The new additional taxation reduces the taxation requirements from which this regulation leads to a tax in Germany. As a result, it is now possible to set up intermediaries in countries where income is taxed at a rate of at least 15%. This move by the legislator is related to the introduction of the global minimum taxation, in which the participating OECD countries agreed on a minimum taxation of 15%. After all, it would have been nonsensical if, on the one hand, the new tax rate limit of 15 % had been adopted, but, on the other hand, the old taxation system had been maintained, where the taxation of the additional tax already took place above a limit of 25 %.

1. The New Additional Taxation – Introduction

Additional taxation is a special tax in several respects. On the one hand, it was simply born out of necessity. In the past, it was possible to tax taxes abroad at a low tax rate, or even to earn tax-free income without having to pay further taxes in Germany, although the world income principle applies here. After all, mailbox companies made it possible at that time. In order to combat this abuse, additional taxation was introduced. On the other hand, additional taxation leads to a breach of the principle of separation between limited liability companies and their shareholders behind them.

In any case, additional taxation for decades has been a fairly reliable guarantor for avoiding the outsourcing of profit taxation in tax regimes with low tax rates. However, since the beginning of 2024, there have been changes to the statutory provisions on additional taxation. And this is what we want to report on. To this end, we are considering what opportunities this will create as opportunities for German entrepreneurs.

2.Legal framework for additional taxation

Additional taxation is enshrined in the Foreign Tax Act. More specifically, it occupies the fourth part there and comprises §§ 7 to 13 AStG.

§ 7 AStG defines what a foreign intermediary company is and what role the participation of persons taxable in Germany plays in this, in particular with regard to their control. Only if they control the foreign intermediary company, one of several conditions for the collection of additional taxation is fulfilled. In § 8 AStG we find a catalogue of conditions that a foreign company must meet if its profits are not to trigger additional taxation. It also defines low taxation abroad. This is equally crucial for our considerations. § 9 AStG defines certain exemption limits, while § 10 AStG contains the rules for determining the additional amount. § 11 AStG, on the other hand, supplements certain reduction amounts. A possible tax credit is discussed by § 12 AStG. Section 13 of the AStG concludes the provisions of the fourth part of the Foreign Tax Act on special provisions relating to holdings in corporations.

In addition to the actual regulations on additional taxation, the existence of double taxation agreements is also relevant. Because if no double taxation agreement has been concluded, the additional taxation is irrelevant anyway, because then there is double taxation at home and abroad anyway.

3. Additional taxation: the new scheme

So what has changed about the additional taxation? Basically, it's just a number. Thus, the legislature has lowered the limit from which one speaks of low taxation abroad from 25% to 15%. This means that from now on you can also set up companies abroad as an intermediary company, without adding taxation in Germany, as long as the taxation takes place there with a total tax rate of at least 15%.

The distinction between Member States of the EU or the EEA and third countries also plays a role in additional taxation. If it can be ruled out that there is misuse of design, it is inadmissible. Finally, the principle of freedom of establishment applies in the EU and in relations with other EEA States. If there is a violation by German tax law, the chances are good that you can defend yourself legally against it.

4. New additional taxation, new objectives

How can entrepreneurs benefit from this legislative change? First of all, the lowering of the limit from 25% to only 15% opens up the possibility that a whole series of states are now being considered as new targets for setting up a foreign company. Although one of the currently most popular destinations for starting a foreign company, namely Dubai, still falls under the additional taxation. This is due to the corporation tax there, whose tax rate from a certain income is a flat rate of 9%. But there is now, for example, the possibility of starting a company in Armenia, Georgia or Indonesia. Other possible destinations are Brazil, Morocco, Mauritius and Oman. Here, too, the tax rate for the corporation tax there is between 15% and 25%.

5. How to Benefit from New Add-on Taxation

But how exactly can the new additional taxation be used to save taxes in Germany? First of all, it makes sense to set up a foreign company in the legal form of a partnership. In addition, it is best to forego a German holding company and instead hold the shares in private ownership. All this has the following background:

If the foreign partnership taxes its profits, then due to transparent taxation, its shareholders in Germany pay the local tax, i.e. 15% or more. If there is now also a double taxation agreement with Germany, the taxation right lies solely with the state in which the company has its headquarters. Germany would have done the additional taxation earlier here, but with the new tax rate of 15 % this is now excluded. So the shareholders behind the partnership can now simply withdraw the remaining 85% of the profit from the company, without any tax on this profit share. Finally, the extraction of profits is not a taxable process within the meaning of German tax law.

If, on the other hand, one were to choose a holding structure, i.e. a holding company in Germany that holds the participation of the foreign subsidiary, this company would be subject to new taxation in this country. However, this only applies to a holding company in the legal form of a GmbH or another corporation. If, on the other hand, the holding company is a partnership, taxation would nevertheless take place at shareholder level on the basis of the principle of transparency. But where would the benefit of such a holding be? There would probably be none.

6. The new additional taxation – Conclusion

The new additional taxation opens up many new opportunities to achieve tax-optimized corporate profits abroad. This is hypothetically also possible with pure letterbox companies. However, there are now numerous jurisdictions that oppose such a project. Therefore, with such questionable tax arrangements, one should always first get a comprehensive picture of the situation. A tax analysis in advance is therefore urgently recommended. It is best to leave this to tax consultants who are proficient in international tax law. They know most of the pitfalls in such designs from their daily practice. In this way, they help you navigate safely through these dangerous waters so that you can actually enjoy a minimum tax of 15% in the end.