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Tax Facts Germany Tax Facts Germany 2017 BEITEN BURKHARDT presents this TAX FACTBOOK GERMANY as a summary of taxes, rates and allowances which you may find helpful for your investment or activity in Germany. The information contained in this Tax factbook is based on information available at the time of publication in February 2017. BEITEN BURKHARDT has made every effort to ensure the accuracy of the information. However, readers should always obtain professional advice before deciding to take any action (or not, as the case may be) in relation to the information contained in this Tax factbook. 2 3 Corporate Income Tax Tax Rate Corporate Solidarity Effective Income Tax Surcharge Tax Rate 15 % 0.825 % 15.825 % Personal Allowance Taxpayer EUR 0 Companies, Cooperatives EUR 5,000 Other Corporate bodies Companies and other corporate bodies are subject to cor- porate income tax with their worldwide income if they are resident in Germany. Non-resident companies may be taxable with their German source income. Partnerships can be structured for tax purposes either as a semi-transparent business partnership or a fully trans- parent asset managing partnership. Neither a business partnership nor an asset managing partnership is itself subject to corporate income tax. But the corporate partners of a business partnership are deemed to have a permanent establishment in Germany, which is not the case with an asset managing partnership. In general, dividends and capital gains from share deals are effectively 95 % tax exempt. The tax exemption for dividends does not apply if the amount of the shareholding is not at least 10 %. The deduction of net interest expenses may be restricted to 30 % of a company‘s EBITDA if the amount of net interest expenses is EUR 3 million or more per year. Further excep- tions are available. 3 The German tax law includes a one-year loss- carryback and a restricted unlimited loss carried forward. Loss carried for- ward could forfeit if there is a change of control. Exceptions are available (e.g. group, etc.). The German tax law includes a group taxation system („Organschaft“). With respect to restructuring, the trans- actions may be structured without taxable hidden reserves. The German tax law does not include special tax incentives on research and development but there are direct non-tax public grants. The expenses for research and development are generally deductible according to general taw law principles. With respect to transfer pricing, all transactions with related parties shall be at arm‘s length. Germany generally applies the OECD-principles. Strict documentation obligations and rules concerning transfer of functions and assets need to be considered. Trade Tax Companies, business entrepreneurs and business partnerships are subject to trade tax levied on trade or business profits of their German permanent establishment. The taxable base for trade tax and for corporate income tax may be different due to various adjustments. The tax rate varies between 7 % and 17.15 % depending on the municipality where the permanent establishment is located. The income from a foreign permanent establishment or partnership is generally tax-exempt. Please see below the trade tax rates of some major German cities and business areas in Germany: 4 5 Tax City/Area Tax Rate 2017 Trade Tax Berlin 14.35 % Zossen 7.00 % (close to Berlin) Cologne 16.63 % Dortmund 16.98 % Dusseldorf 15.40 % Monheim 9.10 % (close to Dusseldorf) Essen 16.80 % Frankfurt/M. 16.10 % Eschborn 11.55 % (close to Frankfurt/M.) Hamburg 16.45 % Munich 17.15 % Grünwald 8.40 % (close to Munich) Nuremberg 15.65 % Schwaig 10.50 % (close to Nuremberg) Stuttgart 14.70 % Personal Allowance Taxpayer EUR 0 Company EUR 24,500 Individual EUR 24,500 Partnership 5 Individual Income Tax (Executive Taxation) Income Tax Effective Tax Taxation of ordinary income: Rates 14.770 % up to 47.475 % Private capital gains, interest and dividend income: 26.375 % Personal Allowance Taxpayer Income EUR 801 Individuals Private capital gains, interest and dividend income EUR 8,820 Individuals Ordinary income EUR 1,602 Married couples Private capital gain, interest and dividend income EUR 17,640 Married couples Ordinary income Individuals are subject to German income tax with their worldwide income if they are resident in Germany. Non- resident individuals are subject to income tax with their income out of German sources, only. Partnerships are not subject to income tax but their individual partners are, if the partnership is deemed to be a permanent establishment of the partner (business partnership). The German tax law includes a one-year loss- carryback and a restricted unlimited loss carried forward. 6 7 Ordinary income Ordinary income is subject to tax at a progressive rate be- tween 14.770 % and 47.475 %. The tax rate of 47.475 % (so called “rich tax”) applies to a taxable income over EUR 256,304 (married couples over EUR 512,608), only. The deduction of net interest expenses may be restricted to 30 % of a business’ EBITDA if the amount of net interest expenses is EUR Mio. 3 or more per year. Further exceptions are available. If the ordinary income was subject to trade tax, an income tax credit of (up to) 13.3 % may be available. Capital gains, interest income and dividends Capital gains, interest income and dividends which do not belong to a trade or business are generally subject to a final withholding tax of 26.375 % (“Abgeltungsteuer”). Expenses are not deductible. If the shareholding is 1 % or more, dividends and capital gains may be treated as ordinary income which is 40 % tax free instead. The remaining 60 % is subject to tax at a progressive rate between 14.770 % and 47.475 %. 7 Withholding Tax (WHT) Income Taxpayers Tax Solidarity Effective Rates Surcharge Tax Rate Dividends Foreign 0 % - 0 % - 0 % - companies 25 % 1.375 % 26.375 % German 25 % 1.375 % 26.375 % companies with with with tax credit tax credit tax credit Interest Foreign 0 % - 0 % - 0 % - companies 25 % 1.375 % 26.375 % German 25 % 1.375 % 26.375 % companies with with with tax credit tax credit tax credit Royalties Foreign 0 % - 0 % - 0 % - companies 15 % 0.825 % 15.825 % German 0 % 0 % 0 % companies Capital Share- 0 % 0 % 0 % gains holders Wages Employees 14 % - 0.77 % - 14.770 % - 45 % 2.5 % 47.475 % WHT might be avoided or refunded due to applicable dou- ble tax treaties, European Directives or national tax law. WHT may also be credited to the tax payer’s corporate or individual income tax, if assessed in Germany. The German international tax law includes regulations with the aim of avoiding treaty or EU Directive shopping. Some double taxation treaties include a limitation on benefits clause (e.g. US, Japan, etc.). 8 9 Dividends The final WHT rate of 25.825 % may apply to corporate shareholders resident abroad. Shareholders resident in another EU country may be exempt subject to the EU- Pa- rent-Subsidiary-Directive. A WHT exemption or reduced WHT rate may result from the applicable double tax treaty or domestic tax law. Interest The WHT rate depends on the conditions of the interest arrangement or on the person of the creditor. E.g. no WHT applies to shareholder loans. Payments to creditors resident in another EU country may be subject to the EU-Interest-Royalties Directive resulting in a WHT rate of 0 %. This exemption applies also for Swiss residents. A WHT exemption or reduced WHT rate may result from the applicable double tax treaty. Royalties Payments to creditors resident in another EU country may be subject to the EU-Interest-Royalties Directive resulting in a WHT rate of 0 %. This exemption applies also for Swiss residents. A WHT exemption or reduced WHT rate may result from the applicable double tax treaty. Wages Wages are subject to wage tax in Germany on a progres- sive scale from 14.770 % to 47.475 % depending on the amount of the monthly income. No wage tax applies if the monthly income is below a twelfth of the annual personal allowance. Wage tax applies in six different classes of tax- payers depending on the taxpayer‘s marital status and respective option rights. 9 Value Added Tax (VAT) Tax Services Tax Rate VAT General 19 % Tax privilege 7 % (e.g. on food) Tax exemption (e.g. on 0 % transfer and leasing of real estate, medical services, banking business, transfer of shares, export) The tax rates apply to the goods and services supplied in Germany, which is determinded in accordance with the rules of the EU VAT directive. As a rule input VAT is deductible or refundable if an entrepreneur runs a non VAT exempt or certain VAT exempt (e.g. export) business in Germany. To get input VAT, it is possible to waive the VAT exemption in certain cases. Non-resident taxpayers can apply for a refund of German input VAT. 10 11 Real Estate Transfer Tax (RETT) Tax State Tax Rate 2017 RETT Baden-Württemberg 5.0 % Bavaria 3.5 % Berlin 6.0 % Brandenburg 6.5 % Bremen 5.0 % Hamburg 4.5 % Hesse 6.0 % Mecklenburg- 5.0 % Western Pomerania North Rhine-Westphalia 6.5 % Lower Saxony 5.0 % Rhineland-Palatinate 5.0 % Saarland 6.5 % Saxony 3.5 % Saxony-Anhalt 5.0 % Schleswig-Holstein 6.5 % Thuringia 6.5 % The tax rate depends on the state in which the property is located. RETT generally applies to ■ the purchase or transfer of property located in Germany; ■ the direct and indirect transfer of 95 % of interests in a partnership within a period of 5 years if the part- nership holds German property; and ■ the direct and indirect transfer of 95 % of shares, interests or economic participation in a company / partnership to one single transferee or a single group if the company / partnership holds German property.
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