Corporate Income Tax
Corporate income tax is calculated at the end of the year according to the accrual basis accounting method. This is recorded in the annual financial statement. When dividends are paid to an enterprise with full corporation tax liability, the business is largely exempted from paying tax on these revenues.
A German company pays the corporate income tax, regardless of where the company’s profits are received, on the territory of Germany or abroad. The corporate income tax rate is 15%. In addition, a trade tax of 14% and a solidarity surcharge of 5.5% are added on top of the corporate income tax. Ultimately, the total annual taxes paid by a company is about 30%.
The standard VAT rate in Germany is 19%. Exceptions are transactions with food, flowers, medicines, etc., where the VAT rate is 7%. The company, with a VAT payer status, applies 19% VAT for transactions in Germany. For transactions in the EU, outside Germany, the VAT rate is 0%, provided that the partner of your German company is a legal person from the EU and has a VAT number. When dealing with countries outside the EU, VAT is often not applied.
Tax on dividends
Profits which are distributed to private stock-holders are liable to a final withholding tax of 26.375%. However, the application of a permanent residence permit may lead to a lower withholding tax.