How is a GmbH taxed in Germany?

A GmbH (Gesellschaft mit beschränkter Haftung) is a limited liability company and is taxed as a separate legal entity in Germany. It pays three main taxes: Körperschaftsteuer (corporate income tax), Solidaritätszuschlag on the corporate tax, and Gewerbesteuer (trade tax).

Körperschaftsteuer is levied at a flat rate of 15% on the GmbH's taxable profit. The Solidaritätszuschlag adds a further 5.5% on the Körperschaftsteuer, for a combined corporate-level rate of approximately 15.825%. On top of that, the GmbH pays Gewerbesteuer to its municipality. The effective Gewerbesteuer rate depends on the local multiplier (Hebesatz) but typically results in an additional 7%-17% on profits. The total combined tax burden on GmbH profits commonly falls between 28% and 33% depending on location.

When profits are distributed to shareholders as dividends, individual shareholders pay Abgeltungsteuer at 25% on those dividends. This results in a total effective tax rate on distributed GmbH profits of around 48%-50% when combining corporate and personal tax layers. Shareholder-directors can partly mitigate this by paying themselves a salary from the GmbH, which is a deductible expense for the GmbH and taxed at the individual's income tax rate. Planning the split between salary and dividends is a key aspect of GmbH tax optimisation.

This is general information only, not professional tax advice. Consult a qualified tax professional for your specific situation.