What is the federal corporate income tax rate?

Corporation tax
easily explained

This page was last updated on 05/19/2021

Definition: what is corporation tax?

Corporate income tax, or KSt for short, is based on the Income or profit from legal persons (e.g. corporations, associations, etc.) - i.e. complementary to income tax for natural persons. Like business tax, corporation tax is a corporate tax.

The corporation tax is also referred to as community tax, as it is due to both the federal government and the states. The corporation tax was paid for the first time in 1920, after the introduction of the corporation tax law (KStG) in the course of a financial reform.

Corporate income tax explained in simple terms: All the important facts at a glance.

Who has to pay corporate income tax?

Need corporation tax legal persons who have their management or their headquarters in Germany. Legal persons are, for example:

  • Corporations (GmbH, AG)
  • societies
  • Cooperatives
  • Foundations

In addition, there are various exceptions to that only limited corporation tax liability are. For example, if the legal entity has neither management nor headquarters in Germany, the income is only taxed to a limited extent at a reduced withholding tax rate.

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Who is exempt from corporation tax?

Are exempt from corporation tax

  • political parties
  • Federal company
  • State banks
  • Corporations that serve a charitable or church purpose
  • social coffers
  • Professional associations
  • public insurance and utility institutions

Even freelancers, partnerships and small business owners do not have to pay corporation tax, as they are already charged by income tax. Legal persons for whom an exemption applies and whose income is less than the exemption are also exempt from corporation tax.

Who Receives Corporate Income Tax?

Corporate income tax belongs to the group of Community taxes. That means the money Federal and state is jointly due.

Calculation of corporate tax

This is the basis for calculating corporate income tax Corporate Income Tax Act (KStG). Thereafter, corporate income tax is calculated based on taxable income. This in turn is determined by a specific calculation scheme and various corrections prescribed by the tax law.

This is how the annual surplus of your company according to the tax balance sheet various positions deducted, such as:

  • hidden deposits
  • Donations
  • Allowances

Further positions are added, such as:

  • hidden profit distributions
  • Non-deductible expenses

In case your business is losing and accordingly no profit does, it has to no corporation tax numbers.

consideration of free amounts

As with income tax, certain amounts are exempt from taxation with corporation tax, depending on the type of corporation. Corporate income tax is only due on income that exceeds these allowances.

The current corporate tax rate

The tax rate for calculating corporate income tax is specified in Section 23 of the KStG. Since the corporate reform of 2008 are on the taxable income 15 percent Corporate tax levied.

Solidarity surcharge and corporation tax

Notice: In addition there is the Solidarity surcharge, which amounts to a further 5.5 percent of the corporation tax to be paid. This results in an additional tax rate of 0.83% (0.15 * 0.055 = 0.83).

The effective corporation tax burden is therefore included 15.83 percent.

What allowances are there for corporation tax?

For legal entities that do not distribute profits (e.g. associations), an exemption of 5,000 euros. Certain cooperatives and associations that are mainly active in the agricultural and forestry sector have an allowance of 15,000 euros (Section 25 KStG).

The respective exemption is deducted from the taxable income, which in turn reduces the amount of corporation tax due. However, the deduction of the tax exemption must not lead to a loss, i.e. it must not be higher than the taxable income. If the tax exemption is higher than the taxable income, there is no corporation tax.

When is corporation tax due?

You pay corporation tax through prepayments. The amount is determined on the basis of the corporation tax that is likely to be incurred. The advance payments are due quarterly - on the 10th of March, June, September and December.

The corporate income tax return

The corporation tax is determined with the help of a six-page corporation tax return and various attachments. After you have prepared the annual financial statements or the balance sheet, fill out the corporate income tax return and send it to the responsible tax office. The levy must electronically on the official forms respectively. In addition, the full annual financial statements under commercial law be submitted. The responsible tax office checks the tax return and sets the corporation tax and the solidarity surcharge.

What is in the corporate tax assessment?

The corporation tax assessment shows how high the corporation tax will be for the tax year. The advance payments made are taken into account. If you overpaid corporate tax prepayments, you will receive an from the tax office refund. If you have paid too little in advance, you will have to pay the appropriate amount count. The amount of the reimbursement or the additional payment is shown in the corporation tax assessment.

Deadlines for filing corporate income tax returns

The corporate income tax return for a tax year must always be by July 31 of the following year submitted (since tax year 2018). If you get support from your tax advisor or an income tax aid association, the deadline for the submission is shifted to last day of February of the year after next.

Corporation tax summarized

  • All legal persons (e.g. corporations, associations) are obliged to pay corporation tax on their business income.
  • The corporate tax rate is 15 percent plus solidarity surcharge of 5.5 percent.
  • For certain legal entities there are Allowancesthat reduce the tax burden.
  • Corporate income tax is paid through advance payments quarterly paid to the tax office
  • The Submission deadline of the corporate income tax return is July 31 of the following year. The deadline is postponed if the tax advisor supports you.