Corporate income tax is an important aspect of corporate taxation in Germany. This article provides a comprehensive overview of its significance, who is liable to pay it, and how it is calculated. It also explains the necessary steps to apply for a corporate tax number.

What’s in this article?

• What is corporate income tax?
  
• Who pays corporate income tax?
  
• Do limited liability companies (GmbHs) have to pay corporate income tax?
  
• Do associations have to pay corporate income tax?
  
• What is the corporate income tax rate?
  
• How is corporate income tax calculated?
  
• What is a corporate income tax assessment?
  
• How do you apply for a corporate income tax number?
  

What is corporate income tax?

Corporate income tax, also known as corporation tax, is a tax on the income of business entities and is therefore the counterpart to income tax for natural persons. Together with trade tax, it is one of the main corporate taxes in Germany. Corporate income tax plays an important role in the financial planning and management of business strategies.

Who pays corporate income tax?

In addition to limited liability companies (GmbHs) and associations—which we will discuss in more detail in the next section—stock corporations (AGs), entrepreneurial businesses (UGs, limited liability), cooperatives, and other business entities under private and public law are also obliged to pay corporate income tax. Stock corporations and entrepreneurial businesses fall into this category because, like limited liability companies, they are business entities under private law and are geared toward making a profit.

In principle, cooperatives are also subject to corporate income tax. However, special regulations apply to cooperatives that pursue certain social, cultural, or economic objectives and therefore receive tax advantages under certain conditions.

It should also be noted that in addition to businesses based in Germany, foreign businesses with income from German sources are also subject to limited corporate income tax liability. This means that income generated in Germany is subject to corporate income tax in Germany.

Do limited liability companies (GMBHs) have to pay corporate income tax?

For limited liability companies in Germany, paying corporate income tax is a tax obligation. As corporations, limited liability companies are taxed as business entities and must pay corporate income tax on profits made.

Corporate income tax is calculated annually as part of the corporate tax return and is based on the annual financial statements of the limited liability company. Provisions of commercial law as well as the regulations of the corporate income tax and income tax laws must both be observed. Management is responsible for the correct determination of profits and taxation. Failure to comply with these obligations may result in personal liability and criminal law consequences.

In addition to corporate income tax, limited liability companies are also obliged to pay trade tax. The amount of trade tax differs depending on the municipality in which the limited liability company is based. Depending on the situation, other taxes such as value-added tax, capital gains tax, or wage tax may also apply. When it comes to corporate income tax and other relevant types of taxes, the focus must be on careful planning and advice in order to meet legal requirements and keep financial risks low.

Do associations have to pay corporate income tax?

The obligation to pay corporation tax is more differentiated for associations in Germany. In principle, associations are liable for corporate income tax as business entities under private law. This means that associations must pay corporate income tax on their income under certain circumstances. However, the actual tax liability depends on the type of income and the activities of the association.

Nonprofit, ecclesiastical, or charitable associations that are not commercially active are generally tax-exempt in accordance with Section 5 of the Corporate Income Tax Act (KStG). This exemption applies to income that is consistent with the charitable purpose of the association. However, commercial business operations within these associations that go beyond mere asset management may be taxable. In these cases, the association must pay corporate income tax on income from such activities.

Nonprofit organizations that are economically active are generally subject to corporate income tax. All income of the association, such as membership fees, donations, or income from economic activities, is subject to corporate income tax.

It is therefore important for associations to keep a close eye on their activities and to clarify the extent to which they conduct taxable business transactions. In this context, professional tax advice is often key to ensure correct classification and to benefit from potential tax advantages.

What is the corporate income tax rate?

Corporate income tax (KSt) in Germany is currently 15% of the taxable income of a business entity, such as a limited liability company or stock corporation. In addition to this tax rate, there is also the solidarity surcharge, which amounts to 5.5% of the corporate income tax. This results in an effective tax rate of approximately 15.83% on the profits of a corporation.

These tax rates apply to all corporations, regardless of their size or the profit generated. This tax is calculated on the profit after deduction of all operating expenses, but before the distribution of dividends to the shareholders.

How is corporate income tax calculated?

The calculation of corporate income tax in Germany is based on the taxable profit. The calculation process includes several steps:

1. Determination of the trade balance profit: First, the profit is determined according to the annual financial statements under commercial law. This includes all operating income minus expenses.

2. Adjustments according to tax law: The trade balance profit is then adjusted for tax corrections. This includes additions (e.g., nondeductible business expenses) and deductions (e.g., tax-free income) to determine taxable profit.

3. Application of the corporate income tax rate: The corporate income tax rate of 15% is applied to the taxable profit determined in this way.

4. Calculation of the solidarity surcharge: In addition to corporate income tax, a solidarity surcharge of 5.5% is levied on corporate tax. This results in an effective tax rate of approximately 15.83%.

5. Consideration of loss carryforward: If losses have occurred in previous years, these can be offset against the current profit, which can reduce the tax burden.

6. Quarterly advance payments: Businesses make quarterly advance payments on corporate income tax based on the expected annual tax burden. These are offset against the actual annual tax liability.

The exact calculation of corporate income tax can be complex depending on the individual case and often requires the expertise of a tax consultant, especially when applying specific tax regulations and potentially optimizing the tax burden.

What is a corporate income tax assessment?

A corporate income tax assessment is an official document issued by the tax authorities in Germany, following an audit of a business entity’s corporate tax return. This assessment determines the amount of corporate income tax that the business must pay for the tax year in question. The main aspects of a corporate income tax assessment include:

1. Declaration and submission of the corporate income tax return: After producing its annual financial statements (balance sheet) in accordance with commercial law, a business must prepare its corporate income tax return annually and submit it electronically to the tax office. The submission period usually ends on July 31 of the following year, but it can be extended by a tax consultant until the last day of February of the year after that.

2. Content of the corporate income tax assessment: The assessment contains the calculation of corporate income tax based on the taxable income of the business. It takes into account all relevant tax factors, including any loss carryforward and special regulations.

3. Reconciliation with advance payments: The assessment compares the advance payments already made with the tax actually owed. If there is a difference, this will result in either an additional payment or a refund. An additional payment is made if the advance payments were too low and, in the case of a refund, if the advance payments were too high.

4. Accounting and refund: In the event of a refund, a corresponding entry is made in the accounts of the business. The money received from the refund is recorded on the bank account against the claim to the tax office.

5. Electronic transfer: The corporate income tax return and all associated documents must be submitted electronically using official forms.

The corporate tax assessment serves as the basis for further tax and accounting decisions. In the event of ambiguities or objections to the assessment, businesses or their tax consultants can lodge an objection within a certain period of time.

How do you apply for a corporate income tax number?

Applying for a corporate income tax number is an important procedure in Germany, especially when setting up new corporations. This procedure usually begins automatically after the business is founded and entered in the commercial register, as the commercial register data is transmitted to the tax authorities. The competent tax office then contacts the new business and sends a questionnaire for tax registration. This questionnaire collects detailed information about the business, its business activities, and its shareholders.

After the business has carefully filled out the questionnaire, it is sent back to the tax office. This can be done either by post or electronically through the ELSTER portal. The tax office then checks the submitted information and assigns the business a corporate tax number. This procedure may take some time. As soon as the tax number has been issued, the tax office notifies the business. From then on, the corporate tax number must be stated on all of the business’s official documents.

It is key that all information in the questionnaire is correct and complete, as it forms the basis for the business’s tax assessment. If anything is unclear, or to confirm that the information is correct, we recommend seeking professional support from a tax consultant. This ensures that the business meets all tax requirements and avoids potential sources of error.

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