| Germany
has high corporate income tax rates
and has never been considered a tax-efficient
financial center. Nonetheless it offers
significant fiscal concessions to
corporates through co-ordination centres,
holding companies and a number of
special corporate income tax regimes.
In
November 2006, Germany's coalition
government arrived at an agreement
over key company tax reforms which
will reduce the overall corporate
tax burden, currently one of the highest
in the world.
Finance
Minister Peer Steinbrueck told reporters
after a working group meeting that
the reforms will cut the overall corporate
tax burden to a little under 30% from
the current level of almost 40%.
This
will be brought about largely by a
cut in the 25% headline corporate
tax rate, paid by large companies,
to 15% in 2008. Companies will continue
to pay corporate tax at the local
level at an average of about 13%.
The
reforms are expected to cost EUR5
billion (US$6.4 billion) in the first
year and EUR30 billion overall, but
EUR25 billion of this will be clawed
back through efforts to widen the
tax base.
One
offsetting measure is the controversial
decision to restrict the amount of
interest that German companies can
deduct from loans received from overseas
units. Many business leaders worry
that this measure will restrict companies'
ability to invest.
The
ruling coalition parties also agreed
to introduce a 25% capital gains tax
from January 1, 2009. This will replace
the current system, whereby capital
gains are subject to personal income
tax, which can be as high as 42%.
This will apply to income from earned
interest and dividends, and private
investors' share sales.
Small
companies, which are also taxed under
the personal income tax system, will
receive preferential treatment on
retained profits.
However,
in March 2007, it emerged that the
German government may not be able
to deliver the promised programme
of company tax reforms agreed by the
coalition cabinet, as members of the
Social Democratic Party (SPD) grow
increasingly uneasy over the cost
of the tax cuts.
According
to reports, regional members of the
left-leaning SPD - a key partner in
Chancellor Angela Merkel's 'Grand
Coalition' - were unhappy that the
Finance Ministry had revised up estimated
company tax relief during the first
years of the new tax regime.
It
was also said that some SPD politicians
had met with increasing opposition
from their constituents to the plans
to slash taxes for companies while
individual tax breaks and subsidies
are disappearing to help the government
balance its books.
Germany
Knowledge Base
- GERMANY
C0-ORDINATION CENTRES
- GERMANY HOLDING
COMPANIES
- GERMANY SPECIAL
CORPORATE INCOME TAX REGIMES
|
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