Tax as a GmbH: The Taxes That Apply

Tax legislation distinguishes between limited companies (Kapitalgesellschaften) and partnerships (Personengesellschaften): the manner of taxation differs considerably. For limited companies such as a GmbH, the state taxes the company's profit directly; for partnerships, it calculates taxes on the income of the individuals involved. The principal profit tax for GmbHs is corporation tax (Körperschaftsteuer), whereas sole traders, members of a civil law partnership (GbR), and other partnerships pay income tax (Einkommensteuer) on their earnings.

The tax obligations of a GmbH include taxes specific to limited companies as well as taxes paid by businesses of various legal forms. An overview of the taxes:

- Corporation tax on profit

- Solidarity surcharge (Solidaritätszuschlag — calculated as a percentage of corporation tax)

- Trade tax (Gewerbesteuer)

- VAT (Umsatzsteuer)

Corporation tax and the solidarity surcharge are borne by all limited companies. Trade tax and VAT are remitted by businesses regardless of their legal form; other factors are relevant here.

As the person responsible for a GmbH, you prepare a profit and loss account each year, which forms part of your annual financial statements. In this profit and loss account, you determine your earnings: if a profit arises, the tax office demands corporation tax and the associated solidarity surcharge. The tax rates are:

- 15% corporation tax on profit

- 5.5% solidarity surcharge on the corporation tax

If your tax office calculates a corporation tax liability of 10,000 euros, a further 550 euros in solidarity surcharge is added.

It makes no difference how you use your profits. Whether you distribute the profit to shareholders or retain it within the company: you pay corporation tax in either case!

To calculate the corporation tax, you submit an annual corporation tax return. The tax authority calculates the tax liability for the preceding financial year and the advance payments due. Leave this task to experienced tax experts — Guhr Steuerberatung takes care of this administrative burden!

Trade tax is also a profit-based tax: unlike the nationally uniform corporation tax, local authorities set the rates, which means there are significant regional variations in tax burden. You should expect a tax rate of approximately 15% — your tax advisers will give you detailed information!

In principle, trade tax is also based on the profit and loss account. In addition, trade tax law provides for add-backs and reductions, so the trade income (Gewerbeertrag) and the tax base for corporation tax differ.

As a founder, you can choose from a wide range of legal forms. The choice of legal form is one of the most important decisions in the founding process, and the tax aspect plays a central role.

The obvious question is: which legal form results in the lowest tax burden? This cannot be answered in general terms — let Guhr Steuerberatung support you!

The tax advisers will calculate in detail what tax payments you should expect. Depending on the level of your projected profit, they will recommend whether to set up a partnership or a limited company such as a GmbH. The guiding principle here is: the higher the profit, the more advantageous the GmbH model! This phenomenon is based on the progressive nature of income tax. An example to illustrate:

You run your business as a successful sole trader and enjoy high annual profits. As a sole trader, you pay income tax on these earnings at your personal income tax rate. With high profits, this rate is in the region of the top tax rate. In this case, the GmbH tax model proves to be the better option! The picture is different when your income tax rate is low.

Overall, calculating the tax implications is a complex undertaking. A wide variety of factors deserves consideration: for GmbHs, for example, the tax burden on profit distributions also matters, and the level of the local trade tax rate is a further factor. The different treatment of trade tax for partnerships and limited companies is also relevant. For income tax purposes, the tax office takes trade tax payments into account; for corporation tax, this is not the case.

Leave this analysis to professional tax advisers! This advice applies equally to existing businesses. Are you considering changing your legal form? Find out how a change of legal form would affect your tax payments!

When your GmbH generates a profit, all shareholders are pleased. However, this does not automatically mean that they benefit from it directly. The shareholders' meeting must pass an explicit resolution on profit distributions for money to flow from the company to the shareholders.

This leads to the next question: how are these profit distributions taxed? In many cases, shareholders choose between two options: the flat-rate withholding tax (Abgeltungsteuer) and the partial income method (Teileinkünfteverfahren).

Under the first option, you pay withholding tax at a rate of 25%. The solidarity surcharge on the withholding tax is added on top. Members of a church also pay church tax.

Under the partial income method, income tax, the solidarity surcharge, and church tax apply. For income tax purposes, your individual income tax rate applies: in most cases, this is higher than the 25% withholding tax rate. The advantage is that you only pay tax on a portion of the profit. The tax office levies income tax on 60% of your business investment income; the remaining 40% is tax-free.

Withholding tax or the partial income method? This depends, among other things, on the level of the profit distributions. It also matters what other income you receive. Seek the advice of competent tax advisers!

It is common for at least one shareholder to work in the GmbH personally, with the position of managing director being particularly popular. In this case, shareholders benefit from the company in two ways:

- They receive profit distributions when business is going well.

- They receive a monthly salary.

Salary payments are subject to payroll tax (Lohnsteuer), as with all other employers. The employer remits this tax automatically; the rate rises as the salary increases.

Particularly in the case of single-member GmbHs, the question arises as to whether the shareholder prefers to receive a salary or profit distributions. This question also arises in GmbHs with multiple shareholders when all shareholders work directly in the business. Ask your Guhr Steuerberatung!

The fundamental distinguishing feature of GmbHs is that the tax liability lies with the company. The state taxes the company directly, whereas for partnerships it taxes the incomes of the individual sole traders or shareholders. Beyond this, there are many noteworthy facets to the topic of GmbH and taxation, as well as numerous tax optimisation opportunities. Make use of the expertise of Guhr Steuerberatung!