German Corporate Taxes: GmbH Tax Rates Explained

Trade tax (Gewerbesteuer): the part that varies by city

Trade tax is a municipal tax, and it is where Germany's effective corporate rate becomes a local question. It is calculated in two distinct steps that are often (wrongly) collapsed into one figure:

1. Trade income × 3.5% = the base amount (Messbetrag). The base rate (Steuermesszahl) is a fixed 3.5% nationwide (§11 GewStG).
2. Base amount × the municipal multiplier (Hebesatz) = the trade tax. Each municipality sets its own Hebesatz, subject to a statutory minimum of 200% (§16 GewStG). In practice multipliers run from roughly 250% to 580%.

The effective trade-tax rate is therefore simply 3.5% × the Hebesatz. Two further points matter for a GmbH. First, trade tax is not deductible for corporation-tax purposes, so it sits fully on top of the 15.825%. Second, the €24,500 tax-free allowance applies only to sole traders and partnerships: a GmbH or AG receives no allowance and is taxed from the first euro of trade income. A financing add-back also applies, under which 25% of net financing costs above the €200,000 threshold (including the interest element implicit in leasing, rents and royalties) is added back to the trade-tax base.

Effective trade tax by Hebesatz

At a typical big-city multiplier of around 400%, trade tax is roughly 14%, and the total corporate burden lands at about 29.8%, which is where the familiar "around 30%" comes from. A low-multiplier municipality at 250% produces a combined rate near 24.6%; a high-multiplier city at 580% pushes it to about 36%.

The combined corporate tax rate by city

So is German corporate tax 30%? Yes, as a typical total, once trade tax is layered onto the federal 15.825%, but the precise figure depends on where the company is established. The full municipal range runs roughly 22.8% to 36% (15.825% plus an effective trade tax of 8.75% to 20.3%). PwC's worked examples and KPMG's published rate illustrate the middle of that range.

Combined rate by city

Treat these as indicative: they are tied to each city's current Hebesatz, which is reset by the municipality and can change. The discipline to take away is to always anchor a combined rate to a specific multiplier, never to quote "30%" as if it were a fixed national rate. If your city choice is still open, the difference between a 250% and a 580% municipality is worth modelling before you incorporate, alongside the practical considerations in company formation in Germany.

Taxing dividends: the second layer

The 15.825% plus trade tax is what the company pays on its profit. When that after-tax profit is distributed to shareholders, a second layer applies. Germany levies dividend withholding tax (Kapitalertragsteuer) of 25%, plus 5.5% solidarity surcharge on that tax, for a combined 26.375%, withheld at source.

That headline rate is frequently reduced:

• 0% under the EU Parent-Subsidiary Directive, where the corporate parent holds at least 10% of the subsidiary for at least one year.
• Treaty rates under Germany's double-tax treaties, for example 0% for qualifying US recipients (subject to conditions), 5% (Austria, Croatia, France) and 15% (most other countries).
• Corporate recipients can generally refund withholding tax charged above the applicable 15% (plus soli) rate.

The interaction of treaty and directive relief is fact-specific and is exactly the kind of question a licensed Steuerberater should confirm for your shareholding structure.

The §8b participation exemption (holding companies)

Where one corporation holds shares in another, the §8b KStG participation exemption softens that second layer considerably. Dividends and capital gains a corporation receives from a corporate shareholding are effectively 95% tax-exempt, because 5% is treated as a non-deductible business expense and added back.

The thresholds differ between the two taxes. The corporation-tax exemption requires a holding of at least 10% at the start of the calendar year; the trade-tax exemption requires at least 15% at the start of the tax year. This is the core mechanic that makes a holding structure efficient for reinvesting profits, and it is set out in more depth on our German holding company page.

Corporation vs partnership: why the tax treatment differs

The two-layer model is specific to corporations. A GmbH or AG is a corporation, a separate taxable person: it pays 15.825% plus trade tax at the entity level, and then a second layer of 26.375% withholding applies when profit is distributed to shareholders.

A partnership (GbR, OHG, KG) is largely transparent. Its profits are not taxed at the partnership level for income-tax purposes; instead they are attributed to the partners and taxed in their hands at personal rates. The partnership itself does pay trade tax (and, being a partnership, benefits from the €24,500 allowance), but partners then receive a trade-tax credit against their personal income tax under §35 EStG, which can largely neutralise the trade tax. There is no separate distribution layer. Which structure is more efficient depends on profit levels, whether profits are reinvested or extracted, and the shareholders' own tax position, so it is a question to model with an advisor rather than answer in the abstract.

Losses and the future rate cut

Two further planning points are worth knowing. First, losses can be carried forward indefinitely, but their annual use is capped under the minimum-taxation rule (Mindestbesteuerung): only €1 million plus 60% of income above €1 million can be offset in a given year, temporarily raised to 70% for 2024 to 2027. Profits above that floor remain taxable even where carried-forward losses exist.

Second, the CIT rate is legislated to fall. §23 KStG holds the rate at 15% through 2027, after which it steps down to 14% (2028), 13% (2029), 12% (2030), 11% (2031) and 10% (from 2032), with the solidarity surcharge continuing on top. For any planning in the current year, use the 15.825% federal figure for FY2026; the glide path matters for medium-term modelling. Keeping accurate books is what makes loss carryforwards and timing decisions usable, which is where ongoing accounting and bookkeeping services come in.

Who files this for you (in English)

We are an English-speaking firm in Germany that coordinates your corporate-tax compliance end to end, in plain English, working with a licensed German Steuerberater who reviews the positions, prepares the returns and files them. The division of labour matters: under the StBerG, only a licensed Steuerberater (or another person authorised under §3 StBerG) may give reserved tax advice or file the returns. We manage the engagement, the translation and the document flow; the Steuerberater carries the licensed work. We do not hold ourselves out as a Steuerberater or a law firm. If you want the reserved advice itself, that runs through our English-speaking tax advisor in Germany relationship.

Author: Anna Müller, Legal Consultant.