How a GmbH or UG is taxed in Germany

A GmbH or UG pays two taxes on its profit: corporation tax of 15% plus a 5.5% solidarity surcharge on it, and trade tax, set by the town it is based in. At the national average that comes to about 30%; in the big cities between 30% and 33%. Profit paid out to a private shareholder is taxed a second time: the company withholds 26.375% of the payout and sends it to the tax office. Salaries to managing directors cut the company's tax but are taxed as wages instead. And corporation tax falls by one point a year from 2028, to 10% from 2032.

1. Two taxes on the company's profit

A GmbH is a taxpayer of its own, separate from the people who own it. A UG (Unternehmergesellschaft) is a GmbH with less capital and is taxed in exactly the same way. Its profit comes from its annual accounts, and it pays two taxes on it:

• corporation tax (Körperschaftsteuer), a federal tax, plus the solidarity surcharge on it;
• trade tax (Gewerbesteuer), which goes to the municipality.

Both are flat. There is no tax-free personal allowance and no progressive scale: the first euro of profit is taxed at the same rate as the millionth. And unlike a freelancer, a company pays trade tax whatever it does. The activity of a GmbH always counts as a trade business, in full (§ 2(2) GewStG), so a translator or software consultant who moves their work into a GmbH starts paying trade tax on it. The guide on Freiberufler or Gewerbe explains the distinction for individuals.

VAT is separate and works for a company as for anyone else in business. The small-business rule (Kleinunternehmer) is open to a GmbH too: no VAT is charged if turnover was no more than €25,000 last year and stays under €100,000 this year (§ 19 UStG; see the Kleinunternehmer guide).

2. Corporation tax and the solidarity surcharge

Corporation tax is 15% of taxable income (§ 23(1) KStG). On top comes the solidarity surcharge (Solidaritätszuschlag) of 5.5% of the corporation tax (§ 4 SolZG), so 15.825% together. Since 2021, individuals pay the surcharge only on higher incomes, because of an exemption threshold. That threshold is for income tax only: companies pay it in full. The Federal Constitutional Court rejected a challenge to the surcharge in March 2025 (2 BvR 1505/20).

Taxable income starts from the profit in the accounts and is then adjusted. The adjustments that come up most in small companies:

• Trade tax itself is not deductible as a business expense (§ 4(5b) EStG), which is why the two rates simply add up.
• Hidden profit distributions are added back (§ 8(3) KStG, section 7).
• Dividends from other companies are 95% tax-free if the company held at least 10% at the start of the year (§ 8b(1), (4), (5) KStG). This is the reason holding structures exist.
• Losses are carried forward. Above €1 million, only 70% of the remaining profit can be offset in a year in 2024 to 2027, and 60% again from 2028 (§ 10d(2) EStG). Losses are generally lost when more than half of the shares change hands within five years, with exceptions (§ 8c KStG).

3. Trade tax: set by the town

Trade tax is worked out in two steps. The profit, adjusted for trade tax, is multiplied by 3.5% to give a base amount (§ 11(2) GewStG). The municipality then multiplies that by its own percentage, the Hebesatz. At a Hebesatz of 400%, trade tax is 14% of profit.

• No allowance for companies. The €24,500 allowance applies only to individuals and partnerships (§ 11(1) GewStG). A GmbH pays from the first euro.
• No credit against it. Sole traders and partners can set most of their trade tax off against income tax (§ 35 EStG). A company can't: for it, trade tax is a real extra cost.
• Some costs are added back. A quarter of financing costs (interest, and set shares of rents, leases and licence fees) is added to the profit, as far as their total exceeds €200,000 a year (§ 8 no. 1 GewStG). Small companies rarely reach that.
• The minimum Hebesatz rises. It is 200% for 2025 and 2026. From 2027 a municipality must charge at least 280% (§ 16(4) GewStG, § 36(5b), changed by a law of 29 June 2026). The low-tax towns that some companies register in for this reason lose part of their edge.

The guide on trade tax covers the base, the add-backs and the prepayments in more detail.

4. The combined rate, city by city

Add the three together: 15% corporation tax, 0.825% surcharge, and 3.5% times the Hebesatz. The average Hebesatz across all German municipalities was 410% in 2025, according to the Federal Statistical Office (Destatis, 15 October 2026).

Hebesätze from Berlin, IHK Frankfurt, Hamburg and Munich, checked 22 October 2026. The totals assume the trade tax base equals the profit, before any add-backs.

The rate on profit that stays in the company ends here. That is the main tax argument for a GmbH: profit that is reinvested has been taxed at about 30%, while a sole trader pays income tax of 42% on every euro of taxable income above €69,879 (2026, § 32a EStG) in the year it is earned, whether the money stays in the business or not. The comparison changes as soon as the profit is paid out.

5. Paying out profits: the second layer

The company's profit belongs to the company. Shareholders get it by resolving a distribution (Gewinnausschüttung), usually once the annual accounts are approved. On the payout to a private shareholder the company must withhold:

• 25% withholding tax (Kapitalertragsteuer) (§ 43a(1) EStG),
• plus the 5.5% surcharge on it, so 26.375% of the payout;
• plus church tax for shareholders who pay it (§ 51a(2b) EStG).

The timing catches people out. Withholding tax on a GmbH dividend is due at the moment the dividend counts as received, not on the tenth of the next month as for most other withholding: that is the payout date named in the resolution, or the day after the resolution if it names none (§ 44(1), (2) EStG). The company reports it electronically on the official form (§ 45a(1) EStG) and issues the shareholder a certificate on request.

For the shareholder, there are then two routes:

• Flat tax (Abgeltungsteuer), the default. The 25% withheld is final (§ 32d(1) EStG). The saver's allowance of €1,000 a year (€2,000 for a jointly assessed couple) applies across all capital income (§ 20(9) EStG). Costs connected with the shares can't be deducted.
• Partial-income method (Teileinkünfteverfahren), on application. 60% of the dividend is taxed at the shareholder's personal income tax rate, and 60% of related costs, such as interest on a loan taken to buy the shares, become deductible (§ 3 no. 40 EStG, § 3c(2)). It is open to shareholders holding at least 25%, or at least 1% and working for the company in a role with significant influence on it. The application goes in with the tax return at the latest and binds for five years; the saver's allowance no longer applies to those dividends (§ 32d(2) no. 3 EStG). The 26.375% is still withheld at payout and credited later.

What it adds up to, as arithmetic only: €1,000 of profit in a town with the average Hebesatz, all of it paid out to a private shareholder on the flat tax, with no church tax.

So about 48.6% of the profit has gone in tax by the time it is in the shareholder's private account. Where the shareholder is itself a company, the picture is different: 95% of the dividend is exempt from corporation tax (holding of at least 10%) and from trade tax (at least 15% at the start of the year, § 9 no. 2a GewStG), which is why profit that will be reinvested elsewhere is often routed through a holding company.

6. Salary or distribution

A shareholder who runs the company as managing director (Geschäftsführer) can be paid a salary. For the company, the salary is a business expense and lowers both corporation tax and trade tax. For the director, it is employment income (§ 19 EStG), taxed at their personal rate, with wage tax withheld by the company through payroll every month. The guide on hiring a first employee covers how payroll works.

Whether social insurance contributions are due on that salary depends on control, not on the job title. According to the pension insurance, a shareholder-director with at least 50% of the share capital, or with a blocking minority over all the company's decisions, is generally not an employee for social insurance (DRV). A director with a small stake usually is. When a GmbH registers a shareholder-director for social insurance, a formal status check follows automatically (§ 7a(1) SGB IV).

The trade-off, in outline: salary avoids the roughly 30% company tax but is taxed at the director's personal rate, which reaches 42% from €69,879 of taxable income and 45% from €277,826 (2026), and may carry social insurance. Profit paid out as a dividend bears the company tax and then the 26.375%. Which mix costs less in total depends on the director's other income, their health insurance and pension, and the company's plans for the money. That is a calculation for the individual case, made each year.

One condition applies to every payment to a shareholder: it has to be agreed clearly, in advance, and at a level a stranger would accept. Otherwise it becomes a hidden profit distribution.

7. Hidden profit distributions (vGA)

A hidden profit distribution (verdeckte Gewinnausschüttung, vGA) is a reduction in the company's assets, or an increase it misses out on, that happens because of someone's position as a shareholder and that is not a regular distribution (R 8.5 KStR). Put simply: money or value goes to a shareholder in a way the company wouldn't have allowed an outsider. Examples the tax authorities list:

• a managing director's salary or bonus that is out of proportion;
• overtime pay to a shareholder-director;
• an interest-free or unusually cheap loan from the company to a shareholder;
• rent paid to a shareholder above the market rate;
• private use of a company car beyond what was agreed and taxed;
• for a controlling shareholder, any payment without a clear, unambiguous agreement made in advance, even if the amount itself would have been fair.

The consequences come on both sides. The amount is added back to the company's profit, so corporation tax and trade tax are due on it (§ 8(3) KStG). And the shareholder is taxed on it as on a dividend (§ 20(1) no. 1 EStG). These cases usually come to light years later, in a tax audit (Betriebsprüfung), with several years affected at once. Written agreements signed before the money moves are what prevents most of them.

8. Returns, prepayments and publication

Every year a GmbH or UG files, electronically:

• a corporation tax return (§ 31(1a) KStG);
• a trade tax return (§ 14a GewStG);
• its balance sheet and profit and loss account as data, the E-Bilanz (§ 5b EStG). For financial years starting from 2025 this includes full account-level listings;
• the declarations for losses carried forward and for the tax deposit account (steuerliches Einlagekonto), which records capital paid in beyond the share capital (§ 27 KStG);
• an annual VAT return, on top of the monthly or quarterly ones.

For the 2025 tax year, the returns were due on 31 July 2026 if the company prepares them itself. Prepared by a tax advisor, they are due on 1 March 2027, because 28 February 2027 is a Sunday (§ 149(2), (3) AO). The guide on tax return deadlines has the rules on extensions and late filing.

During the year the company pays prepayments (Vorauszahlungen) set by the tax office from the last known profit: corporation tax on 10 March, 10 June, 10 September and 10 December (§ 37(1) EStG via § 31 KStG), trade tax on 15 February, 15 May, 15 August and 15 November (§ 19(1) GewStG). See tax prepayments.

Separately from tax, company law requires annual accounts (Jahresabschluss) within three months of the year end, or six months for a small company (§ 264(1) HGB), and they have to be submitted to the company register (Unternehmensregister) no later than one year after the year end (§ 325 HGB). A micro company files only its balance sheet and can have it deposited rather than published, so it is available only on request (§ 326(2) HGB). The Federal Office of Justice (Bundesamt für Justiz) enforces this: after a warning with six weeks to file, the fine is at least €2,500, reduced to €500 for a micro company and €1,000 for a small one that files after the six weeks (§ 335 HGB). The guide on setting up a GmbH or UG gives the size thresholds.

9. The corporation tax cut from 2028

In July 2025 the Bundestag and Bundesrat passed a law to strengthen investment (Gesetz für ein steuerliches Investitionssofortprogramm zur Stärkung des Wirtschaftsstandorts Deutschland, of 14 July 2025, BGBl. 2025 I Nr. 161). It lowers corporation tax by one point a year (§ 23(1) KStG). Trade tax is not part of it. With the average Hebesatz of 410%, the combined rate falls like this:

The steps are law, written into the KStG year by year. As of 22 October 2026 no law or government bill brings them forward or changes them; proposals to start the cut earlier have been made in 2026 but not adopted.

The same law brought in two depreciation rules that matter to companies investing now. Machines, equipment and other movable assets bought from July 2025 to the end of 2027 can be written off declining-balance at up to three times the straight-line rate, capped at 30% a year (§ 7(2) EStG). New electric vehicles bought in the same period can be written off 75% in the first year (§ 7(2a) EStG).

10. Where it gets complicated

The basic rates are simple. The cases that take a tax advisor's time usually involve:

• the salary and dividend mix for a shareholder-director, and pension commitments;
• shareholder loans, rent paid to shareholders, and company cars;
• holding companies, and selling shares;
• shareholders living abroad, where withholding tax and tax treaties interact;
• moving an existing sole-trader business into a GmbH;
• a change of more than half of the shares, with losses on the books.

A Steuerberater looks at the company's actual figures and agreements, and can check before money moves rather than after an audit.

The tax year of a GmbH at a glance