Corporate Law

Taxes on Corporates and Companies in Germany

What taxes do companies pay in Germany?

Businesses operating in Germany are subject to several key taxes. The main taxes are:

• Corporate income tax (Körperschaftsteuer): A flat rate of 15% on net profit.
• Solidarity surcharge (Solidaritätszuschlag): A 5.5% surcharge on the corporate tax amount.
• Trade tax (Gewerbesteuer): A municipal tax ranging from 7% to 17%, depending on location.
• Value-added tax (Umsatzsteuer/Mehrwertsteuer): Generally 19%, reduced to 7% for certain goods and services.

If the company employs staff, it is also responsible for managing wage tax (Lohnsteuer), social contributions and, where applicable, church tax.

Corporate income tax (Körperschaftsteuer)

This is the main tax levied on the profits of companies such as GmbH (limited liability companies), UG (entrepreneurial companies) and AG (joint-stock companies). The corporate income tax rate is 15%, calculated on the net annual profit.

Companies are required to file an annual corporate tax return with the Finanzamt (tax office). This tax is based on the taxable profit, which is determined in accordance with German accounting standards. Various deductions and allowances can be applied to this profit.

Common deductions may include:

• Business-related expenses
• Depreciation on assets
• Loss carryforwards (subject to limits)

Accurate deduction planning is highly recommended, especially when structuring intra-group transactions, cost allocations or managing shareholder agreements, and legal assistance is advised. Incorrect handling can lead to audits or deductions being denied.

Trade tax (Gewerbesteuer): how it works and varies

A trade tax is a local business tax levied by municipalities. It is levied on all commercial activities, but there is an important caveat: the rate varies by location.

It is calculated by multiplying a base rate of 3.5% by a local multiplier (Hebesatz), which typically ranges from 200% to 900% (around 14.35% in Berlin, up to 17% in Munich and closer to 13% or less in smaller towns).

This tax is levied not only on the main office, but also on branches or permanent establishments in different municipalities. Therefore, choosing a business location becomes a legal and strategic decision, as well as a logistical one.

Legal professionals can advise on site selection and structural decisions to optimise trade tax exposure.

VAT registration and obligations in Germany

In general, all companies selling goods or services in Germany are required to register for value-added tax (VAT), unless they qualify as a small business under §19 UStG.

Key responsibilities include:

• registration with the local Finanzamt
• issuing VAT-compliant invoices (with clear breakdowns of tax)
• filing monthly or quarterly VAT returns
• claiming input VAT refunds on business-related purchases

International transactions may trigger reverse charge mechanisms, whereby the VAT obligation shifts to the buyer.

A corporate lawyer in Berlin and Germany can ensure that your contracts, sales processes and accounting practices comply with VAT regulations, particularly with regard to cross-border operations and intra-community deliveries.

Taxation for GmbH vs. UG. vs. partnerships

One of the most critical decisions when starting a business in Germany is choosing the right legal structure. This choice affects liability, governance and credibility, as well as the business’s taxation framework.

The three most common business forms in Germany are:

• GmbH (Gesellschaft mit beschränkter Haftung): limited liability company
• UG (Unternehmergesellschaft): also known as a Mini-GmbH or entrepreneurial company
• Partnerships (GbR, OHG, KG): person-based legal forms with tax transparency

Each of these structures has different tax implications that can significantly impact cash flow, compliance obligations and administrative complexity.

Both the GmbH and the UG are corporate entities, meaning that they are treated as separate legal persons under German law and are subject to corporate taxation.

The UG is often referred to as a ‘mini-GmbH’ and is subject to the same tax rates as a full GmbH. Companies are separate tax entities: they pay tax on their profits, and then any dividends paid to shareholders are taxed again at the shareholder level (typically at a capital gains tax rate of 25% plus a solidarity surcharge).

The UG is designed to encourage entrepreneurship with minimal capital (as little as €1). However, it must retain 25% of its annual profits as reserves until it reaches the minimum share capital of €25,000 required for a GmbH.

Despite their tax similarities, a GmbH offers higher market credibility and broader financing options.

In Germany, partnerships such as GbR (Gesellschaft bürgerlichen Rechts), OHG (Offene Handelsgesellschaft) and KG (Kommanditgesellschaft) operate under a transparent tax regime.

The partnership itself is not taxed on its profits. Instead, profits are allocated to the individual partners based on their share and taxed at their personal income tax rate, which can range from 14% to 45%.

Trade tax is still levied on the partnership, but natural person partners may offset part of it against their income tax.

Partnerships can be more tax-efficient in the early years if the partners’ personal income is low. However, there can be greater tax complexity if there are many partners with differing tax profiles.

Tax risks and compliance: why legal support matters

Germany has one of the most rigorous and complex tax systems in Europe, which is renowned for its precision and strict enforcement.

Failing to navigate its intricacies can lead to substantial financial, legal and reputational consequences. This is particularly pertinent in light of frequent regulatory updates, variations in local tax rates, cross-border transactions, and the growing reliance of tax authorities on data analytics to detect irregularities.

Common risks include:

• Incorrect classification of the company or its activities: choosing the wrong legal form or incorrectly classifying business operations can lead to major tax inefficiencies or even liabilities.
• Incomplete or late declarations leading to fines: late filings, misstatements or omissions can result in penalties, interest on overdue taxes or full-scale tax audits, even if they are unintentional.
• Mismanagement of cross-border activities: Germany is a member of the EU and is part of global tax information-sharing agreements (OECD BEPS and DAC6). Companies involved in cross-border operations face added scrutiny regarding transfer pricing, arm’s-length documentation, VAT reverse charge mechanisms, and double taxation.
• Failure to recognise a permanent establishment (PE): Foreign companies doing business in Germany may unintentionally establish a taxable presence under German law. This is often overlooked, particularly by tech start-ups and digital service providers, but German tax authorities closely scrutinise this.
• Tax audits or litigation with the Finanzamt

Tax lawyers in Germany can help prevent problems from occurring in the first place by providing strategic planning, document preparation and ongoing compliance oversight.

Working alongside tax advisors, a corporate lawyer can ensure that your company’s legal framework supports your intended tax strategy and complies with regulatory expectations.

Get legal support for your corporate tax setup

At LSI Berlin, we offer comprehensive legal and tax services to help your business comply fully with German tax law. Our collaborative approach involves working closely with certified tax advisors to provide bespoke solutions that balance legal compliance with fiscal efficiency.

Our services include tax structure planning for German and cross-border operations, as well as contract design and review aligned with your tax strategy. Need clarity on complex tax issues? We can guide you through advance and binding rulings to eliminate uncertainty. When it comes to audits or inspections, we provide full legal representation and practical expertise to protect your interests.

Partner with LSI Berlin and let our team help you to structure more effectively, stay compliant and operate with confidence.

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