German corporate taxation has retreated into the background in the general tax debate about the government's plans to move income tax cuts forward by one year to 2004. But the taxation of corporate earnings is one of the key criteria influencing investment decisions.
A glance at the income or corporation tax rate alone doesn't suffice. Unincorporated companies and individual businesspeople pay income tax. Incorporated companies (AG, GmbH, KgaA) pay corporation tax on retained and disbursed earnings. In addition, companies headquartered in Germany have to pay municipal trade taxes.
Since the corporate asset and trade capital tax was scrapped in the late 1990's, companies are charged an overall 38.6 per cent tax on their taxable income (including the “solidarity surcharge“ of 5.5 per cent). Unincorporated companies pay as much as 50.6 per cent, according to the Federal Finance Ministry.
