The tax paid by corporations

GmbHs, cooperatives, foundations, etc. are subject to income tax.

Domestic legal entities like as companies, cooperatives, and organisations are subject to the corporate income tax (KSt). It is analogous to the corporate and other companies’ income tax.

As a tax law business, we provide comprehensive legal and tax advice to companies around the country. Our attorneys and tax experts have extensive expertise in this area.

Please use the form at the bottom of this page to make a non-binding question to one of our contact individuals.

Background information on corporate taxation

Regulations for assessing profit, tax assessment, and tax payment are all included in the Income Tax Act (EStG), which applies in principle to corporate tax. As an extra precautionary measure, the Corporation Tax Act Special Regulations (KStG) must be followed.

According to the assessment basis, the corporation’s tax rate is always 15 percent. As a result, firms are almost always required to pay trade taxes. For corporations, there is no way to deduct trade taxes from corporation taxes. Generally speaking, corporations have a tax burden of roughly 30%.

For which types of businesses is there a corporate tax?

The affiliations of people relevant to corporate income tax are listed in paragraph 1 of the KStG. These include:

GmbH and AG Cooperatives, as well as European Cooperatives mutual insurance and pension funds, are corporations

Under private law, other legal bodies

Associations, foundations, and other non-profit organisations governed by private law.

Commercial enterprises managed by legal entities in accordance with public law.

There are two types of obligation for corporate income tax: one that covers all of the company’s global earnings, and one that only applies to a certain amount of revenue.

If a company’s management or registered office is in Germany, it is liable to limitless tax responsibility on all of its revenue, regardless of where it is earned (so-called world income principle). The entire management of a firm is centred on the management of the company’s employees. When a company is formed, the location of its headquarters is defined by legislation, the Memorandum of Association, the Articles of Incorporation, or something similar.

If a foreign company has neither its management nor its registered office in Germany, it is only liable to a limited German corporation tax on its domestic revenue.

To qualify for the corporation tax exemption, a company must meet certain requirements.

When does a corporation’s tax obligation begin and end?

As soon as notary certification of the articles of organisation and beginning of economic activity have been completed, a business is subject to corporate income tax.

Liquidation is generally the last step in a corporation’s tax obligations. If a company relocates its management or its registered office to another country, it is no longer subject to infinite tax obligation. Hidden reserves are normally exposed and claimed as part of an exit tax in this situation.

Calculation of the export/import tax

Taxes are based on the amount of money a business makes in a given year. Calendar year and fiscal year are often used interchangeably. Profit is calculated in accordance with the EStG and the KStG’s additional provisions.

A corporation’s taxable profit is always established by comparing its assets to its liabilities, as mandated by the German Commercial Code and the Tax Code ( 238ff HGB). A balance sheet and a profit and loss account are used to accomplish this. This method of calculating profit is also significant for calculating trade taxes.

Assessing harms

It’s the loss allowance that’s different from income tax that makes a big impact. In contrast to natural beings, a corporation’s whole revenue is classified as commercial. If the company loses money, it can’t utilise gains from other sources to make up for it.

Phillip Armstrong

The author Phillip Armstrong