When it comes to choosing the ideal place for starting a business in Europe, most people choose Germany as the preferred destination. This is because the country is known to offer great flexibility and support to people interested in forming a company in Germany. The best aspect of starting a venture in Germany is that the applicable laws are the same for both the natives of the country as well as any overseas investors. However, like in most other countries, businesses operating in Germany are liable to certain taxation laws. In order to avoid any legal hassles, it is important for the people forming the company to be aware of these laws.
A Brief Overview Of German Company Taxation Laws
The company taxation system in Germany is broadly divided into two main categories, namely, transparent taxation and non-transparent taxation. The transparent taxation comprises of direct allocation and taxation of profits at the shareholder levels. On the other hand non-transparent taxation is the allocation and taxation of the company itself. It is important for the investors to understand that the taxation method applicable for their company depends on its legal structure. This means that the companies structured in the form of a GmbH or AG etc are taxed under the non-transparent taxation policy. All the other entities are taxed under the transparent taxation system unless specified otherwise.
Understanding The Tax Basis Under German Law
According to the legal provisions in Germany, the taxation of companies operating within the country is done on the basis of the profit from the balance sheet. Another key factor considered for the taxation of a company in Germany is any surplus income statement provided by it. This income statement is rectified in accordance to the income tax and corporate tax law. As mentioned before, the application of taxation laws is similar for both foreign as well as local German companies. This means that any foreign company forming a GmbH in Germany will be subjected to the same taxation laws as local organizations due to the fact that both are treated as resident organizations due to them being registered and managed within the country.
Learning More About Corporate Tax Laws
All companies operating in Germany, regardless of the place the company was founded originally, are taxed with corporate tax for the profits earned by them. There are generally two main types of corporate taxes that business organizations need to pay. The first is the Local Business Tax also known as Gewerbesteuer, which is a municipal tax whose limit is decided directly by the local city council. The value of the tax varies significantly from one region to another and can range from a minimum of 7% to a maximum of 13-14%. The other main type of corporate tax is the Solidarity Surcharge, also known as Solidaritatszuschlag. This tax is the surcharge to be paid on the corporate tax for renewing the former DDR. The value of the tax stands at 5.50% of the tax payment for all taxpayers in Germany. In order to avoid the consequences of non-compliance to taxation laws, using the services of professional corporate taxation experts is highly recommended for overseas investors.
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