[ESTABLISHING A BUSINESS ENTITY IN GERMANY]
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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 280.000 (or EUR 560.000 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. d. Civil Law Partnership (GbR) A civil law partnership (Gesellschaft bürgerlichen Rechts, GbR) is defined as an association of individuals or enterprises united in the achievement of a joint contractual purpose, suitable for start-ups and collaborative ventures. With new legal reforms effective 1 January 2024, a GbR now has the option to register in the newly established Gesellschaftsregister, gaining legal capacity (in this case the GbR is referred to as eingetragene Gesellschaft bürgerlichen Rechts, eGbR). This registration enables the GbR to hold assets, sue, and be sued in its own name, thereby limiting the direct personal liability of the partners which was previously unlimited to their private assets. While registration is optional, it provides significant advantages for GbRs engaging in substantial commercial activities or requiring formal legal standing. Formation remains straightforward, requiring only a partnership agreement, recommended to be in writing. If the GbR engages in trade and surpasses certain thresholds, it may need to register as a general commercial partnership (Offene Handelsgesellschaft, oHG). e. General Commercial Partnership (oHG) The general commercial partnership (Offene Handelsgesellschaft, oHG) continues to be the classic partnership form for small and medium- sized enterprises (SMEs). Its structure corresponds to the civil law partnership ( GbR ). Every GbR that runs a commercial enterprise (a business enterprise of a type or size requiring business operations to be set up in a commercial manner) automatically qualifies as an oHG. Accounting regulations for an oHG are stricter than those for a GbR.
ILN Corporate Group – Establishing a Business Entity Series
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