Everything you need to know about the taxation of corporations
Corporations are particularly attractive for founders, especially because of their limited liability. However, you should not lose sight of the tax aspects when founding a company. One key tax is corporation tax. In this article, you will find the most important information explained in a compact and understandable way.
What is a corporation?
Corporations are a generic term for various legal forms. These legal forms are, for example The Gesellschaft mit beschränkter Haftung (GmbH) and the Unternehmergesellschaft haftungsbeschränkt (UG haftungsbeschränkt). They are particularly attractive for entrepreneurs as they benefit from limited liability.
The corporation and corporation tax: an overview
Every corporation must pay corporation tax. You can find out what corporation tax is and what you should know about it in the following overview:
- What is corporation tax?
- Who pays corporation tax?
- How is corporation tax calculated?
- When and how is corporation tax paid?
What is corporation tax?
Corporation tax is paid on the income of corporations, as well as foundations and associations. Similar to trade tax, corporation tax is supplemented by other types of tax. In principle, corporation tax is paid on income from entrepreneurial activity in the company.
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Who pays corporation tax?
The German Corporation Tax Act (KStG) regulates who has to pay corporation tax. The corporation tax liability from Section 1 KStG determines the corporations that must pay this tax:
- Corporations (GmbH, UG haftungsbeschränkt, AG)
- Co-operatives
- Insurance and pension fund associations
- Unincorporated associations, institutions, foundations and other special-purpose assets under private law
- Businesses of a commercial nature of legal entities under public law
How is corporation tax calculated?
The corporation tax rate in Germany is set at a standardised 15%. It is applied to distributed and undistributed profits. The basis for taxation is therefore the profit made in the company's financial year. Corporations must prepare a balance sheet that includes a profit and loss account, which forms the basis for calculating corporation tax.
When and how is corporation tax paid?
The company makes an advance payment for the corporation tax expected to be due. The advance payments are due on 10 March/June/September/December. After the annual accounts have been prepared, a corporation tax return must be completed, which can be submitted electronically.
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