Starting a Business in Berlin

42 43 Starting a Business in Berlin A Beginner’s Guide Corporation tax All corporations (such as the AG, GmbH and UG) are liable to pay corporation tax. It must be paid to the tax office every quarter in advance. Once again, it is the company’s profits that are taxed. Retained and distributed profits are subject to a standard corporation tax rate of 15 per cent. A further 5.5 per cent of this amount is payable as a solidarity surcharge under the German reunification regulations. Wages tax Wages tax is a special form of income tax. Although it is the employee who owes the tax, you as the employer must undertake to withhold it by deducting it at source, and to pay it to the tax office. Payments of wages tax must be pre-regis- tered with the tax office electronically. As well as wages tax, the solidarity surcharge and, if applicable, church tax must be withheld and paid to the tax office. Trade tax Every businessman in Germany is subject to this tax. It is the most important source of income used by local authorities to fund their public services and, in Berlin, a standard rate is levied in all boroughs. Taxation is based on trade earnings, i.e. the business’s profits adjusted in accordance with special guidelines. Payment of this tax must be made quarterly in advance. Here, too, it is important to set aside an adequate reserve if one’s profits are rising. Individuals and partners- hips are entitled to a tax-free allowance of €24,500 per annum. A lump sum for trade tax can also be offset against personal income tax. Corporations may not offset the tax, nor do they have any tax-free allowance. However, in both cases it is important to note that trade tax cannot be defined as an operating expense. CHAPTER 3