The tax terms that move your bottom line.

The 1 % rule values the private use of a company car at a flat 1 % of the gross list price per month. Alternatively, a properly kept logbook substantiates the actual cost of the private share – often the cheaper, but more demanding method.

Corporate income tax is the income tax of corporations: 15 % on taxable income, plus a 5.5 % solidarity surcharge on top. Together with trade tax, this results in a total burden of around 30 % for a GmbH.

Depreciation – in tax law called "Absetzung für Abnutzung" (AfA) – spreads the cost of an asset over its useful life across several years. It reduces taxable profit without consuming liquidity.

The Abgeltungsteuer taxes private investment income at a flat 25 % plus solidarity surcharge – effectively 26.375 %. Once withheld at source, income tax on this income is generally settled in full.

The personal allowances under § 16 ErbStG exempt asset transfers of up to €500,000 (spouses) or €400,000 (per child and parent) from tax – and renew every ten years. Those who transfer early and in intervals multiply them.

The managing director's salary is a fully deductible business expense at GmbH level and thus the most important lever for moving profits to the private level tax-effectively. If it exceeds the arm's-length standard, it risks being reclassified as a hidden profit distribution.

A hidden profit distribution occurs when a GmbH grants its shareholder a benefit it would not have granted to an unrelated third party – such as an excessive salary or privately motivated expenses. It must not reduce profit and is taxed as investment income at shareholder level.

A holding is a corporation whose purpose is to hold shares in other companies. It becomes attractive for tax purposes through § 8b of the Corporate Tax Act: dividends and capital gains are 95 % tax-exempt at the holding level.

Through the input VAT deduction, an entrepreneur subtracts the VAT he himself has paid on incoming invoices from his own VAT liability. Economically, VAT becomes a pass-through item for him – provided all conditions are met.

The investment deduction allowance (IAB) under § 7g of the German Income Tax Act lets small and mid-sized businesses deduct up to 50 % of the expected acquisition cost of a future investment up to three years before the actual purchase. It defers tax and frees cash today.

Under the partial-income method (§ 3 no. 40 EStG), dividends and capital gains from shares in corporations are only 60 % taxable; 40 % remain tax-free. It applies to shares held as business assets, to sales under § 17 EStG – and, on application, instead of the flat withholding tax.

Gewerbesteuer is a municipal trade tax levied on the trade profit of every commercial business in Germany. It is collected by the municipality and its effective rate depends on the local multiplier (Hebesatz).