The standard corporate tax rate is 15%. An additional solidarity surcharge of 5.5% is levied, resulting in an effective tax rate of 15.825%.
Germany also levies a local trade tax (Gewerbesteuer), based on adjusted profits for corporate tax purposes (essentially after adding back a portion of the deductible interest expense). The trade tax is levied at a base rate of 3.5%, which is further increased by a multiplier that varies depending on the municipality where the business is located. Its effective combined rate is generally in the range of 7% to 21%.
Taking into account the standard corporate tax rate, the solidarity surcharge and the trade tax, the combined tax burden on corporate profits in most of the major German cities (such as Berlin, Frankfurt and Munich) would be in the range of 30% to 33%.
Dividends and capital gains are eligible for a 95% exemption under the participation exemption regime (see Sec. 5.1.). Effective 1 July 2021, the participation exemption regime, whether under domestic law or a tax treaty, no longer applies to dividends received from a subsidiary or for gains from the sale of shares in a subsidiary resident in a non-cooperative jurisdiction / tax haven (see Sec. 13.5.).
Domestic Investment Funds enjoy tax transparent status in respect of interest income and non-German source income and also eligible for certain trade tax exemptions. However, they are subject to tax at the standard corporate tax rates on German source dividend income, rental income and real estate capital gains.
Investors in domestic funds are subject to tax on distributions and capital gains from fund unit redemptions at normal income or corporate tax rates, as the case may be. In order to address double taxation issues, a certain percentage of income from a fund is exempt depending on the nature of the fund and the nature of the investor as follows:
- Equity funds (minimum 51% investment in stocks):
- 30% exemption for private individual investors;
- 60% for business individual investors; and
- 80% for corporate investors;
- Real estate funds (minimum 51% investment in real estate or real estate companies):
- 60% exemption if invested in German real estate or real estate companies; and
- 80% if invested in non-German real estate or companies invested in non-German real estate;
- Mixed funds (minimum 25% investment in stocks)
- 15% exemption for individual private investors;
- 30% for individual business investors; and
- 40% for corporate investors.
In addition to the tax on distributions and redemptions, an annual lump-sum tax is levied at the level of the investor. The lump-sum tax is calculated based on the value of the investor's interest in the fund at the beginning of the year multiplied by 70% of the base interest rate. This pre-determined tax basis is limited to the actual increase in the value of the fund for the year. The exemptions outlined above apply, and distributions/redemptions are deducted from the tax basis.