GERMANY Law and Practice Contributed by: Michael Best, Gerald Herrmann and Jannis Lührs, POELLATH
tax rate will be reduced by 1% annually until 2032 – ie, from 15% to 10%. Municipal trade tax rates mainly range from 13% to 17%, depending on the municipality in which the busi - ness operates. For trade tax purposes, capital gains from the sale of shares are generally tax exempt, whereas dividends received from a corporation are only tax exempt if the shareholding amounts to at least 15%. However, 5% of the proceeds are deemed non- deductible expenses, resulting in an effective trade tax burden of approximately 0.7%. Partnerships Partnerships such as a KG are transparent for income/ corporate tax purposes so that profits and losses are taxed at the partners’ level. The assets, liabilities and income of the partnership are generally allocated to the partners in proportion to their partnership inter - ests. Municipal trade tax, however, is levied at the level of the partnership (if it conducts a trade or com - mercial activity). For fiscal years beginning after 31 December 2021, partnerships can apply to be treated like a corpora - tion for corporate income tax and trade tax purposes (“check the box” system). This, however, does not apply for civil law, real estate transfer tax (RETT), inheritance tax or gift tax purposes, so it must be care - fully assessed if such option is considered. The exercise of such option is considered a deemed change of form ( Formwechsel ) from a partnership to a corporation for German income and trade tax pur - poses, so might result in a taxable event. Individuals The taxation of the income of individuals (who own a business or are a partner in a transparent partnership carrying out a business), generated by themselves or through the partnership, generally depends upon their personal tax rate; tax rates range up to 47.5%, including a solidarity surcharge of 5.5%, and possibly a church tax. However, dividend payments and capital gains from the sale of shares that are realised in the context of a business are subject to so-called partial- income procedures, so that only 60% of the income deriving from dividends or capital gains will be taxed.
In 2025, the exemption limit on which no solidarity surcharge applies was increased for individuals. How - ever, the solidarity surcharge continues to be levied on the corporate income tax of corporations (particularly GmbHs and AGs), as before.
2. Corporate Tax Regime 2.1 Taxable Profits
As corporations are legally obliged to keep records, they have to determine their income through the com - parison of business assets based on annual financial statements. Generally, tax accounts depend on the financial accounts according to the principle of “deci - siveness” ( Maßgeblichkeitsgrundsatz ). However, there are some deviations of tax accounts from financial accounts, such as the restriction of the application of current value tax depreciation to cases of permanent depreciation and the prohibition of provisions for oner - ous contracts. In the case of taxpayers who are required to prepare balance sheets (eg, corporations), profits are taxed on an accrual basis (the “realisation principle”). 2.2 Technology Investments On 1 January 2020, a law was passed that is intended to promote R&D with tax benefits ( Forschungszula- gengesetz ). Essentially, all companies are entitled to subsidies, but projects shall benefit only if they fall into the categories of basic research, applied research or experimental development within the meaning of this act. The subsidy consists primarily of a proportionate reimbursement of the wage costs for the employees of the respective beneficiary. The maximum grant is EUR2.5 million respectively EUR3.5 million for SME. In order to further stimulate the economy and promote digitalisation, the Federal Ministry of Finance (BMF) has published a circular under which a normal useful life of one year can be taken as a basis for deprecia - tion for certain digital assets, such as computer hard - ware (including associated peripheral devices), and for the operating and user software required for data input and processing. This allows the full deduction of corresponding acquisition or production costs in the year of acquisition or production. The shortened use -
159 CHAMBERS.COM
Powered by FlippingBook