Basic information for business setup in Germany
Period for Income Tax Returns is May 31 st. The returns relating to a calendar year or date specified by law must be filed no later than five months thereafter.
December 31 st Extension of deadline is possible if tax advisors are involved.
Liability in General:
Corporations are subject to corporation tax, solidarity surcharge and local tax. Individuals are subject to income tax, solidarity surcharge and local tax levied on business income.
Partnerships are only subject to local tax. In addition, the taxation of income depends on the circumstances of the partners.
Accounting principles/financial Statements:
German commercial GAAP (HGB “Handelsgesetzbuch” or IFRS. Financial statements must be prepared annually. Taxpayers are required to maintain their books in Germany.
like GmbH, AG, GmbH &amp; Co. KG are obliged to publish their annual
balance sheet till the end of the following year (December 31). Depending on
the size of the companies there is different kind of requirements.
Companies will be taxed with corporate income tax, solidarity surcharge and local tax.
The corporation tax is a 15% flat tax. The solidarity surcharge is a supplementary tax to corporation tax and amounts to 5.5% of the assessed tax. This taxes are not deductible as operating costs.
The local tax is levied on every trade or business (also permanent establishments) located in Germany. Municipalities are authorized to determine their rate of assessment independently (as a multiplier of the base amount, called "Hebesatz") which must be at least 200%. The local tax is not deductible as operating costs.
Income/Capital Gains of Sale of Shares:
Dividends and capital gains from the sale of shares in a domestic or foreign corporation received by a corporate shareholder remain tax free in general. An amount of 5% of the dividends or capital gains is treated as a non-deductible business expense and added to taxable income.
VAT tax rate is 19%; the reduced VAT tax rate is 7%.
Examples for the reduced tax rate are: foodstuff, hotel business, books and newspaper. The VAT amount will be added to the net turnover.
Components: The following information must appear on all invoices issued in Germany:
1. The complete name and complete address of the service provider and the recipient of the service.
2. The service provider’s tax number or VAT number for those liable for VAT.
3. The service provider’s and the recipient’s VAT number, if the recipient is liable for VAT.
4. The date of issue of the invoice.
5. For invoices amounting to more than € 150, a unique (alpha)numerical identifier (a simple serial number suffices).
6. A brief description of the service(s) provided.
7. The month or range of months in which the service was provided.
8. An itemized list of each service provided with the unit price (e.g. € 65 per hour), the total amount for each service, and the grand total, or a fixed charge, without VAT.
9. For a final invoice, all advance payments (for which invoices also have to be issued).
10. The amount of VAT and the rate applied. If VAT does not apply (only for those liable for VAT), a simple statement explaining why suffices.
11. The (grand) total including VAT.
12. Any discount granted before VAT and discount rate applied.
Legal Form, Incorporation:
Any foreign company is allowed to set up business in Germany. Possible are:
No obligation to employ staff. In case of employment, company is liable for abidance by tax & social insurance law, collective labor agreement, and wage floor. Foreign employees, except citizens in EU need work permit.
The German currency is Euro (EUR).
Generally there is no restriction on the import or export of capital. However, it is necessary to file a declaration with customs for transfers of more than 10.000 EUR.
Steuerberater Ralf Löbker, LL.M. (International Tax Law)
Tel. +49 (0)89 4522 865 28