsidiaries (corporations for German tax purposes) that have their place of management in Germany.

Registration duties

No

On the transfer of shares

No

On the transfer of land and buildings

Real estate transfer tax (RETT) applies on:
 - the transfer of German real estate;
 - the (direct or indirect) transfer of 95 percent or more of the interest in a partnership owning German real estate to new partners within a period of five years;
 - the (direct or indirect) aggregation at the level of the purchaser of  95 percent or more of the shares in a corporation/interest in a partnership owning German real estate;
 - the (direct or indirect) economic transfer of 95 percent or more of the shares in a corporation/or interest in a partnership owning German real estate.

RETT is generally levied at 3.5 percent of the purchase price or the applicable tax value. The tax rate can, however, differ in each German federal state (Bavaria, Saxony: 3.5 percent; Hamburg: 4.5 percent; Baden-Württemberg, Mecklenburg-Weston Pomerania, Rhineland-Palatinate, Saxony-Anhalt,  Bremen, Lower Saxony: 5 percent; Berlin, Hesse: 6 percent; Brandenburg, North Rhine -Westphalia, Saarland, Schleswig-Holstein, Thuringia: 6.5 percent).

An exemption for intragroup business reorganizations is available if certain conditions are met. Please note that the Federal Fiscal Court (BFH) is currently examining whether the intra-group exemption constitutes unlawful state aid within the meaning of Art. 107 TFEU. The designation as unlawful state aid could mean that formerly exempt reorganizations may retroactively become subject to taxation. 

Stamp duties

No

Real estate taxes

Real estate tax is payable by the owner of the property irrespective of residence and is levied on the assessed value of the property using the basic rate of 0.35 percent for real estate and 0.6 percent for agricultural property. Municipalities apply their respective multipliers to the resulting base amount. The multipliers vary by municipality and may be different for industrial or agricultural property. Real estate tax rates for industrial property typically range from 0.5 to 3 percent.

Controlled Foreign Company rules

In general, when German resident taxpayers, directly or indirectly, own more than 50 percent of the shares in a foreign corporate subsidiary (vote or value) that (i) is subject to a low rate of taxation (effective tax rate less than 25 percent), and (ii) earns income from passive activities not included in Section 8 (1) of the German Foreign Transactions Tax Act, any qualifying passive income is subject to taxation in Germany. Exceptions to the 50 percent threshold apply for certain types of passive income (e.g., interest income), thus, a lower participation can be sufficient to trigger CFC taxation. EU/EEA subsidiaries carrying out a genuine economic activity may be exempted from CFC rules.

Transfer pricing rules

General transfer pricing rules

Yes ("arm’s length principle").

Documentation requirement

New documentation requirements in line with OECD BEPS Action 13 have been in place since December 27, 2016:

- Country-by-Country Report: compulsory for MNE groups provided that total consolidated group revenue equals or exceeds EUR 750 million. The reporting requirement applies for fiscal years commencing after December 31, 2015 if the obligation to report falls with the ultimate parent entity or surrogate parent entity and for fiscal years commencing after December 31, 2016 if another local entity is required to report. The report must be filed within one year of the end of the reporting fiscal year. Notification requirements applicable to fiscal years commencing after December 31, 2016. Penalties of up to EUR 10,000 apply.

- Master File (MF)/Local File (LF): taxpayers belonging to multinational enterprise groups are required to prepare a MF for fiscal years commencing after December 31, 2016, if their revenue equals or exceeds EUR 100 million. In general, the MF is due within 60 days of receiving a request from the tax authorities intending to perform a tax audit (shorter deadline for extraordinary business transactions). Taxes and penalties apply for non-compliance.  

Thin capitalization rules

Interest expenses are fully deductible from the tax base only to the extent that the taxpayer earns positive interest income in the same financial year. Interest expenses in excess of interest income, i.e. net interest expense, is deductible only up to 30 percent of tax Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”). Tax EBITDA is defined as taxable profit before application of the interest deduction ceiling, increased by interest expenses and by fiscal depreciation and reduced by interest earnings. Unused tax EBITDA can be carried forward for a maximum period of five years.

Non-deductible interest expenses may be carried forward, thereby increasing the interest expenses in the following year, but are not taken into account to determine the tax EBITDA.

The earnings stripping rules do not apply where one of the following exceptions is met:

  • The interest expense exceeds positive interest income by less than EUR 3,000,000 (tax threshold); or
  • The business in question is not part of a controlled group; or
  • The business in question is a part of a controlled group and the equity ratio of the business is not more than 2 percentage points less than that of the group (escape clause).

The exemption for non-group businesses and the escape clause do not apply to companies where the "shareholder debt financing"- test is not met.

General Anti-Avoidance rules (GAAR)

According to the German GAAR, tax laws may not be circumvented by abusing structuring options available within the bounds of the law. An abuse is present where an inappropriate legal structure has been chosen which, compared to an appropriate structure, results in a tax benefit for the taxpayer or a third party not contemplated by the law. This does not apply where the taxpayer is able to demonstrate valid non-tax reasons for the structure.

Specific Anti-Avoidance rules/Anti Treaty Shopping Provisions

  • Anti - Treaty/Directive Shopping rules: reduced WHT rates under a DTT or EU Directive do not apply if the shareholders of a foreign company would not be entitled to the refund or exemption if they derive the income directly and the foreign company’s gross earnings for the fiscal year in question are not derived from its own business activities and, as regards these earnings, (i) there are no economic or other valid reasons for interposing the foreign company, or (ii) the foreign company does not participate in general commerce by means of a business organization with resources appropriate to its business purpose. A preliminary ruling is currently under investigation by the Court of Justice of the European Union, the outcome of which might impact the current rules.
  • Switch-Over clause: in specific cases, the credit method is applied instead of the exemption method provided by the DTT.

Advance Ruling system

Yes, but generally for a fee payable to the tax authorities.

IP / R&D incentives

No

Other incentives

No

VAT

The standard rate is 19 percent, and the reduced rate is 7 percent.

Other relevant points of attention

No

Contact us

Gabriele Rautenstrauch

KPMG in Germany

T: +49 89 9282-4813

E: grautenstrauch@kpmg.com

 

Franz Prinz zu Hoenlohe

KPMG in Germany

T: +49 89 9282-1186

E: franzhohenlohe@kpmg.com

EU Tax Centre

KPMG’s EU Tax Centre, working together with our network of EU tax law specialists throughout the European Union.

 
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