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Why you should get to grips with taxes

When it comes to terms such as taxation, corporation tax, trade tax or solidarity surcharge, start-ups can quickly feel overwhelmed. Even if tax is not your favorite topic, you should still get to grips with it: A company can only be planned holistically and in the long term if the tax fundamentals are right.

Digitale Gründung is happy to support you with tax issues during the start-up phase.

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Typical taxes of a UG at a glance

The UG (haftungsbeschränkt) is a corporation. As a legal entity, it is subject to the provisions of the German Corporation Tax Act (KStG).

The UG is also subject to VAT and trade tax. If the company has several employees, wage tax must be paid to the tax office. Capital gains tax (KapSt) is also due on the distribution of profits. If the company acquires real estate, real estate transfer tax (GrESt) is levied once. If the company already holds developed or undeveloped land, it is liable for property tax.

Here you will find an overview of the types of tax relevant to the entrepreneurial company:

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Corporate income tax

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Solidarity surcharge

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Trade tax

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Value added tax

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Capital gains tax

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Income tax and property tax, if applicable

Corporation tax and solidarity surcharge in the UG

The profits generated in the UG are subject to corporation tax (KSt), which provides for a tax rate of 15%. The corporate income tax return is submitted to the tax office together with the annual financial statements for the calculation of the tax burden.

Payments are due quarterly on the 10th day of each month. The advance payments are offset against the annual debt.

In the event of losses, these can be offset against profits from the previous year or future years to reduce tax. The loss carryforwards of the UG are subject to an unrestricted allowance of EUR 1 million. Up to 60 percent of the losses exceeding this amount can be offset against tax.

In addition, the UG must pay a solidarity surcharge of 5.5% on the profits generated.

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The trade tax

Trade tax (GewSt) is one of the taxes on income. These are to be paid directly to the responsible municipality in quarterly advance payments. The trade tax rate is regulated uniformly throughout Germany and is 3.5%.

If you want to determine the trade income, the taxable profit and loss are calculated after additions and any deductions resulting from the Corporation Tax Act and Income Tax Act. The resulting amount is called the tax assessment amount. You must multiply this by the individual assessment rate of the local municipality to determine the final trade tax levy for your company.

There is no trade tax allowance for the UG. You can deduct business losses of up to 1 million euros, but only 60% of losses in excess of this amount.

Turnover tax and capital gains tax

The sales of the UG (haftungsbeschränkt) from deliveries and services are subject to value added tax (VAT). The standard tax rate is 19%, with a reduced rate of 7%. In principle, VAT is calculated on the net amount and is shown separately on the invoice and must be passed on directly to the tax office within the advance VAT return.

The advance payments are made depending on the amount of the tax burden and are offset against the annual VAT liability.

Capital gains tax (KapSt) is due when profits are distributed to the shareholders. A tax rate of 25% plus 5.5% solidarity surcharge and, where applicable, church tax applies to the payment of dividend supplements.

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Wage, property and real estate transfer tax

If the UG has several employees, the company withholds wage tax and, if applicable, church tax from their wages and pays this to the tax office on a monthly basis.

If the company owns developed or undeveloped land, property tax (GrSt) is due on it. This is paid quarterly as an advance payment to the respective municipality. The assessment is based on the assessed value of the property, which is multiplied by the tax rate of 3.5%. This results in the property tax measurement amount, which is multiplied by the individual property tax multiplier of the municipality. When acquiring new real estate, a one-off real estate transfer tax (GrESt) is payable, which is calculated on the basis of the purchase price and the tax rate of 3.5-6%-6,5% depending on the federal state.

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FAQ

Why found a UG (haftungsbeschränkt)?

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Founding a UG (haftungsbeschränkt) is particularly suitable for young companies. This is because 1 euro is theoretically enough for the share capital. If you don't want to be liable with your private assets but don't have the start-up capital for another limited company, a UG (haftungsbeschränkt) is a good choice. Unlike a sole proprietorship, liability is limited here and private assets are protected. In practice, however, there are also many arguments against setting up a UG (haftungsbeschränkt), as it often makes more sense to set up a GmbH. Individual advice should be sought here.

What is the difference between a GmbH and a UG (haftungsbeschränkt)?

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The biggest difference between a UG (haftungsbeschränkt) and a GmbH is the amount of share capital required to set up the company. A GmbH requires 25,000 euros in share capital, half of which must be paid in when the company is founded. In the case of the UG (haftungsbeschränkt), on the other hand, EUR 1 is sufficient as share capital, provided the capital requirement does not necessitate a higher sum. In the case of a UG (haftungsbeschränkt), reserves must be formed from profits which may not be distributed to the shareholders. In addition, the UG (haftungsbeschränkt) can also consider increasing its capital and changing its name to a GmbH. Otherwise, the UG (haftungsbeschränkt) has the same rights and obligations as a GmbH in terms of shareholder, accounting and liability requirements. The UG (haftungsbeschränkt) must also pay corporation tax and trade tax in the same way as the GmbH.

What do you need to set up a UG (haftungsbeschränkt)?

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It doesn't take much to set up a UG (haftungsbeschränkt). In addition to a company name and a business address, a business account is required to pay in the share capital. First, a shareholders' agreement is drawn up and notarised by a notary. Then you have to open the business account and pay in the share capital. The notary registers the UG (haftungsbeschränkt) in the commercial register once the share capital (at least EUR 1) has been paid in. The UG (haftungsbeschränkt) is then registered with the trade office and tax office before it can start its business activities.