[ESTABLISHING A BUSINESS ENTITY IN GERMANY]
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liability for individual partners are only possible to a limited extent. No minimum share capital is required, and the accounting obligations and publication requirements are less extensive than those for corporations. b. Establishment of a Partnership Establishing a partnership is easy and can be completed in just a few steps. At least two partners are required to establish a company. A minimum share capital does not have to be raised. The management of the company can only be carried out by partners. Depending on the type of partnership, entry in the commercial register (Handelsregister) is required. The application is signed by all partners and must be filed by a German notary in certified and electronic form with the commercial register. If a business activity is carried out by the partnership, the trade office (Gewerbe-/Ordnungsamt) must accordingly be notified. c. Taxation of a Partnership and its Foreign Partners A partnership is transparent for income tax purposes. This means that the partnership is not subject to income tax. Whether the foreign partners are subject to taxation in Germany depends on the circumstances and the structure of the partnership. If the sole business purpose of the partnership is the holding of shares in corporations (GmbH or AG), it is usually possible to structure the partnership in a way that the foreign partners are not subject to taxation in Germany. If the partnership is, however, engaged in operative activities, the profit realized by the partnership is taxable at the level of the partners in accordance with their participation quota, even if the profit is not distributed to them. If the foreign partner is
a corporation, such profit is subject to corporate income tax and solidarity surcharge (in total 15.825 %) in Germany. If the partner is an individual, the profit is subject to income tax at his personal income tax rate, which depends on the amount of income. The maximum income tax rate is 45.00 % plus solidarity surcharge applying to taxable incomes exceeding EUR 277.826 (or EUR 555.652 for jointly taxed spouses). The transparency principle does not apply to trade tax. Therefore, most of the partnerships are subject to trade tax. The tax rate corresponds to the rate, which applies to corporations (see above). The same applies to restrictions with regard to the deduction of expenses (e.g. interest and rental expenses). If the foreign partner is an individual, a portion of the trade tax corresponding to his participation in the partnership may be credited (in whole or in part) against the partner's income tax liability. Pure asset managing partnerships can usually be structured in a way so that they are not subject to trade tax. Interest income from a loan granted by a partner to its partnership is subject to taxation in Germany. This applies even if a double taxation treaty is in place subject to the proviso that the foreign partner may credit his foreign tax against his German income tax liability. Only pure asset managing partnerships can usually be structured in a way so that such interest income is not taxable in Germany. With effect from the calendar year 2022, the German Corporate Income Tax Act provides a check-the-box option according to which a partnership may apply to be treated as a corporation for corporate income tax purposes.
ILN Corporate Group – Establishing a Business Entity Series
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