Comparison pays off
Bavaria offers a competitive system of corporate taxation. The average total tax burden for Germany as a whole is less than 30 per cent – lower than in other large industrialised nations such as France, Spain, Italy and the United Kingdom. In fact, the tax burden for companies is even lower in some parts of Bavaria, as towns and districts often grant their companies more favourable conditions when it comes to local business tax.
Companies in Germany are taxed in two different ways, depending on the legal form.
In contrast to other industrial nations, Germany's social security system is principally financed by a pay-as-you-go system. All employees are obligated to pay social security contributions. In principle, half of ongoing social security spending (pension payments, treatment of the sick, nursing care fees and unemployment benefits) is paid for by the employer and the other half by the employee. Only the contributions to accident insurance are paid by the employer alone. Social security contributions are deducted directly by the social security provider. When choosing a location, it is important to consider not only nominal tax rates, but also additional wage costs and fee models, such as those for waste disposal. When all effective costs are compared, Bavaria often proves to be a better value location that can compete with comparable locations in Central Europe.
Tax burden in Germany
Companies in Germany are taxed in different ways, depending on the legal form:
Corporations with the legal form AG or GmbH are subject to corporation tax, currently at 15 per cent. All profit distributions to the shareholders are then taxed at 60 per cent and subject to a flat rate withholding tax (income tax) of 25 per cent, which means that another 15 per cent tax is due when a profit distribution is made.
Partnerships with legal forms such as GbR, oG or KG are not subject to corporation tax. Here, the company's profit shares are attributed to the individual shareholders, who must pay income tax individually in line with the progressive tax rate (currently a maximum of 45 per cent).
In addition, both corporations and partnerships pay local business rates. Business rates are a district-level tax for which the tax rate is defined individually by the local district administration. This means that local business rates vary from district to district. The usual rate is around 15 per cent.
Here you can find an overview of useful information on tax policy, tax law, the different types of tax and important dates:
- Bavarian State Taxation Office
- Bavarian State Ministry of Finance – Taxation
- Federal Ministry of Finance – Taxation
- Tax law for investors
Here you can find important tax-related information for your future business or professional activities in Germany.
You can find local points of contact for all tax-related issues in Bavaria here.