Corporate Income Tax in Germany

In general all companies are subject to corporate income tax with the legal form GmbH (LLC), AG (public or non-public corporation), and KGaA (partnership limited by shares). Additionally trusts and clubs/societies are under certain conditions also subject to corporate income tax.

The corporation tax rate for retained and distributed profits is a flat-rate-tax of 15 percent. In case of distribution of dividends taxation is as follows:

• Dividends paid to German individuals or German residents according to double tax treaty there is a 25 % settlement tax (withholding tax).
• Dividends distributed to a foreign individual (non-German resident according to double tax treaty) there is no settlement tax according to German tax law. However in some double tax treaties there is a withholding tax.
• In case of the distribution to other German corporations 95 % of dividends are tax exempt from their income as long as withheld.
• Distributions to foreign companies are subject to the withholding tax as agreed in the double tax treaty.

According to a change in German income tax law, dividends received by individuals are subject to 25% settlement tax. The settlement tax was introduced for capital income on 01 January 2009 in Germany.