Germany: corporate tax guide

Which companies are within German tax

A company with its registered seat or place of management in Germany is generally subject to corporation tax on worldwide income. Foreign incorporation does not remove the management test. The Fiscal Code describes management by reference to the centre of executive business management; document who actually directs the company and from where.

A genuinely nonresident business can still have a German permanent establishment, taxable source income, payroll or VAT obligations. Corporate residence, permanent establishment and the shareholder’s CFC position are separate tests. An entrepreneur relocating to Germany should review all three before continuing to run the same foreign company from home.

National tax, solidarity surcharge and municipal trade tax

For 2026 the corporation-tax rate is 15%. The solidarity surcharge is 5.5% of that tax, producing 15.825% before municipal trade tax. Trade tax uses a 3.5% assessment factor multiplied by the municipality’s multiplier and a separately adjusted tax base.

Illustration: on €100,000 of identical taxable bases and an assumed municipal multiplier of 400%, corporation tax is €15,000, solidarity €825 and trade tax €14,000, totalling €29,825. This 29.825% is an example, not a national rate. The actual municipality and trade-tax additions/deductions can change the result. Corporations do not receive the €24,500 trade-tax allowance reserved for individuals and partnerships.

Enacted rate reductions begin in 2028

The current law retains 15% corporation tax through 2027, then sets 14% for 2028, 13% for 2029, 12% for 2030, 11% for 2031 and 10% from 2032. These are enacted future national rates, not the rate for a 2026 profit.

Do not automatically reduce a forecast’s municipal trade-tax rate by the same amount. Model the national tax and its surcharge separately from municipal tax, and recheck legislation before a transaction in a future year.

Foreign-company income and operational substance

German CFC rules can attribute qualifying low-taxed income of controlled foreign entities to a corporate shareholder. Control includes connected persons and rights to profit or liquidation proceeds, not just the name on a share register. A foreign headline rate of 15% does not settle the effective statutory low-tax calculation.

Map each income stream to the active-income catalogue. Related-party sales, services and intellectual property require close reading of the exceptions. For the EU/EEA activity defence, staffing, equipment, independent qualified personnel, the actual income-generating functions and information exchange matter. A foreign management provider may help perform genuine functions, but a contract alone cannot substitute for them.

Participation income and gains

The corporation-tax participation rules commonly exclude qualifying dividends and gains, while treating 5% as non-deductible expenses. Dividend eligibility includes a 10% direct-shareholding condition under §8b; capital gains have a different structure. Banks, trading books and other exceptions need separate examination.

Trade-tax treatment is not identical: domestic and foreign participation deductions have their own thresholds and conditions. Consequently, “95% exempt” is not a complete effective-rate quote for every holding company. Establish the recipient, ownership dates, percentage, payer’s status and relevant treaty before relying on an exemption.

Outbound withholding: identify the payment first

The table describes domestic starting points before treaty or qualifying EU relief. The legal character of the payment, beneficial recipient, anti-abuse conditions and required exemption/refund procedure matter. Do not simply pay a lower treaty amount because the recipient has emailed a residence certificate.

Moving assets or management can realise gains

KStG §12 treats an exclusion or restriction of German taxing rights over an asset’s disposal or use as a market-value disposal or transfer. Moving an asset from a German to a foreign permanent establishment is an express example. Moving a shareholder, a company and a business function are therefore not interchangeable transactions.

Before implementation, map assets, intellectual property, employees, contracts, functions and risks, together with existing tax bases. Transfer pricing and business-restructuring rules may matter even where no share sale occurs. Any available spreading or relief requires its own legal test; it should not be assumed from the destination’s EU membership alone.

VAT, payroll and the operating calendar

Germany’s ordinary VAT rate is 19%, with 7% for specified reduced-rate supplies and other exemptions or special treatments. Place of supply, reverse charge, imports and intra-EU transactions determine which entity must account for it. VAT cannot be inferred from the corporation-tax residence conclusion.

An operating business also needs accounting records, annual returns, payment instalments and payroll/social-insurance processes appropriate to its facts. Intercompany agreements should match invoicing and actual work. Specify who maintains books, files each return, monitors notices and provides the source records after setup.