international tax summaries--GERMANY,FEDERAL REPUBLIC OF（1998）（二）
international tax summaries--GERMANY,FEDERAL REPUBLIC OF（1998）（二）
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OTHER SIGNIFICANT TAXES
21. Sales (Value-Added) Taxes
VAT is a tax on goods or services supplied in the course of
independently carrying on a business or other economic activity in Germany. Salaried employment is, therefore, outside the scope of the tax.
As a general rule, the place from which any goods are supplied or where the provider of services is established determines whether an activity takes place in Germany. However, there are exceptions, for example:
Service Where Supplied
In respect of immovable property Where land is situated
On movable goods Where goods are located
Conferences, exhibitions, entertainment, training, and education Where service is performed
FinanCIAl services, consulting services, most equipment Where recipient is located if leasing, use of intellectual property, and advertising the recipient is an entrepreneur
Supplies that do not take place within Germany are referred to as being outside the scope?of tax.
VAT is also due on goods imported into Germany from a country that is outside the EU and on goods that have been acquired?(i.e., imported) from other EU Member States under the EU Single Market procedures.
VAT is charged at the following rates, unless the goods or services are outside the scope of VAT or exempt from VAT:
Standard rate 15%
Lower rate on food, plants, books, etc. 7%
Exemptions apply, inter alia, to certain banking, insurance, and finanCIAl services, property transactions, education and health services, certain nonprofit-making activities, and sales and rentals of land and premises. The supply of goods to recipients outside of Germany also is exempt. Supplies that are not exempt are referred to as taxable supplies.
To avoid double taxation, credit is given for VAT paid on goods and services used for the purpose of making any taxable supply and any supply that is outside the scope of VAT if it would have been taxable if carried out in Germany. Credit for VAT paid is also given in respect of certain exempt transactions, e.g., exports. However, most exempt
transactions do not entitle the supplier to credit for VAT incurred, and, therefore, the underlying VAT represents a cost.
The principal mechanism for collecting the tax requires the
supplier (called a taxable person) to charge VAT on the goods or services supplied, to take credit for VAT paid on business expenditure, and to pay the net tax over to the authorities. However, for some transactions, e.g., the intra-Community supply of goods, the recipient of the supply of goods is required to account for the VAT due, rather than the supplier.
SpeCIAl rules allow the recovery of VAT incurred by foreign
enterprises in Germany if the VAT is referable to the making of
supplies outside Germany.
22. Inheritance and Gift Taxes
A federal tax is imposed on estates and gifts at different rates with regard to the relationship of the persons involved. Several allowances, e.g., for business assets, personal belongings, and relatives, are available.
23. Taxes on Payrolls (SoCIAl Security)
In Germany, social security is not financed by taxes. SoCIAl security for employees is a comprehensive insurance scheme that includes three types of insurance. The first type old age or long-term disability and the second type unemployment insurance are institutions under public law, and all employees are compulsory members. Health insurance and insurance for nursing care the third type are organized both under public law and under private law; membership is compulsory for health
insurance and nursing care, up to a wage/salary level of DM 73,800 per year (new Federal States, DM 63,900) in 1997.
The basis of assessment for insurance contributions is the gross income of the insured employee up to DM 96,000 (in 1996) (new Federal States, DM 81,600) and for the purposes of health and nursing insurance up to the above-mentioned amount for compulsory membership. Any income in excess of this limit is irrelevant for the purpose of the assessment. These limits are adjusted on a yearly basis.
Both the employee and employer pay equal amounts of contributions, and the employer withholds the employee portion from his or her compensation. The amount is computed on a percentage basis in relation to the gross amount. The rates in 1997 are:
Old age and long-term disability 20.3% (employee and employer 10.15% each)
Health appr. 13.8% (6.9% each)
Nursing care 1.7% (0.85% each)
Unemployment 6.5% (3.25% each)
All employers are obliged to insure their employees against industrial accident or illness. These contributions are borne solely by the employers.
24. Taxes on Natural Resources
Annual royalties have to be paid for exploitation of natural resources.
The rates vary according to the nature of the resources extracted and the location of the exploitation.
25. Other Taxes
Property Tax. Federal property tax was abolished effective January 1, 1997.
Trade Capital Tax. The municipal trade capital tax will be abolished in 1998.
Land Tax. Municipal authorities impose a land tax on the unit value of land. The tax rates vary with the location of the land.
Capital Transfer Tax. There is a capital transfer tax of 3.5% for the transfer of land.
Insurance Premium Tax (IPT). IPT applies to most general insurance, except life and health, where the risk is located in Germany and is payable on all sums received by the insurer for insurance contracts.
The standard rate is 15% of gross premiums, but there are some lower rates.
Other Taxes. There are some other direct and indirect taxes. The most important indirect tax being taxes on tobacco, spirits and gasoline. The most important direct tax being on registered motor vehicles.
COMPUTATION OF TAXABLE INCOME
26. Capital Gains
For the basis for determining profit, see item 3.
27. DepreCIAtion and Depletion
The annual depreCIAtion rate for buildings (for straight-line
depreCIAtion) is 4% of the purchase price or the cost of construction if the construction permit was applied for after March 31, 1985, and the building is an operating asset not used for residential purposes.
If the construction permit for such a building was applied for before January 1, 1994, or the conclusion of the sales contract took place before that date, the taxpayer may elect to write off 10% during the first four years, 5% during the next three years, and 2.5% during the subsequent eighteen years if the taxpayer erected the building or purchased it before the end of the calendar year of construction.
The straight-line depreciation for other buildings completed after December 31, 1924, is 2% and 2.5% for buildings completed before that date.. If the period of economic use can be shown to be shorter than 50 years, the depreciation can be adjusted accordingly. One alternative to straight-line depreCIAtion for such buildings if newly purchased or newly constructed or purchased within the year construction was
completed, under the condition that the construction permit was applied for before January 1, 1995, or the conclusion of the sales contract took place in the year of construction and also before January 1, 1995, is:
During the first 8 years 5.00%
During the next 6 years 2.50%
During the subsequent 36 years 1.25%
If such a building is destined to be let for residential purposes and the construction permit was applied for after February 28, 1989, but before January 1, 1996, or the conclusion of the sales contract took place between these dates, a second alternative is:
During the first 4 years 7.00%
During the next 6 years 5.00%
During the next 6 years 2.00%
During the subsequent 24 years 1.25%
If a building intended to be let was purchased or the construction permit was applied for after December 31, 1995, the depreCIAtion is:
During the first 8 years 5.00%
During the next 6 years 2.50%
During the next 36 years 1.25%
In the case of movable goods and business assets, the taxpayer has the option to write off the purchase price or the cost of construction either in equal yearly amounts during their customary useful life (straight-line method), or at a fixed percentage of the balance of the book value (declining-balance method). Low value assets (less than DM 800) may be written off in the year of purchasing the assets. The declining balance method is subject to the restriction that the applicable rate may not exceed three times the rate of straight-line
depreciation, and in no case may it exceed 30%. As a third method, depreciation may also be based on the economic performance of the asset. Other goods such as immovable or immaterial assets may be depreciated only by the straight-line method. In addition, extraordinary technical or economic wear and tear are taken into account for depreCIAtion purposes.
The tax authorities have published tables giving the economic useful life?and AFA (depreciation for wear and tear allowed by tax regulations) rates for a wide range of goods. Deviation from these rates by the person or body liable for tax is permissible if it can be justified. There are various possibilities for so-called special depreCIAtion. This is not based on wear and tear, but is granted as an investment incentive in certain industries.
28. Treatment of Dividends
The distributing company is required to deduct a 25% withholding tax from the amount of dividends payable to shareholders. A shareholder subject to unlimited tax liability can then offset the tax withheld against his or her liability for income or corporation tax.
The same procedure applies to the 30% corporation tax on the company distributed profits. The total amount of tax liability (which does not reflect surtax) is accordingly calculated as follows:
Income after trade income tax DM 100
Less corporation income tax (30)
Income after taxes = dividend 70
Less 25% withholding tax (17.5)
Income after withholding tax 52.5
Total tax liability 47.5
By EU parent subsidiary directive and some double taxation treaties, the withholding tax is limited to rates from 0% to 15% (see item 17). In such a case, the tax withheld in excess of this rate is refunded to the foreign shareholder on application. If the Bundesamt fur Finanzen issues a notice of exemption, only the limited withholding tax must be deducted (see item 17).
29. Loss Carryovers
The first DM 10 million of losses generally are carried back for two years. Any loss remaining out of the DM 10 million as well as any excess loss can be carried forward without any time limit. Any loss carryover requires that the losses be connected with earnings in Germany and documented by records kept in Germany.
30. Transactions Between Related Parties
Revenue transactions between related parties, in particular
international transactions, must be at arm length.
Beginning in 1994, new thin capitalization rules disqualify, in certain circumstances, interest paid on debt that has been provided to a German company by a shareholder not entitled to a corporation tax credit. However, safe havens result under the following debt/equity ratios:
q 1:2 for payments made with regard to profit-related debts;
q 3:1 for payments made with regard to nonprofit-related debts; in the case of a holding company, the ratio is 9:1.
31. Consolidation of Income
If a corporation is finanCIAlly, economically, and organizationally controlled by another German enterprise (which may be the permanent establishment of a nonresident corporation), and if an agreement on the transfer of profits and losses has been entered into, the income of the subordinate corporation will be attributed directly to the dominant
enterprise (so-called Organschaft fiscal unity). Only a corporation that has its registered seat in Germany can be a subsidiary corporation within these rules.
32. Tax Periods
The income tax assessment period is always the calendar year or, whenever the tax liability begins or ends during the year, the appropriate part thereof. Those who carry on a trade or business (both individuals and companies of any kind) can have fiscal years that differ from the calendar year, but which in no case may exceed a period of 12 months. The fiscal year is that period for which finanCIAl statements are regularly prepared. The profit derived within a fiscal year is assessed in the calendar year in which the fiscal year ends.
34. Incentives and Grants
The federal government and the governments of all 16 states (Lnder) offer an assortment of financial incentives to promote private investment. These consist of direct subsidies (loans or grants) s well as tax reliefs given as depreCIAtion allowances. Both kinds of aid are restricted either as to the region where they apply or as to the type of purchased goods, or the industry concerned. The most important measures are:
q Grants, credits,