Taxation of the company
The profit of a GmbH or UG is subject to corporate income tax. Trade tax usually also applies. The company is registered and assessed separately for tax purposes.
Setting up a GmbH or UG
Tax advice when setting up a corporation, especially a GmbH or Unternehmergesellschaft (UG haftungsbeschränkt).
Corporations have independent tax obligations from the beginning. Corporate income tax, trade tax, VAT, bookkeeping, annual accounts and managing-director remuneration should be structured early.
Tax features of a corporation
A GmbH or UG is a separate legal entity. It is itself a taxable person and files its own tax returns. Taxation of the company must be separated from taxation of the shareholders.
No personal allowance
Corporations are deemed commercial businesses by legal form. The allowance under section 11(1) sentence 3 no. 1 GewStG does not apply to corporations.
Balance-sheet obligation
GmbH and UG are subject to bookkeeping and balance-sheet obligations under commercial law. An income-surplus calculation is generally not available for the company.
Separation of company and individual
Payments between company and shareholder must be documented clearly for tax purposes. Unclear withdrawals or private payments through company accounts can create significant tax risks.
Important tax topics
Company-level taxation
The company taxes its profit independently. The basis is bookkeeping, annual accounts and the corporate income tax return.
Trade tax
A GmbH or UG is usually subject to trade tax. There is no trade tax allowance as for natural persons.
VAT
Entrepreneur status, invoicing, input VAT deduction, advance filing period and possible VAT-specific issues must be reviewed.
Managing-director remuneration
Remuneration to shareholder-managing directors must be clearly agreed, appropriate and actually implemented. Otherwise hidden profit distributions may arise.
Shareholder loans
Loans between shareholder and company should be documented in writing, at arm’s length and traceably.
Profit distributions
Profit distributions are taxed separately at shareholder level. Company level and shareholder level must be considered separately.
Bookkeeping and annual accounts from the beginning
For corporations, orderly bookkeeping is not only a practical tool but a statutory obligation. Errors in the start-up phase often affect annual accounts, tax returns and later shareholder questions.
Separation of private and business
Cash flows of the company should consistently run through the business account. Private payments via company accounts should be avoided or clearly documented.
Complete document filing
Incoming invoices, outgoing invoices, contracts, bank statements, payment evidence and shareholder resolutions must be kept in an orderly manner.
Managing-director and loan agreements
Contracts between company and shareholder or managing director should be clearly agreed in advance and actually performed.
Annual accounts and disclosure
Corporations must prepare annual accounts. Depending on size class, disclosure or filing obligations with the company register may also apply.
Required information
The documents required depend on the specific facts. A tailored request is made after initial classification.
Formation documents
Articles of association, commercial register data, notarial documents, shareholder list, ownership structure and planned management.
Business model and services
Description of planned activity, customer structure, revenue model, places of supply, platforms and possible foreign elements.
Revenue and profit forecast
Expected revenue, costs, investments, financing need, liquidity planning and realistic profit estimate.
Managing-director remuneration and financing
Planned remuneration, contributions, loans, reimbursements and other payments between shareholder and company.
Process
Clarify legal form and company structure
Shareholders, management, ownership ratios, share capital and planned activity are classified for tax purposes.
Notarial formation and commercial register
Company-law formation is usually handled by notary and commercial register. Tax advice does not replace legal formation advice.
Tax registration questionnaire
After formation, the company must be registered for tax purposes. Revenue and profit forecasts, managing-director remuneration and bank details are particularly relevant.
Set up bookkeeping structure
From the beginning, business account, document filing, invoicing, VAT and ongoing bookkeeping should be organised properly.
Important limitation
Keep company and shareholder strictly separate
A common error is mixing private and company cash flows. Payments to shareholders, cost reimbursements, loans or private expenses through the company must be clearly allocated for tax purposes. Otherwise hidden profit distributions, non-deductible expenses or further tax corrections may arise.