Offshore asset protection trust – What is it?
The corporation tax (KSt) in the Federal Republic of Germany is a tax levied on the income of legal persons. These legal entities include corporations, associations, and cooperatives. The corporate tax rate is uniformly 15%. In addition to corporation tax, 5.5% of the tax sum will be due as a solidarity surcharge. Corporate income tax is governed by various tax laws. Taxable legal persons are obliged to submit a corporation tax return to the relevant tax office on an annual basis. Parties, non-profit companies or those serving a church purpose and federal enterprises are exempt from corporate income tax. In addition to corporate and trade tax and income tax are on business income on the charges in Germany corporate taxes.
In the context of the Corporate Income Tax, the crime of tax evasion occurs when a taxpayer hides or omits information in his tax declaration, in order not to pay (or pay less) the tax.
The corporate tax is a so-called direct tax because the taxpayer has to bear the burden himself. In addition, since it is a tax whose amount is dependent on the profit, it is an income tax and as a person is taxed (including legal), including a personal tax. The corporation tax collected is half of the federal government and half of the federal state in which it was levied.
Many income tax regulations set out in the Income Tax Act also apply to corporation tax. The Corporate Income Tax Act (KStG) is based on the content of the EStG. More detailed rules can be found in the Corporate Income Tax Implementing Regulation.
How are corporate tax and trade tax-related?
If profits are obtained from a trade or if it is a corporation, then a corporation is also subject to trade tax. Any business tax paid is not credited against corporation tax. The profit generated and distributed by a corporation is also taxed by shareholders and shareholders as income from capital assets within the framework of income tax. However, it is not the individual tax rate that is used but the tax rate of the flat tax.
Who is liable to corporation tax?
Corporate taxation distinguishes between unlimited and limited tax liability. The following entities are subject to unlimited or limited tax liability in accordance with KStG:
|Type of tax liability||legal forms|
|Unlimited tax liability||– corporations (AG, KGaA, GmbH and European corporate forms)- employment and economic cooperatives- Mutual insurance and pension funds- Legal persons of private law, such as registered associations (eV) or foundations- Non-legal associations, foundations, institutions and special funds that are to be assigned to private law- Businesses of public corporations, such as municipal utilities or local public transport companies owned by municipalities or federal states|
|Limited tax liability||– If you are domiciled abroad, you have limited tax liability. Possibly the agreements from double taxation agreements come into effect.- Public bodies are also subject to a limited tax liability for their income subject to capital gains tax.|
Who is exempt from paying corporation tax?
Some entities, as mentioned above, are not required to pay corporation tax. These include federal corporations, political parties in accordance with section 2 of the Law on Parties (PartG), professional associations and all charitable, benevolent or ecclesiastical purposes that do not conduct business.
How is the amount of corporation tax determined?
The tax rate including solidarity surcharge is 15.825% of the taxable income. This tax rate applies uniformly throughout the Federal territory. Section 7 (1) KStG provides that corporate income tax is based on taxable income. The profit shown in a tax balance sheet is used to calculate the income. The calculation is similar in many parts to the determination of income in the context of income tax. If the regulations of the KStG go further than those of the EStG, they must be explicitly applied.
Not always can the profit is shown in a balance sheet be used without further ado. For example, this should be corrected if the valuation of fixed assets deviates from one another or if profit or loss carryforwards from previous years have not yet been included in net income for the year. Profit distributions that occur during a financial year are also to be considered. By way of example, the following items are taken into account when determining the income in accordance with R 29 (1) KStR :
|Net income according to the balance sheet+ – any corrections|
|Net income according to the tax balance sheet+ hidden profit distributions- hidden deposits+ non-deductible expenses+ Total amount of benefits+ – reductions / additions (for participation in other companies)- Tax-free income+ Profit surcharges- Investment deduction amounts|
|= taxable profit- deductible benefits= Total income- loss deduction= Income|
|– Allowances for certain entities|
|= Total of taxable income|
What are the hidden profit distributions?
There is a possibility to make corporations covert profit distributions. This is always the case if a shareholder concludes a contract with a corporation that, in its design, could not have been concluded with a third party. A typical example is the payment of exceptionally high rents or the invoicing of extraordinary costs. The same applies to members of a partner who would benefit from such contracts. Since according to KStG unnecessary expenditure, which includes such contracts, must not reduce a taxable income, the tax burden is not reduced. The person who profits from a hidden profit distribution must tax it as income from capital assets. However, this only applies to the amount that is considered inappropriate. The appropriate proportion, such as salary or room rent, is taken into account as non-self-employment or leasing and leasing income.
What are the hidden deposits?
Just as shareholders can gain their own advantage, they can also give a corporation an advantage. This is the case, for example, when salary is waived or assets are sold far below value to a corporation. Such deposits must not influence income and must, therefore, be neutralized. Business transactions with close relatives of a partner are also taken into account.
How do investments in other corporations affect you?
Larger companies, in particular, are complex entities with many individual companies that are hierarchical or involved in one another. In order to avoid the cumulative effect of corporation tax, profit distributions or capital gains from the sale of units are not taxable in accordance with § 8b KStG. This only occurs if the profits are distributed to natural persons.
Which allowances are subject to corporation tax?
Allowances are only granted to certain entities. For example, agricultural associations and cooperatives are subject to an allowance of € 15,000 and to corporations that do not distribute profits, such as registered associations, a deduction of € 5,000. The allowances are simply deducted from the income determined.
How is the corporation tax to be explained?
Corporations are required to file corporation tax returns for the previous year until 31 May of the following year. Similar to the VAT, the responsible tax office can set regular advance payments. If necessary, the corporation tax declaration sheet can be supplemented by different annexes. This includes:
- Annex SP: For the deduction of donations
- Annex A: For the indication of non-deductible expenses
- Annex AE: For foreign income
- Annex GR: cooperatives and associations
- Annex ORG: For tax groups
- Annex WA: For the explanation of further information such as share capital or relations of the shareholders
The declaration is issued either by the responsible managing directors or an authorized tax advisor.