Capital Withholding Tax Germany

There are not a lot of countries in the world with liberal business policies that make it easy for businessmen to set up shop and effectively conduct their activities. One of the countries known for its good business environment is Germany. The most common type of corporation in Germany is the limited liability company (GmbH). One of the best reasons for the continuing favor of Germany as a business destination is the exemption of withholding tax in Germany.

There are a number of tax benefits and advantages offered to businesses that set up shop in Germany. A limited liability company in Germany must pay corporate income tax plus solidarity surcharge and municipal tax. The general spirit of a government effort is to reduce the overall tax for corporations to below 40 % and even less. Dividends that are distributed to shareholders are subject to capital withholding tax.

The traditional income tax rules dictate that a person should make payments that are directly equal to the income they receive. The income tax is calculated yearly and paid by quarterly prepaid installments. The withholding tax is retained by the government. The payer receives a tax certificate for the paid withholding tax. The paid withholding taxes can be considered in the annual income tax declaration.

These withholding taxes can alternatively be collected on interests, dividends and other types of investment income. Many people go for foreign shares because they can have higher dividends. However, investors trading in such shares should know that a certain amount of their dividends will be withheld as tax.

Countries charge withholding taxes in different ways. In some such as the US, an investor will get charged when they submit their annual income tax return, while in others the investor gets charged the tax on the dividend payments. There are more than 60 countries in the world that use the former method.

However, it is now possible to claim the German withholding tax from stock dividends as a credit on tax returns. The claim can be made either as a deduction on tax or as a tax credit. The latter reduces the tax bill and is therefore the preferred option by most investors.

The German government provides various incentives apart from the low German withholding tax for those who want to invest in Germany.

Of course, foreign investors also get further information about various business issues in Germany, including information about German withholding tax as well as other government policies, from trusted German tax advisers.

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