German Business Tax Guide – Accounting, Corporate Tax, Trade Tax, VAT & Real Estate Transfer Tax
1. Accounting and Bookkeeping Obligations
Before considering corporate taxes, businesses in Germany must comply with strict accounting and bookkeeping obligations. The legal framework is defined in the Handelsgesetzbuch (HGB) and the Abgabenordnung (AO).
Who is required to keep books?
- All corporations (e.g. GmbH, AG) are required to maintain double-entry bookkeeping.
- Partnerships and sole proprietors are obliged if revenue exceeds EUR 600,000 or profit exceeds EUR 60,000 per fiscal year.
Financial statements
Corporations must prepare annual financial statements consisting of at least a balance sheet and a profit and loss statement. Depending on size, additional disclosures and a management report may be required.
Filing and publication
Financial statements must be filed electronically with the Federal Gazette (Bundesanzeiger) within defined deadlines. Penalties may apply in case of late filing or incomplete disclosure.
Tax accounting vs. commercial accounting
Taxable income is based on commercial accounts under HGB, adjusted by specific tax rules from AO and other tax acts. This means businesses must reconcile differences between commercial and tax accounting.
2. Corporate Tax (Körperschaftsteuer, KSt)
Corporations resident in Germany are subject to corporate income tax on worldwide profits. The rate is 15%, plus a 5.5% solidarity surcharge, resulting in an effective burden of approximately 15.825%.
3. Trade Tax (Gewerbesteuer, GewSt)
Trade tax is levied on business profits. Calculation starts with taxable income adjusted under AO, multiplied by a base rate of 3.5%, then by the municipal multiplier (Hebesatz). Effective burdens vary between 14% and 20% depending on location.
Impact on legal forms
Corporations pay trade tax in addition to corporate tax. Partnerships and sole proprietors can credit part of the trade tax against personal income tax.
4. Value Added Tax (Umsatzsteuer, USt)
VAT applies to most supplies of goods and services in Germany. The standard rate is 19%; a reduced rate of 7% applies to essential goods such as books and food. Businesses can reclaim input VAT if registered and compliant.
5. Real Estate Transfer Tax (Grunderwerbsteuer)
This tax applies to the acquisition of German real estate or certain share transfers in real estate holding entities. The buyer usually pays the tax. Rates depend on the state (Land) and range between 3.5% and 6.5%:
- Bavaria: 3.5%
- Baden-Württemberg, Bremen, Lower Saxony, Rhineland-Palatinate, Saxony-Anhalt, Thuringia: 5.0%
- Hamburg, Saxony: 5.5%
- Berlin, Hesse, Mecklenburg-Western Pomerania: 6.0%
- Brandenburg, North Rhine-Westphalia, Saarland, Schleswig-Holstein: 6.5%
6. Conclusion
German business taxation combines multiple layers: strict bookkeeping duties under HGB and AO, corporate tax, municipal trade tax, VAT, and real estate transfer tax. Careful planning of legal form, business structure, and location is crucial to optimize the effective tax burden.
German Business Taxes – Frequently Asked Questions
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All corporations must use double-entry bookkeeping under Handelsgesetzbuch (HGB). Partnerships and sole proprietors are obliged if revenue exceeds EUR 600,000 or profit exceeds EUR 60,000 per fiscal year. General bookkeeping rules and record retention derive from Abgabenordnung (AO).
At minimum, an annual balance sheet and profit and loss statement. Depending on size, notes and a management report may be required. Corporations must file electronically with the Federal Gazette (Bundesanzeiger) and can face penalties for late or missing publication.
Taxable income starts from HGB accounts and is adjusted by specific tax rules in Abgabenordnung (AO) and the relevant tax acts (e.g., depreciation, interest limitation). A reconciliation from commercial to tax result is typically required in the tax return.
Corporate income tax is 15% plus a 5.5% solidarity surcharge on the corporate tax, resulting in an effective burden of about 15.825% before trade tax. Corporate residence is generally based on place of management or registered seat under Körperschaftsteuergesetz (KStG).
Start with adjusted business profit, apply a uniform base rate of 3.5%, then multiply by the municipal coefficient (Hebesatz). Typical overall burdens range 14%–20%, depending on municipality. Rules are set in Gewerbesteuergesetz (GewStG).
The standard VAT rate is 19%, with a 7% reduced rate for certain goods/services. Businesses making taxable supplies in Germany generally must register, charge VAT on sales, and can deduct input VAT. Rules and exemptions are set in Umsatzsteuergesetz (UStG).
On acquisitions of German real estate and certain share deals where substantial ownership in real-estate holding entities changes. Rates vary by state from 3.5% to 6.5%. The buyer typically bears the tax. Rules are in Grunderwerbsteuergesetz (GrEStG).
Annual financial statements are generally due within months after year-end (publication via Bundesanzeiger). Corporate tax, trade tax, and VAT returns follow statutory deadlines; monthly or quarterly VAT filings may apply. Late filing can trigger penalties and interest under Abgabenordnung (AO).
Corporations incur corporate tax plus trade tax. Partnerships are transparent for income tax but still subject to trade tax; partners may receive a credit against personal income tax. Location matters because municipal coefficients drive trade tax. Business model also influences VAT position.
Handelsgesetzbuch (HGB) and Abgabenordnung (AO) for bookkeeping and procedure; Körperschaftsteuergesetz (KStG) for corporate tax; Gewerbesteuergesetz (GewStG) for trade tax; Umsatzsteuergesetz (UStG) for VAT; Grunderwerbsteuergesetz (GrEStG) for real estate transfer tax.