The following information is provided solely for the purpose of providing a very approximate idea of taxation in Germany.  It may be useful for making rule-of-thumb calculations when Indian companies are planning to undertake business ventures in Germany, but not accurate tax calculations.  Please see disclaimer at bottom of page. 

Indian companies incorporating in Germany will find taxation to be simpler and less complicated in Germany relative to India.

Companies should be aware of mainly 4 types of taxes when doing business in Germany.

Value Added Tax / VAT

All commercial transactions are subject to 19% VAT, termed Mehrwertsteuer (MwSt) in German. The MwSt is to be stated on each invoice issued by the seller to buyer.

Corporate Tax

Profits generated by commercial entities are subject to Corporate Tax, termed Koerperschaftssteuer (KpSt). The taxation rate is 15%, which has been downward-adjusted from 25% since 1st January, 2008.

In addition to the 15% in Corporate Tax, a Solidarity Surcharge of 5.5% is applicable to the 15% of Corporate Tax amount.

In addition, Municipal Taxes are applicable at a basis rate of 3.5% plus an upward adjustment of variable %-age value depending on the location of incorporation of the business. For example, if the upward adjustment rate is 400%, the applicable Municipal Tax is 3.5% + 400% of 3.5% of gross profit.

Personal Income Taxes

Personal Income Taxes in Germany follow a progressive rate. Personal income taxes are applicable to all foreign residents earning a living in Germany, for income derived by activities in Germany.

Payroll Taxes

Employers are required to pay employment-taxes pertaining to applicable employment classification. Please check with your tax-adviser for appropriate advise.

Disclaimer

The information on this web-page is  NOT professional taxation or accounting advise. It has been published with the sole purpose of providing a basic overview of taxation in the German economy. Readers are advised to contact a professional tax adviser before making any decision related to any commercial or professional entity's tax matter. A list of professional tax advisers from Germany who are competent to advise on tax matters can be found on Tax and Legal Advisers page of this website.

This article has been published on 16th May, 2008. Tax laws and regulations may have changed after this date, which may not reflect here.