A corporation that has either its registered seat or its effective place of management in Germany will be treated as a resident corporation.

Domestic 

A resident corporation is subject to German tax on its worldwide income. A resident corporation generally is not subject to German tax on the income of its foreign subsidiaries unless an anti-deferral provision applies (ie, the CFC rules).

Foreign

A non-resident corporation is taxed only on its German source income, as defined in German tax law and applicable double taxation treaties.

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Domestic 

Taxable income of corporations is based on the annual financial statements prepared under German accounting principles pursuant to the German Commercial Code, subject to adjustments for tax purposes.

Foreign

A non-resident corporation is subject to corporate income tax only on income derived from German sources. Income from German sources includes, among other items, business income from operations in the country through a branch, office or other permanent establishment, including a permanent representative, and income derived from the leasing and disposal of real estate located in Germany.

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The corporate income tax rate is 15 percent plus a 5.50-percent solidarity surcharge levied on the corporate income tax (ie, 15.825 percent including the solidary surcharge).

The trade tax rate, which is levied by municipalities, varies, but in practice averages 14 percent to 17 percent of taxable income.

Trade tax is based on taxable income as calculated for corporate income tax purposes. However, several income adjustments apply.

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Corporate income tax returns and trade tax returns generally must be filed within 7 months after the end of the fiscal year. Tax returns prepared by a consultant have to be filed 14 months after the end of the fiscal year. Certain Covid-19-related reliefs may apply and are expected to be extended for tax declarations for 2021 and 2022.

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Not applicable for this jurisdiction.

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Tax holidays

Not applicable for this jurisdiction.

Tax rulings

Taxpayers can request a binding ruling from the tax authorities before executing a transaction. If the relevant tax authority issues a ruling, it is bound by it if the taxpayer has executed the transaction as described in its request.

Tax incentives

Various incentive programs exist for the promotion of modern energy generation and efficiency (eg, solar and wind energy), as well as programs for the promotion of domestic buildings, environmental protection, R&D, health care, infrastructure and agriculture. Promotion can either be granted as a tax benefit, allowance, guarantee, loan or participation.

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Profits and losses of a controlled company are attributed to the controlling company if certain requirements are fulfilled and a profit and loss pooling agreement is entered into for a minimum period of 5 years. However, tax consolidation is only possible for subsidiaries with effective place of management in Germany.

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Dividends received by a corporate shareholder are generally tax-free for corporate income tax purposes for shareholdings of at least 10 percent and for trade tax purposes for shareholdings of at least 15 percent. Capital gains received by a corporate shareholder are generally tax-free for corporate income tax purposes and for trade tax purposes regardless of the amount of participation. An amount equal to 5 percent of the dividends or capital gain is treated as a non-deductible business expense and added to taxable income. In turn, the actual business expenses are fully deductible.

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Capital gains of corporations, except those derived from sales of shares (ie, participation exemption) are treated as ordinary income.

In general, a capital loss of a corporation is deductible. However, a capital loss is not deductible if a gain resulting from the underlying transaction would have been exempt from tax. Consequently, a capital loss from sales of shares or write-downs on shares are not deductible.

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Qualifying dividends may be eligible for preferential treatment for the recipient.

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Qualifying corporate formations, combinations and divisions may be tax-free to a participating corporation and its shareholders.

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Low-taxed passive income (ie, tax rate of less than 25 percent) earned by a foreign corporation in which at least 1 German shareholder holds qualifying ownership interests (ie, an intermediary company) is imputed pro-rata to the German shareholders and is fully subject to German taxation unless the foreign corporation is based in the EU or EEA and carries out an economic activity therein, in which case a limitation may apply. As of 1 January 2022, the German foreign tax regime has been amended and, inter alia, a new control-concept was introduced.

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Under German domestic tax law, income from foreign sources is usually taxable, with a credit for the paid foreign income taxes, up to the amount of German tax payable on the foreign-source income, subject to per-country limitations. Excess foreign tax credits cannot be carried back or carried forward. In general, German tax treaties provide for an exemption from German taxation of income from foreign sources except for dividends from direct shareholdings of less than 10 percent and interest. In some cases, the exemption under German tax treaties are subject to substance or activity requirements.

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After long political discussions, the new regulations for real property tax have been agreed on. Real property tax is levied by the municipality of real estate where it is located. The new rate applied is the property value multiplied by the real estate tax coefficient (0.34 per thousand for vacant properties) multiplied by the municipality coefficient. However, it is optional for each state to adopt its own real property tax calculation model. This reform should apply as of January 1, 2025; the old law will apply until then.

Real property tax needs to be paid by the owner of the property. It can also be allocated to the tenants as part of the operating costs.

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Transactions between affiliated parties will give rise to income adjustments to the extent that such transactions are not conducted at arm's-length. Additionally, transactions with a foreign affiliated party are subject to extensive documentation requirements.

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Dividends, royalties, interest, rents, etc.

Dividends paid to non-resident companies: Generally, a rate of 26.375 percent applies (ie, 25 percent withholding tax, or WHT, plus 5.50 percent solidarity surcharge on WHT, although exemptions may be available under the EU Parent-Subsidiary Directive, if applicable). There is a reduction of WHT under most German tax treaties for qualified dividends. In addition, on the basis of domestic law, foreign corporations may claim a refund of 40 percent of the WHT, subject to certain substance requirements.

Interest paid to non-resident companies: Generally, there is no WHT, although certain exceptions apply.

Patent royalties and certain copyright royalties paid to non-resident companies: Generally, 15.825 percent WHT applies. Exemptions may be available under the EU Interest-Royalties Directive, if applicable. There is a reduction of WHT under most German tax treaties.

Service fees

Not applicable for this jurisdiction.

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At the end of July 2019, a government draft on new regulations for real estate transfer tax on share deals was adopted and has entered into force with effect from July 1, 2021.

This Real Estate Transfer Tax Act Amendment follows the Federal Ministry of Finances draft of May 8, 2019 and has essentially kept in line with it. According to the new law, RETT should be levied on (i) the transfer of German real estate, or (ii) the direct or indirect transfer of 90 percent or more of the interest in a partnership owning German real estate to new partners within 10 years, or (iii) the direct or indirect transfer of 90 percent or more of the shares in a corporation owning German real estate to new shareholders within 10 years, or (iv) the direct or indirect aggregation at the level of 1 shareholder or interest holder of 90 percent or more of the shares in a corporation or interest in a partnership owning German real estate. Furthermore, a transaction which has the effect that a taxpayer (directly or indirectly, or partly directly and partly indirectly) holds an economic participation of at least 90 percent in a company or partnership owning real property also triggers RETT. The tax rate ranges between 3.50 percent and 6.50 percent among the German federal states. Before the RETT reform, RETT was triggered upon the transfer of at least 95 percent of shares or interests in a partnership within 5 years.

There are no other transfer taxes, capital duties or stamp duties.

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Employers must withhold wage taxes (ie, withholding tax on income from employment) and 50 percent of the wage-related social security contributions for pension, health, nursing care and unemployment insurance.

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Not applicable for this jurisdiction.

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