The profits of companies in Germany (GmbH, UG haftungsbeschränkt) are taxed at two levels: federal and municipal. The total tax burden on retained profits averages around 30%, but varies considerably depending on where the business is located.

Corporation tax and the solidarity surcharge

Federal corporation tax is charged on the company's taxable profit at a flat rate of 15%, regardless of turnover. A solidarity surcharge (Solidaritätszuschlag) of 5.5% of the corporation tax is added, giving an effective federal rate of 15.825%. Under current law, the corporation tax rate will fall by one percentage point a year from 2028 until it reaches 10% in 2032.

Municipal trade tax (Gewerbesteuer)

Trade tax goes to the city or municipality where the business premises (Betriebsstätte) are located. The base rate is 3.5% (Steuermesszahl). It is multiplied by a municipal multiplier (Hebesatz) set by the local authority. In Berlin, the Hebesatz is 410% (tax of about 14.35%), in Munich 490% (about 17.15%) and in some rural municipalities around 250% (about 8.75%).

The total tax rate on a company's profit

Adding corporation tax with the surcharge (15.825%) to average municipal trade tax (around 14–15%) gives a total burden of about 30–31%. This is paid in quarterly advance payments (Vorauszahlungen), with a final settlement after the annual accounts (Jahresabschluss) and tax returns.

Taxation of dividends paid to shareholders

When the company's after-tax profit is paid out to individual shareholders as dividends, capital gains tax (Kapitalertragsteuer / Abgeltungsteuer) of 25% applies, plus the solidarity surcharge and church tax if applicable. Alternatively, a shareholder with a stake of at least 25% (or at least 1% if they work professionally for the company) can apply for the partial income method (Teileinkünfteverfahren), under which 60% of dividends are taxed at their personal income tax rate.

What to check

  • Find out the exact Hebesatz in the municipality where your office is located.
  • Set aside around 30% of your estimated profit in a separate tax account.
  • Make quarterly advance payments to the tax office on time to avoid late payment surcharges (Säumniszuschlag).
  • Consider the benefit of paying the managing director a market-rate salary as an expense before the company's profit is calculated.

Example situation

The shareholders of a Berlin GmbH calculated the taxes on an annual profit of €100,000: €15,825 went on corporation tax with the solidarity surcharge and €14,350 on trade tax, leaving €69,825 of net profit to reinvest.

Next step

Company taxation in Germany is predictable and transparent: a total tax of around 30% makes it easy to plan profits and investments.

Official information on this topic

Checklists and examples are organisational recommendations. Requirements depend on the procedure, the city and your situation; check them with the relevant office before you act. Please discuss legal and tax questions with an authorised professional.

This article was prepared with the help of AI. The example illustrates the approach and does not describe a client case.