Worth Comparing: Taxes and Social Security Contributions in Bavaria

Bavaria offers a competitive system of business taxation. Across Germany, the average total tax burden (29.8 percent) lies below that of other major industrialized countries, such as France, Spain, Italy or the United Kingdom. In many regions of Bavaria, the tax burden for businesses is even lower, because their municipalities provide companies with more favorable terms of trade tax.
Companies in Germany are taxed in two different ways, depending on their legal form:

  • Corporations or limited liability corporations are subject to corporate tax of 15 percent. Any distributions of profits to shareholders are taxable in the amount of 60 percent and subject to a final withholding tax (income tax) of 25 percent, so that as a result, a further tax rate of 15 percent incurs.
  • Partnerships, such as a GbR, oHG or KG, however, are not subject to corporation tax. Here, the profit shares of the company are allocated to the individual partners and are taxable with their respective personal, progressive rate for income tax (currently a maximum of 45 percent).
  • Additionally, both corporations and partnerships pay trade tax. The trade tax is a municipal tax, where the tax rates are determined individually by the community in which the company is located, so that the trade tax rates vary from municipality to municipality. As a rule, one can expect about 15 percent.

Unlike other industrialized nations, Germany‘s social security system is financed by means of cost splitting. It is obligatory for all employees to make social security contributions. The running social security costs (pensions, medical care, nursing rates and unemployment benefits) are financed by employer and employee, in principle, one half each. Only the accident insurance contributions are paid by the employer alone. The social security contributions are collected directly by the social insurance carrier. Besides nominal tax rates, the location decision should take into account wage costs as well as fees, e.g. for disposal, and they should be considered in the entrepreneurial calculation. In an overall comparison of all the actual costs, Bavaria often proves to be the financially more favorable alternative that can compete with the comparison sites in Central Europe.