[ESTABLISHING A BUSINESS ENTITY IN GERMANY]
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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. It is suitable for start-ups launching a business idea in cooperation with others. Formation of a GbR is fairly uncomplicated. At least two partners must agree on the establishment of the GbR and conclude a partnership agreement. A written partnership agreement is recommended but is not compulsory. The partners are jointly liable with their private assets for debts incurred by the company. If the GbR conducts trade in the form of a small trade business, it has to register with the local trade office. It must not be entered into the commercial register. A GbR is only allowed to conduct "small trade business." As soon as it exceeds certain thresholds of annual turnover, capital resources and total number of employees or uses commercial accounting, the company is deemed to be a commercial business and must be entered in the commercial register upon which it automatically becomes a general commercial partnership ( Offene Handelsgesellschaft, oHG ). e. General Commercial Partnership (oHG) The general commercial partnership (Offene Handelsgesellschaft, oHG) is 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. In order to establish an oHG, two or more partners must conclude a partnership agreement. It is advisable for the partnership agreement to be made in writing. All partners
ILN Corporate Group – Establishing a Business Entity Series
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