All corporations – including the limited liability company (GmbH), the stock corporation (AG) and German permanent establishments of foreign corporations – are subject to corporate income taxation. Income taxation of corporate companies generally consists of three components: corporate income tax, solidarity surcharge, and trade tax.
Companies liable to corporate income tax
Corporate companies, such as the limited liability company (GmbH) or the stock corporation (AG), based in Germany or with an executive board in Germany are liable to corporate income tax on globally generated income. Dividends that have been generated and taxed abroad may be exempt from taxation in Germany or taxes paid in a foreign country can be offset against taxation in Germany.
Income generated outside Germany
Corporate companies who are not based in Germany nor have an executive board in Germany are only liable to corporate income tax on income generated inside Germany (e.g. via a permanent establishment, dividends or licenses).
Corporate income tax
Corporate income tax is levied as a flat nationwide tax at a rate of 15 percent of taxable corporate income. Taxable income (i.e. annual business profit) forms the tax base for corporate income tax. Under German commercial law, corporate company annual profit is calculated according to the accrual basis accounting method.
This is recorded in the annual financial statement and forms the basis for determining taxable income. However, German tax law provides different accounting options and income correction rules, meaning that the taxable income usually differs from the annual profit determined in the financial statement under commercial law.
Solidarity surcharge
A solidarity surcharge (Solidaritätszuschlag) is added on top of the corporate income tax. The surcharge is a fixed and flat nationwide component of company taxation and set at a rate of 5.5 percent of the 15 percent corporate income tax (not the income); creating a total of around 0.8 percent of taxable income. Taken together, the corporate income tax and solidarity surcharge amount to a total taxable rate of around 15.8 percent.