date | theme

08. June 2020 | Reducing Sales Tax: What Consumers Should Know Now

08. June 2020 | Change in the Sales Tax Rate 2020: What Entrepreneurs Have to Consider

10. June 2020 | Corporate tax for partnerships as a new alternative (this contribution)

12. June 2020 | Loss carryover 2020: increase of the maximum amount to 5 million euros

With the corporation tax for partnerships, the federal government is considering a new option for taxation, which was previously only available to corporations. This is therefore another measure to strengthen the economy in the era of Corona. Like a limited company, the partnership is to be taxed at only 15 % corporation tax. In this way, the partnership has the advantage of being able to use as much of the net profit for reinvestment as a corporation. Although this was also possible in principle by a request for the acidification, in the past hardly any use was made of it. Other aspects of the new proposal also require consideration of whether they are beneficial and practical for partnerships. This applies, for example, to the special operating assets and the associated managing director salary.

In the video we explain to you a soon possible option, in which instead of 45% income tax only 15% corporate tax plus business tax is incurred.

1. Previous taxation of partnerships

Until now, partnerships have been taxed at shareholder level. They bear the business tax and have to tax the profit due to them themselves in the context of the assessment for income tax. As a result, the company can only expand its financial reservoir for further investments through deposits.

In comparison, a corporation has the ability to withhold the profit due to the shareholders and instead use it for investments. For this reason, the option of restitution for partnerships by application to the tax office was created years ago. In this way, partnerships should be able to benefit from the same advantage as a corporation. However, the application of this option has not been very successful in practice so far, because hardly any partnership can meet the conditions and at the same time use the coveted advantage. Therefore, the question of whether the new regulation is now better adapted to practice and thus more likely to be used by partnerships, so that it actually brings relief to the German economy, is quite relevant.

2nd corporate tax option for partnerships: an example

Before we look at the possible effects of a corporate tax on partnerships, let us use an example to clarify what such an option actually looks like. For this purpose, we calculate the tax both according to the new model and in the standard procedure. In this way, by comparing, we get an understanding of which alternative yields a lower tax.

2.1. Example of taxation of a partnership under the usual procedure

Suppose an OHG has two shareholders, each of whom holds a 50% stake in it. Both partners are non-denominational and unmarried. In 2019, OHG generates a profit of EUR 100,000, which is now taxed. First of all, we are calculating the business tax, which we want to adopt here, as a further simplification, at 15%. So the shareholders remain after deduction of EUR 15,000 in trade tax EUR 85,000 of the profit, so that each EUR 42,500 is entitled. Regardless of whether the shareholders now distribute their rightful share of the profit or leave it in the company, this is still to be invested under the income tax. So we calculate for each shareholder: