Germany corporate tax rate, filing deadline, tax incentives, and exemptions explained

Why expand to Germany?

The world's third largest economy by GDP, Germany has held on to its position as the top destination for foreign investment in Europe.¹ Its population of 83 million makes it one of the largest consumer markets in the continent. More importantly, it offers free access to the 500 million-strong European Union Free Trade Zone.

Global businesses have long been drawn to Germany's traditional strengths, especially its wealthy consumer base, skilled workforce, and world-class infrastructure. Businesses engaged in research and development and innovation receive unparalleled institutional support in Germany. The country is a world leader in manufacturing, especially in sectors like automobiles, mechanical engineering, and medical technology.

Germany is also associated with economic stability and ease of doing business, which encourages businesses of all sizes to make it a part of their European expansion strategy.

Germany corporate tax

Corporate income tax in Germany is made up of two taxes – a corporation tax and a local trade tax. An additional solidarity surcharge is levied as a percentage of corporation tax liability.

Furthermore, the trade tax is a combination of a base tax and municipal tax.

Foreign companies with a permanent establishment in Germany pay corporation tax at the same rate as German companies. However, the latter are taxed on their worldwide income and the former on their German-sourced income.

Corporate income tax in Germany is collected and administered at the federal, state, and local levels. The Federal Central Tax Office is the highest tax authority, managing tax matters with an international dimension under the provisions of the German Fiscal Code and various tax laws, including the Corporate Income Tax Act. However, state and local authorities are also involved in assessing and collecting tax while the municipalities handle trade tax collections.

Tax rates and structures in Germany

The German corporate income tax rate stands at 15% of taxable income.

Solidarity surcharge is levied at the rate of 5.5% of corporate tax liability, or 0.8% of taxable income.

So, corporate income tax plus solidarity surcharge is 15.8%.

As for the trade tax, it has two components – a 3.5% base tax and a multiplier whose rate varies from municipality to municipality. This tax is calculated by multiplying taxable income with the 3.5% base rate, then multiplying the result with the local multiplier.

The minimum trade tax rate must be 7% while the average in Germany is 14%. The tax rate tends to be higher in urban areas.

After combining all three components, the statutory corporate income tax rate in Germany works out to around 30.06%.² However, the exact tax liability varies – being 30% in Berlin, 32% in Frankfurt, and 33% in Munich.³

What is considered taxable income in Germany?

German corporate income tax calculation is based on taxable profit. The first step is to determine a company's annual business profit, which is taken from its balance sheet and profit and loss statement prepared under German commercial law. Taxable profit is basically operating income minus expenses. This amount is then adjusted for allowable tax deductions while non-deductible expenses are added. To the resultant figure, the applicable corporation tax rate is applied.

Allowable tax deductions include:

• Start-up expenses
  
• Bad debt
  
• Donations to recognised charities
  
• All taxes except corporation tax, trade tax, and VAT
  
• Payments to foreign affiliates
  
• Interest expenses and royalties (with limitations).
  

Expenses that are non-deductible include:

• Fines and penalties
  
• Entertainment expenses
  
• Gifts
  
• Interest and royalties beyond stipulated limits.
  

If a company has suffered losses in previous years, it can be carried forward or back, which helps in lowering the tax burden further. Under the loss carry forward provision, losses up to 1 million euros can be carried forward without any time restrictions. However, losses up to the same limit can be carried back for only one year.

Historical corporate tax rates and recent reforms

The statutory corporation tax rate in Germany has hovered around the 30% mark since 2008. Prior to this, the tax rate averaged 29% from 2001 to 2008 and around 43% in 2000.⁴ The tax peaked at 56.8% in 1995.

In a major tax reform, Germany has announced a gradual reduction of the corporate income tax rate by 1% per year starting 2028. The tax rate will be lowered to 14% in 2028, 13% in 2029, 12% in 2030, 11% in 2031, and 10% in 2032.

Another recent reform includes the introduction in 2023 of a 15% Global Minimum Tax targeted at multinational enterprises with consolidated annual revenues exceeding 750 million euros.

Tax incentives and exemptions

Germany is not known for offering a wide variety of tax incentives such as exemptions and tax holidays, focusing instead on uniform taxation. However, it does provide support in the following ways:

• Research Allowance: This government-funded allowance allows eligible businesses to receive a 25%-35% tax credit or cash refund on eligible personnel and research expenses. The maximum allowance businesses can receive in a year is 3 million euros, although small and medium-sized enterprises can apply for up to 4.2 million euros.
  
• Foreign tax credit: Companies are entitled to a tax credit on any foreign tax paid, limited to its corporate tax liability in Germany.
  

When to file corporate tax returns in Germany

In Germany, the tax year follows the calendar year (January 1 to December 31). German resident corporations and non-resident corporations alike must submit a tax return once a year, due by July 31 of the next financial year. The filing deadline may be extended in certain circumstances – for example, to the end of February of the subsequent year if the return is prepared by a professional tax adviser.

German tax laws mandate advance payment of corporation tax, based on estimated tax liability. Corporation tax is paid in four quarterly instalments due by the 10th of March, June, September, and December. Any balance must be settled at the time the tax office reviews the tax return and issues an assessment. Due dates for paying trade tax are the 15th of February, May, August, and November.

All taxes must be paid in euros to the local tax office where the company's office is located. Payments can be made electronically through the ELSTER portal or via bank transfer.

Reducing tax burden with double taxation agreements

Germany has tax treaties with more than 90 countries, including Singapore. These treaties aim to prevent the same income from being taxed in two countries while also ensuring that it doesn't escape corporate taxation in both jurisdictions.

The Singapore-Germany double taxation agreement was first signed in 2004 and amended in 2021. Under its provisions, companies from the two states benefit from lower withholding tax rates on dividends and royalties. Interest income attracts 0% withholding tax.

Under treaty provisions, a German company withholds tax at the rate of 5% or 10% (against a non-treaty rate of 25% plus 5.5% solidarity surcharge) on dividends paid to a Singapore company. The tax rate varies depending on the Singapore firm's stake in the German firm. The withholding tax rate goes up to 15% if the corporation paying the dividend is a real estate investment company or trust.

Similarly, withholding tax on royalties is capped at 5% under the treaty.⁵

The treaty lays down guidelines on various other matters, such as the exchange of tax information and permanent establishment rules.

Tax treatment of dividends in Germany

German resident companies are required to withhold tax on dividend payments at the rate of 25%, plus a 5.5% solidarity surcharge. This is true for a German subsidiary distributing profits to its foreign parent company. However, if the parent company is the resident of another EU member state and holds a minimum 10% stake, then the dividend payment is exempt from German withholding tax.

Other taxes in Germany

Apart from corporation tax and local trade tax, businesses can expect to pay the following taxes in Germany:

Value-added tax (VAT)

Germany imposes value-added tax (VAT) at the rate of 19% on most goods and services. A lower rate of 7% applies to some consumer goods (such as food, newspapers, etc) and everyday services (public transport, hotel stays, etc). Services such as banking and healthcare are VAT-exempt.

Customs duty

Imports into Germany attract customs duty under a common system for the entire EU region. Imports from EU countries or other countries that have association agreements with the EU are zero-rated. Duty rates on imports from all other countries range from 0% to 15%.

Excise taxes

Germany imposes excise duty on goods such as alcohol, tobacco, coffee, fuel, and power at the point of import or consumption.

Real estate transfer tax

This is a one-time tax on the acquisition of property, with rates ranging from 3.5% to 6.5% depending on the federal state where the property is located.

Tax compliance and registration

Follow these six steps to remain tax-compliant in Germany:

• Registration: Once a company or permanent establishment is set up in Germany, it must register with the local tax office, obtain a tax number for corporate income tax purposes, and fill up a tax assessment questionnaire via the ELSTER portal.
  
• Tax rates: German corporate income tax has multiple components. Corporate taxpayers, especially foreign corporations, must remember to factor in the corporation tax rate, solidarity surcharge rate, and applicable trade tax rate while calculating taxable income.
  
• Tax filing and payments: Taxpayers are required to file only one tax return in a financial year, due by July 31. However, advance payments of corporation tax must be made every quarter.
  
• Filing of financial statements: Companies are required to prepare and file their annual financial statements to the Commercial Register within 12 months of the end of the fiscal year.
  
• Fees and penalties: Failure to file tax returns and annual statements and pay corporation tax can lead to fines, penalties, and interest charges.
  
• Audits: Be audit-ready by keeping accurate and complete records. In Germany, audits of large corporations and local subsidiaries of foreign companies are routine while audits of small businesses are conducted at random.
  

How Aspire can help your expansion into Germany

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• That's not all, the Aspire platform supports same-day international transfers in 30+ currencies across more than 130 countries, allowing businesses to make timely payments to suppliers and pay registration and incorporation fees as well as taxes in the currency of their choice.
  

FAQs

What is the corporate tax in Germany?

The German corporate income tax comprises a 15% corporation tax, a 5.5% solidarity surcharge, and a trade tax with rates that vary depending on location. When combined, the average effective corporate income tax rate is around 30%.

Is Germany a low tax country?

Germany is not considered a low-tax country. It ranked 12th among 38 OECD countries with a tax-to-GDP ratio of 38.1% compared to an OECD average of 33.9%. It also ranks among countries with the highest corporate income tax rates in Europe.

What is a corporate tax ID in Germany?

It is a 10-digit tax number provided by the local tax office for filing tax returns and paying corporate income tax.

Is there a treaty between Germany and Singapore?

Yes, Singapore and Germany have a comprehensive double taxation agreement that was established in 2004 and recently amended in 2021.⁶

Which EU country has the lowest corporate tax?

Hungary has the lowest corporate income tax rate in the EU at 9%.

What is the most tax-friendly country in Europe?

Malta, Hungary, Bulgaria, and Andorra are considered tax-friendly as they have the lowest corporate income tax (and personal income tax) rates in Europe, ranging between 5% and 10%.