Germany legal and accounting and tax considerations in 2024

Since 2003, Healy Consultants Group assists our multi-national Clients’ to timely accurately and completely discharge their German legal, accounting, audit and tax obligations. Our in-house Accounting and Tax Department will i) provide book-keeping support and ii) monthly and quarterly Government reporting including VAT and payroll and iii) prepare annual financial statements and iv) secure an exemption from the annual independent statutory audit and v) legally minimising corporation tax.

• Germany taxation

  

  1. A German company is considered tax resident if i) it maintains a registered office as indicated by the company’s memorandum and articles of association or ii) the company’s place of management is in Germany;
  2. German tax resident companies are taxed on their worldwide income while non-resident companies are only tax on their German source income;
  3. Depending on the German city, corporation tax ranges from 24.6% and 36% including i) municipality trade tax between 8.75% to 20.3% and ii) 0.825% solidarity surcharge and iii) a federal rate of 15%;
  4. Foreign companies doing business in Germany may credit foreign tax paid against German corporation tax;
  5. Losses in Germany can be carried forward indefinitely, however they can only be carried back one year;
  6. Capital gains are considered general income and included in CIT. However, gains from sale of foreign or domestic subsidiaries are 95% exempt from taxes;
  7. Unfortunately, Germany does not offer tax incentives except in very limited circumstances, not usually of direct business relevance (e.g. special depreciation for buildings under a conservation order).

• Value Added Tax (VAT)

  1. VAT of 19% is applicable of sale of goods and provision of services within Germany;
  2. A reduced rate of 7% is applied to certain transactions including purchase of daily items like food, water, medicine, etc.;
  3. Companies must file quarterly preliminary VAT returns and pay the VAT due by the 10th of the following month;
  4. Companies are only mandated to file monthly preliminary returns if the tax for the previous calendar year exceeds €7,500;
  5. Entrepreneurs must register for VAT if i) the company turnover in the previous calendar year exceeds €17,500 and ii) the estimated turnover of the current calendar year exceeds €50,000;

• Withholding taxes & DTTs

  1. A standard 25% (26.375% including the solidarity surcharge) withholding tax is levied on dividends paid to resident and non-resident entities;
  2. Non-resident companies can secure a 40% refund on withholding tax on dividends, bringing the effective rate to 15.825%, unless reduced further under a double tax treaty;
  3. Withholding tax on dividends is exempt for companies qualifying under the EU parent-subsidiary directive;
  4. Interest payments are generally exempt from withholding tax except for i) interest received through a bank ii) interest on convertible bonds and specific loans and iii) interests on publicly traded debt;
  5. A 15% withholding tax is levied on royalties paid to resident and non-resident companies and individuals, unless reduced under a double tax treaty;
  6. Employers are obligated to bear 50% of the wage related social security contributions including unemployment, nursing care, health, and pension insurance etc.
  7. Germany has concluded double tax agreements (DTAs) with at least 96 countries including Australia, Canada, China, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Africa, UAE, UK, and USA.

• Tax filing and payment due dates

  1. Important statutory deadlines include:

     Taxes	Payment Deadline	Filing Deadline
     Payroll tax	10th of the following month	10th of the following month
     Value Added Tax (VAT)	Quarterly by the 10th of following month	Quarterly by 10th of the following month
     Corporate Income Tax	31st July of the following year. Returns filings prepared by a professional tax advisor can be extended to end of February the following year.

  2. The Federal Ministry of Finance and Federal Central Tax Office are the German Agencies responsible for tax administration and can impose the below penalties for late filing and payment of tax return or failure to file a tax return:
     1. A penalty of up to 10% of the tax due and a maximum of €25,000 for late or non-submission of returns;
     2. A penalty of 1% on the outstanding rounded down tax amount per month for late payment of assessed taxes;
     3. Failure to submit adequate documentation for transfer pricing may result in a penalty of between 5% to 10% of any transfer pricing adjustment (minimum €5,000).
  3. German companies are permitted to choose their balance sheet date at will; meaning that the fiscal year does not have to coincide with the calendar year. However the fiscal year should not exceed 12 months;
  4. Corporate income tax returns for tax years beginning 2018 must be filed within 7 months of the end of the calendar year; generally by July 31 of the following year. Tax returns prepared by professional tax advisors can get an extension until end of February of the following year;
  5. Corporate income tax returns for tax years prior to 2018 must be filed within 5 months after the end of the calendar year; generally by 31^st May of the following year. Tax returns prepared by professional tax advisors can get an extension until 31^st December of the same year;
  6. Corporate income tax is due at the end of the fiscal year and must be filed electronically. However, assessed returns can be made in four advance payments on 10^th March, 10^th June, 10^th September and 10^th December;
  7. Medium sized and large companies must appoint an auditor. A company will be considered medium sized if they meet any three of the following characteristics i) turnover exceeding €12million ii) at least 50 employees iii) balance sheet of at least €6million;
  8. It is important our Clients are aware of their personal and corporate tax obligations in their country of residence and domicile, and that they fulfil those obligations annually. Let us know if you need Healy Consultants Group’s help to clarify your annual reporting obligations.

• Healy Consultants Group fees for accounting and tax support

  1. Average engagement fees for multi-national Clients’ approximate:

     Germany accounting and tax task	€
     Germany active company unaudited annual tax and accounting *	8,600
     Germany dormant company unaudited annual tax and accounting	950
     Germany active company audited annual tax and accounting *	8,600
     Germany annual personal tax return	1,500
     Average monthly bookkeeping services	860
     Monthly VAT, WHT and Payroll reporting services (active entity)	1,500
     Monthly VAT, WHT and Payroll reporting services (dormant entity)	650

  2. Note: * For an active trading company, these accounting, audit and tax fees are an estimate of Healy Consultants Group fees to efficiently and effectively discharge your annual company accounting and tax obligations. Following receipt of a set of draft accounting numbers from your company, Healy Consultants Group will more accurately advise accounting and tax fees.
  3. Healy Consultants Group’s monthly bookkeeping services fee of €860 includes i) receiving in Dropbox monthly invoices from our Client ii) labelling monthly bank statement transactions iii) preparing and submitting monthly income and expenses statements and iv) monitoring monthly profit levels to minimise annual tax.

• Legal and compliance

  Healy Consultants’ Compliance Department assists our Clients to ensure that all of their administrative and statutory obligations are met.

  1. Germany’s legal system is efficient in resolving business disputes. The court’s decision is binding on all parties, but appeals may be made to a higher court;
  2. German law requires all firms operating in the country to provide mandatory occupational accident insurance;
  3. The German Federal Data Protection Act bars firms from publicly disclosing private information about an individual;
  4. The German General Equal Treatment Law bars discrimination against employees on the grounds of religion, race, gender and sexual orientation;
  5. German competition law prevents firms from entering into contracts that form cartels or monopolies; businesses must obtain permission from the Bundeskartellamt on M & A matters;
  6. German law against the Restraint of Competition prevents dominant players in a market from forcing out competitors through predatory tactics like excessive price reduction;
  7. Germany is party to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (UNCITRAL); arbitration in other countries party to the convention will be enforceable in Germany;
  8. German firms need to ensure that all employees hold the residence/settlement permit before starting any work for the firm; firms failing to make these assurances will be legally liable;
  9. A resident company must notify the Central Bank if money transfers of more than €12,500 are made abroad. This is not an exchange control, but is done for statistical purposes;
  10. Goods like food products, agricultural produce, pharmaceuticals etc. are subject to import restrictions; proper licenses and approval documents are needed before importing them.

• External readings

  1. Germany Tax Summary – PWC
  2. Germany Country Profile – 2021 – KPMG

• Conclusion

  Engage Healy Consultants Group to project manage your German entity monthly and quarterly and annual Government statutory obligations. Communicate with us via the contact details below