Tax Advisor Explains: Corporate Income Tax

Every employee is familiar with income tax. This tax is levied on the income of individuals. However, legal entities must also pay a tax on their income. This is known as corporate income tax. In this article, our tax advisors from Oberhausen and Düsseldorf will tell you everything you need to know about corporate income tax as a business owner.

What is corporate income tax?

Corporate income tax (KSt) is the tax levied on the income of legal entities. These legal entities must pay this tax on the income they generate.

Legal entities include corporations, associations, and cooperatives. Classic legal entities are, for example, companies organized as GmbHs or AGs.

The legal basis for corporate income tax is found in the Corporate Income Tax Act (KStG). Corporate income tax is calculated based on taxable income. Corporate income tax is currently 15% of income. In addition, a 5.5% solidarity surcharge is levied on this tax liability. The tax office requires a corporate income tax return once a year.

Corporate income tax is a joint tax. Accordingly, the revenue is shared between the federal government and the states.

Who is exempt from paying corporate income tax?

First of all, all legal entities are required to pay corporate income tax. Of course, there are exceptions to this rule. The following, among others, are exempt from corporate income tax:

• political parties
• state-owned banks
• Social security funds
• Federal enterprises
• non-profit or religious organizations, provided that, according to their bylaws, founding documents, or other constitutive instruments, and in accordance with their actual management, they serve exclusively and directly non-profit, charitable, or religious purposes
• Professional associations
• Public-law insurance and pension institutions

Freelancers, sole proprietors, and agricultural businesses are also exempt. This is because they are already subject to income tax.

Calculation of Corporate Income Tax

The calculation of corporate income tax is straightforward at first glance. The total tax burden, including the solidarity surcharge, amounts to 15.825% of taxable income.

Taxable income × 15.826% = Corporate income tax (including the solidarity surcharge)

The result of this calculation must then be offset against advance payments. This calculation is obviously not particularly complex. However, determining taxable income is significantly more confusing.

Taxable income is determined based on a specific calculation formula. Additionally, adjustments prescribed by tax law must be taken into account. Within this framework, various items are deducted and added. To avoid confusion, we will not go into the exact details in this article. To ensure you do not make serious mistakes, you should consult a tax advisor regarding this matter.

How much are the tax allowances?

A few entities are granted an exemption. In such cases, the taxable income is not taxed in full. This exemption amounts to a maximum of 5,000 euros. There are exceptions in the agriculture and forestry sectors. In those sectors, the tax-free allowance can be as high as 15,000 euros.

CONCLUSION

In principle, corporate income tax is subject to a fairly simple

calculation model. However, determining taxable income remains a more complex process. Therefore, business owners should rely on the expertise of a tax advisor. As your tax advisor in Oberhausen and Düsseldorf, we are the best point of contact for your company. If you have any questions regarding corporate income tax, please contact us. Our team of tax advisors looks forward to working with you and your company.