Last modified: 28/01/2025 13:05

Corporate taxation

Corporate income tax rate	15% (15.825%)(1)
Trade tax rate	14-17%(2)
Capital gains tax rate (withholding tax)	25% (26.375%)(3)

(1) The corporate income tax rate is 15%, plus a 5.5% solidarity surcharge, which results in a combined rate of 15,825%.

(2) Municipal trade tax is levied by the local authority on business profits. The tax rate varies from authority to authority but in major cities averages between 14% and 17% of trade-tax income, although in some cities it can be as high as 19%.

(3) The withholding-tax rate on capital gains is 25%, plus a 5.5% solidarity surcharge, which results in a combined rate of 26.375%.

Residence: A company (e.g. GmbH, AG, SE) is resident in Germany if it has its place of management or registered office in Germany.

Basis: A resident company is subject to unlimited corporate income tax liability (corporate income tax) on its worldwide profits and gains, with the option to exclude profits and gains of foreign permanent establishments (PEs). By making an irrevocable election, a partnership will be treated as a (non-transparent) company and its partners are correspondingly treated as the non-personally liable members of a company (cf. newly introduced Sec. 1a German Corporate Income Tax Act) A non-resident company is subject to limited corporate income tax liability if it has neither its place of management nor its registered office in Germany. In that case, it is subject to German corporate income on income derived from German sources only.

Taxable income: All the income of a company is generally considered to be business income. There is no distinction made between capital gains and other, ‘ordinary’ income. The taxable income of a company is computed based on the annual accounts prepared in accordance with German GAAP, subject to certain adjustments for book-differences, tax-exempt and non-deductible items, and other corrections (e.g. constructive distributions).

Companies are obliged to submit a standardised electronic version of their annual accounts including a reconciliation of the book-tax differences or an electronic tax balance sheet and profit and loss account (e-balance sheet) with their electronic corporate income tax return. Corporate income tax is imposed on all income, regardless of whether the income is distributed or retained.

In addition to corporate income tax, companies are subject to trade tax on their adjusted income. Local authorities charge trade tax on the income computed as depicted above. However, for the purposes of this tax, taxable income is subject to certain adjustments. The major adjustments include:

• a 25% add-back of interest expenses with respect to debt;

• a 6.25% add-back of licence payments;

• a 5% add-back of lease payments for movable assets; and

• a 12.5% add-back of lease payments for immovable assets. The trade tax add-backs apply to the extent that the total amount of add-backs exceeds EUR 200 000 for the 2025 and future tax years. The effective average trade-tax rate amounts to approximately 14%. Taking into account the various local multipliers, the combined average tax rate for companies (including corporate income tax, solidarity surcharge and trade tax) ranges from approximately 23% to 33%. If a company operates in several local-authority areas, the tax base is allocated according to the payroll paid at each location. Certain enterprises, such as specified banks and real-estate companies, receive privileged treatment under trade-tax law.

Significant local taxes on income: None, apart from the differing trade-tax rates depending on the local-authority area in which the company has its seat (registered office).

Alternative minimum tax: No

Taxation of dividends: Dividends received by German companies or branches of non-resident companies are generally exempt from German corporate income tax regardless of the period during which the participation in the subsidiary has been held. However, 5% of the gross dividend is added back as a non-deductible expense to taxable income. The result is an effective tax exemption of 95%. The exemption requires a minimum shareholding of 10% or more of the share capital at the beginning of the calendar year.

As regards acquisitions during the calendar year of at least 10%, they are deemed to have taken place at the beginning of the calendar year. The exemption described above is not granted to:

• Banks and financial-services institutions holding the shares as trading stock;

• Financial companies, including holding companies, in which banks or financial-services institutions directly or indirectly hold more than 50%, provided the financial company records the shares as current assets upon initial recognition;

• Life and health-insurance companies;

• Pension funds; unless the EU Parent-Subsidiary directive or a tax treaty provide otherwise.

Furthermore, the exemption is not applicable if, and to the extent that, the dividend has been treated as a deductible expense at the level of the distributing company, regardless of different provisions on an applicable double tax treaty. The participation exemption applies for trade-tax purposes if the dividends are received from companies in which the parent holds at least 15% as at 1 January of the calendar year in which the dividend distribution takes place.

Capital gains: Capital gains of companies, except those derived from sales of shares, are treated as ordinary income. Capital gains derived by companies from sales of shares in corporations are generally exempt from corporate income tax and trade tax. Five percent of the capital gain is deemed a non-deductible expense. As a result, the exemption is effectively limited to 95% of the capital gain.

Based on case law, the 5% deemed expense add-back should not apply to non-resident corporate sellers, even if the non-resident seller cannot claim treaty protection. The 95% tax exemption for capital gains received by a corporate shareholder is not granted in the cases given under “Taxation of dividends”.

Capital gains derived from the disposal of tainted shares are, in principle, effectively 95%-exempt from tax. Tainted shares may for instance result from corporate reorganisations (for example, contributions of qualifying businesses or partnership interests into companies in return for shares or share swaps) that are carried out at tax book-values or below fair-market values. The subsequent disposal of the tainted shares results in a (full or partial) retroactive taxation of the original reorganisation activity that gave rise to the share taint. In general, after a seven-year holding period, the shares lose their taint.

Losses: In general, capital losses are deductible. However, capital losses are not deductible if a gain resulting from the underlying transaction would have been exempt from tax. Consequently, capital losses from sales of shares or write-downs on shares are generally not deductible. In addition, capital losses and write-downs on loans to related parties may not be deductible.

Foreign tax relief: Relief is given for most foreign taxes by the credit method. There is an option for relief by deduction.

Participation exemption: See above under ‘Taxation of dividends’ and ‘Capital gains’

Holding-company regime: No

Tax-based incentives: Incentive programmes are available, e.g. investment allowances for certain start-ups and for small and medium-sized businesses. There are no tax incentives for R&D, but repayable cash grants are offered (e.g. for R&D in the energy sector). The one-year extension of the so-called peak compensation will support energy-intensive companies in the manufacturing sector in view of the high energy prices and ensure an affordable energy supply. As a result, around 9,000 companies will continue to be relieved of energy and electricity taxes to the tune of around EUR 1.7 billion. For the period from 2025, the benefits for companies in the manufacturing sector are to be reformed in order to help achieve the climate protection targets.

Group relief/fiscal unity: German tax law provides for a fiscal consolidation of a German group of companies (so-called Organschaft), which allows losses of group companies to be offset against profits of other group companies under certain circumstances. Only German-resident companies in which the parent company has held directly or indirectly the majority of the voting rights since the beginning of the fiscal year of the subsidiary may be included (this requirement is called ‘financial integration’). A tax consolidation may cover corporate income tax, trade tax and also VAT. To make the Organschaft effective from a corporate-income-tax and trade-tax perspective, the parent company and the German subsidiaries must enter into a profit-and-loss absorption agreement (so-called Gewinnabführungsvertrag) for a period of at least five years.

However, a tax group between fellow subsidiaries is not possible (meaning only a vertical group is allowed; a horizontal tax group is not allowed). Partnerships do not qualify as subsidiaries in a corporate-income-tax or trade tax Organschaft, but they may under certain circumstances be a group subsidiary for solely VAT purposes. An Organschaft subsidiary must have its place of management as well as its legal seat in Germany or an EU/European Economic Area member state. A domestic or foreign company, individual or partnership may become the head of an Organschaft only if the following requirements are met, additionally:

• The company has an active trade or business (generally assumed for companies).

• The investments in the subsidiaries are assets of a German branch.

• The branch profits (including the income of the subsidiaries) are subject to German taxation for both domestic direct-tax and tax-treaty purposes. The Organschaft for VAT requires the following:

• Financial integration (see above). • Economic integration of the lower-tier entities. Economic integration exists if the business activities of the members of the group complement each other.

• It is necessary that the parent company significantly influences the business of the subsidiary. This can be done, for example, by combining management positions.

Small company/alternative tax regimes: None

Corporate taxation: compliance

Tax year: The tax year is the calendar year. Where a company adopts an accounting period that deviates from the calendar year, taxes are assessed for on the taxable income in the accounting period ending within the calendar year. Furthermore, the adoption of a tax year other than the calendar year requires the consent of the competent tax office.

Consolidated returns: No

Filing and payment: Annual tax returns must be filed electronically by 31 July of the year following the relevant tax year. However, an extension to the last day of February of the second year following the tax year is usually granted if a tax professional prepares the return in the name of the company. Payments made with respect to the estimated corporate income tax liability, usually determined at one-quarter of the liability for the previous year, are due on 10 March, 10 June, 10 September and 10 December. Prepayments of trade tax are due on 15 February, 15 May, 15 August and 15 November. Final (balancing) payments are due one month after the tax assessment notice issued by the tax authorities is received by the taxpayer.

Penalties: Late tax payments and tax refunds are generally subject to interest of 0.5% per month. Interest begins to accrue 15 months after the end of the calendar year for which the tax is assessed. The interest is not deductible for corporate-income and trade-tax purposes if the tax itself is not deductible. Late-payment penalties are also charged at 1% a month if the unpaid balance is not settled within one month from the date of the assessment notice issued by the tax office. A penalty of up to EUR 25 000 may be assessed if the tax return is not filed on time, including any extensions granted.

Rulings: A taxpayer may apply for an advance ruling on the tax consequences of a proposed transaction. Administrative fees may apply.

Taxation of individuals

Taxable income range for single taxpayers/ for married taxpayers (EUR) for 2025		Rate (%)
Over	Not over
0	12.096	0
12.097/ 17.443	17.444/ 68.480	14- 42*
17.444/ 68.480	68.481/ 277.825	42
68.481/ 277826	and above	45
Capital gains		25; exemption: 15 (plus solidarity surcharge)

* Geometrically progressive rates start at 14% and rise to 42%

Residence: Individuals are deemed to be resident if they have a residence in Germany that they use, or that is at least available to them, or if they have a habitual abode in Germany. This can be assumed if the individual is physically present in Germany for more than six months in a calendar year, or for a consecutive period of six months over a year-end.

Basis: All resident individuals are taxed on their worldwide income. Non-resident individuals are taxed (usually by withholding) on German-source income only. Tax exemption in 2025 of EUR 12.096 for singles, EUR 24.192 for married couples. There are tax reductions for married couples and children. The solidarity surcharge of 5.5% will be waived from 2025 for taxpayers who are subject to an income-tax burden of less than EUR 19.950 /EUR 39.900 (single/married).

Taxable income: Taxable income covers income from the following categories:

(1) Agriculture and forestry,

(2) Trade or business,

(3) Independent professions,

(4) Employment,

(5) Capital investment,

(6) Rents and royalties as well as

(7) Other income (as defined by tax law). The total income after deductions in each category, which may be further reduced by lump-sum deductions or, within limits, by actual payment for special expenses defined by tax law, represents the taxable income.

Capital gains: Capital gains from financial investments are subject to a flat tax rate of 25%, plus solidarity surcharge. Related expenses cannot be deducted. Capital gains qualify for the new investor’s allowance of EUR 1000 per taxpayer (doubled for married taxpayers) and year for the total of all financial-investment income. Special rules apply to the taxation of capital gains from the sale of a significant interest in a company (1% or more). Special partial tax exemptions apply on capital gains from the sale of mutual-fund units depending on the nature of the fund.

Other capital gains are taxable in Germany at individual progressive rates only if the sale is within one year (for moveable assets) or ten years (for real property). The new regulation of Section 19 of the German Investment Tax Act (InvStG) introduces an exit tax for investment units. It applies if a taxpayer with unlimited tax liability in Germany ends their tax liability in Germany by moving abroad, if investment units are transferred free of charge to a person who is not subject to unlimited tax liability in Germany, or if Germany’s right of taxation with regard to gains from the disposal of these units is excluded or limited. This regulation applies only to privately held investment fund units. The exit tax is only triggered if the sum of taxable gains is positive and either at least 1% of the fund units have been held directly or indirectly within the last five years or the value of the investment fund units is at least €500,000.

The gains from the deemed disposal of these units are subject to the 25% flat tax plus the solidarity surcharge and, if applicable, church tax, as they are considered investment income (section 20 (1) no. 3 of the German Income Tax Act (EStG)). Upon request, the tax can be deferred in seven non-interest-bearing annual installments in accordance with section 6 (4) AStG. In addition, the so-called returnee regulation applies if the investor intends to return to Germany within seven years. In this case, the obligation to pay the installments is waived if the return actually occurs; the period can be extended to up to twelve years under certain circumstances. The new regulation applies to cases in which the unlimited tax liability ends after December 31, 2024, the investment units are transferred free of charge after this date or Germany’s right of taxation with regard to capital gains lapses after this date. It affects both domestic and foreign investment funds as well as special investment funds, regardless of whether the units are held in a domestic or foreign custody account.

Deductions and allowances: Income-related expenses may be deducted by an individual. These include costs of travelling to and from work or work equipment. Until the end of 2022, anyone who worked at home but did not have their own study could claim the home office flat rate of EUR 5 per day and a maximum of EUR 600 per year in their income tax return. The previous home office flat rate will be discontinued and introduced permanently as a daily flat rate in the future. Taxpayers can claim EUR 6 per home office day. The maximum deduction will be increased to EUR 1,260, so that 210 instead of 120 home office days can be taken into account.

Expenses for a home office continue to be deductible without limitation as business expenses or income-related expenses if it forms the center of the entire business and professional activity. Instead of deducting the actual expenses for a home office, a lump-sum deduction of 1,260 euros is now also possible. Furthermore, personal deductions e.g. alimony payments, education expenses or social security contributions may be applicable. The lump sum for income-related expenses for income from employment (employee lump sum) will be increased from the previous 1,200 euros to 1,230 euros from January 1, 2023. Up to this amount, employees can claim their income-related expenses as a lump sum in their income tax return without having to provide any further information.

For extraordinary burdens deductions are allowed.. This includes subsistence for parents and children with low income (documentary evidence of low income is required) if entitled by law. The allowances for children (child allowance including the allowance for the child’s need for care and education or training) will be EUR 6.672 for each child as of January 1, 2025. Single parents will be relieved of wage and income tax – with a special allowance, the so-called “Entlastungsbetrag” (relief amount). To take account of the extraordinary burden on single parents during the pandemic, the relief amount has been more than doubled for the years 2020 and 2021: from the original 1,908 euros to now 4,008 euros per year. From 2025, the relief amount was increased to 4.260 euro. For each other child, the amount increase of 240 euro.

Foreign tax relief: If a double tax treaty exists, double taxation is usually avoided by exempting the foreign income with progression. Only if a double tax treaty does not exist or if a tax credit is provided in the respective double tax treaty may individuals credit the foreign income tax against German income tax.

Taxation of individuals: compliance

Tax year: Income tax arises at the end of the tax year unless otherwise specified.

Filing and payment: Annual returns by individuals must be filed by 31 July of the year following the tax year. The filing deadline expires on first March of the second year following the tax year if the income tax return is prepared by a certified tax adviser. . Married couples file joint returns unless they are legally separated or one spouse requests otherwise.

Penalties: As to date, a penalty for late filing may be levied if a specified tax return deadline is not met. Overdue tax returns are penalized with a penalty fee for each month that they are overdue. This regulation applies to tax returns not filed within 14 months of the end of the tax year in question. Lateness penalty fees amount to 0.25% of your total assessed tax due (minus any advance payments or tax deductions) with a minimum of 25 euros per month (or part of the month). The maximum fee is 25,000 euros (or 10%).

Rulings: See above under ‘Corporate taxation’.

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Withholding taxes

Type of payment	Residents		Non-residents*
(%)	Company	Individual	Company	Individual
Dividends	25	25	25 0/25	25
Interest	0/25	0/25	0/25	0/25
Royalties	0	0	15 0/15	15
Capital gains	0	0	0	0
Other (specify)

* Non-treaty companies/ EU companies ; meaning: non- treaty individuals

There is also a solidarity surcharge of 5.5% on the tax due.

Branch remittance tax: Branch income: Both corporation tax and trade tax are imposed on the taxable income of a foreign company”s German branch. The rates are the same for branches as for resident German companies, although the WHT on dividend distributions by German companies is not deducted from profits transferred by a German branch to its foreign head office.

Anti-avoidance legislation

Transfer pricing: The statutory rules on transfer pricing are not found within one integrated section of the legislation but in several provisions in different statutes. The main source of transfer-pricing guidance is in the Foreign Tax Act or Außensteuergesetz (AStG). Announcements issued by the tax authorities indicate their position and thus have considerable relevance in tax practice.

Interest restriction: Annual net interest expense (the excess of interest paid over that received) of group companies is only deductible at up to 30% of EBITDA for corporation- and trade-tax purposes. The 30% limitation applies to all interest, whether the debt is granted by a shareholder, related party, or a third party. This limitation does not apply where the total net interest expense for the year is less than EUR 3 million or where the net amount paid to any one shareholder of more than 25% (or a related party) is no more than 10% of the total.

Controlled foreign companies: Under the German controlled foreign company (CFC) regime, the control threshold for CFC purposes is 50%.The CFC is treated as a German company to calculate the ratio; if the foreign tax charge is less than 25% of the German charge, the rule is applied. Once CFC income is determined, the amount is added to the taxable income of the German shareholder. Taxes paid by the CFC are creditable to the German corporate shareholder only when they are not refundable. Losses generated by a CFC cannot be attributed to the German shareholders but can be carried forward to offset future income of the CFC.

Hybrid mismatches: Under Article 9 and 9b of the anti-tax-avoidance directive (ATAD), EU member states are – inter alia – obliged to disallow the tax deductibility of expenses that arise from hybrid mismatch arrangements. This has been implemented into German law by the introduction of a new Section 4k Income Tax Act (ITA) in June 2021, applicable for expenses incurred after 31 December 2019. Section 4k ITA is accompanied by amendments in other sections of the German ITA and CITA so to ensure inclusion as ordinary income in cases of hybrid mismatch arrangements (e.g. by the disallowance of the application of the German domestic participation exemption).

Disclosure requirements: A self-disclosure exempts from punishment and thus paves the way to tax honesty. In general, the following applies: if the investor subsequently declares the formerly non-disclosed income in full, he is exempt from punishment. The conditions for the filing of voluntary self-disclosures have largely been tightened with effect from January 1, 2015. However, the amendment also included partial relieves with particular importance for companies.

Exit taxes: Natural persons who are residents of Germany for a certain period of time and who are at least 1% shareholders and the aquisition costs amount to at least € 500.000 in a domestic or foreign company, are deemed to realise capital gains on this shareholding when they move abroad. This fictitious realisation leads to taxation of the capital gains at a rate of approximately 30%.

General anti-avoidance rule: A general anti-abuse rule applies across most important taxes. It allows the tax authorities to counteract tax advantages arising from abusive arrangements. There are many targeted anti-avoidance rules for specific situations.

Value-added tax/Goods and services tax

Type of tax: Value-added tax (VAT) on EU model. Applies to supplies of most goods and services and to imports. There is a broad range of exempt supplies.

Standard rate: 19. After being reduced to 16% for the period 1 July 2020 to December 2020 in response to the COVID-19 pandemic, the rate of 19% applies again.

Reduced rates: 7% (e.g. books; medical equipment for disabled persons; partly domestic passenger transport). Also in 2022, the rate for hospitality, restaurants and cafés is reduced to 7% due to the COVID-19 pandemic.

Registration: Essentially anyone who practises a freelance industrial or professional activity and thus gains taxable turnover in Germany is liable to register for VAT. This does not apply if the business turnover does not exceed 25.000 euros in the previous calendar year and is not expected to exceed 100.000 euros in the current year.

Filing and payment: Generally, VAT must be reported and paid quarterly to the tax office. If the annual VAT liability is over EUR 9.000, returns must be made monthly, and if it is less than EUR 2.000, an annual return is sufficient. Returns must be filed no later than the 10th day following each VAT return period. An extension is possible on application.

Social security contributions

Employer/employee: Insurance Employer Employee Pension insurance 9.3% / 9.3% Unemployment insurance 1.3% / 1.3% Health insurance 7.3% / 7.3% Long-term care insurance 1.525% / 1.525%. The total of social security contributions amounts to approximately 41,9% of employment income. The amounts are borne roughly 50 % each by employer and employee up to the following income limits: • Health insurance: EUR 66.150 • Pension insurance: EUR 96.600 in Germany. An individual can apply for private-health and long-term care insurance if certain conditions are met.

Self-employed

Self-employed individuals generally do not have to pay mandatory social security contributions

Other taxes

Capital duty: No

Immovable property taxes: Real-estate transfer tax from 3.5% to 6.5%, depending on the federal state.

Transfer tax: see below

Stamp duty: The only significant German stamp duty is the real-estate transfer tax (RETT) of the consideration on conveyances of German property. The rate varies by province. This tax is also levied on indirect transfers from the acquisition of at least 90% of the shares in property-owning companies. In general, RETT is calculated based on the value of the consideration. Where RETT is triggered due to a restructuring, unification of shares, change of partners in a partnership, or in cases where a consideration does not exist, the tax base is determined based on the valuation principles applied for inheritance tax purposes.

Net wealth/worth tax: No

Inheritance/gift taxes: This tax is imposed on German residents (testators/heirs and donors/donees). An individual who is not resident in Germany under national tax rules is liable to this tax only in relation to assets situated in Germany.

Progressive tax rates of 7% up to 50% and tax-free amounts between EUR 20 000 and EUR 500 000 apply. For a surviving spouse, an additional tax-free allowance of EUR 256 000 is granted. This allowance is reduced by the discounted value of any pension entitlements, which are not subject to inheritance tax. For surviving children, an additional tax-free allowance of up to EUR 52 000 depending on age at the time of inheritance may apply.

Other: Since July 1, 2021, the exemption limit for consignments of goods of a commercial nature up to a value of 22 euros has been abolished. No customs duties have to be paid for shipments with a value of less than 150 euros. However, import sales tax is due. Courier services often charge an additional service fee for the customs declaration. From October 1, 2023, new residential buildings can be tax-deductible with a declining balance depreciation of 6% per year over a period of four years.

This special depreciation can be claimed in addition to the straight-line depreciation of 2% per year. The German government also aims to build 400,000 new homes each year, 100,000 of which will be publicly subsidized. To this end, suitable framework conditions for affordable, climate-neutral and barrier-free housing are being created. Cigarettes are subject to a tax rate of 11. 71 cents per unit and with a minimum of 23,42 cents per unit less the sales tax on the retail selling price of the taxable cigarette. Compared to 2024, this results in a tax increase of 3,1% on average, based on a retail pack of 20 cigarettes.

Tax treaties

Germany has an extensive tax treaty network (approx. 90 tax treaties).