Tax Deductions

Updated on
September 11, 2022

Loss Carry-Forward and Loss Carry-Back

For the purpose of corporate income tax any losses can be carried back for one year, up to a maximum loss of EUR one million. In contrast, losses can be carried forward with no time restriction. Up to the limit of EUR one million loss carry-forward is possible with no restrictions at all, for the purpose of corporate income tax. For any losses which are in excess of the EUR one million limit, at least 40% of the taxable income related to the loss will still remain subject to standard taxation. This means that a maximum of 60% of taxable earnings in excess of EUR one million can still be offset against the loss the corporation has incurred.

Deductibility of Interest Payments

In the large majority of cases, any interest payments are fully deductible as a usual operating expense. However, there are some special rules that apply to corporate groups. If the amount paid in interest payments were to exceed the amount the company had earned from interest, for more than EUR 3 million, then these exceeding payments are only deductible up to an amount of 30% of EBITDA (earnings before interest, taxes, depreciation and amortization).

Straight Line Depreciation

Any straight line depreciation on assets is also a deductible expense for the purposes of tax. The annual depreciation on any asset can be calculated by dividing the price paid for the asset by the estimated useful lifetime of the asset. All depreciations must apply the straight line method.

Fiscal Unity Concept

The German fiscal unity concept does allow for profit and loss pooling for multiple corporations at the top dominant (parent) company to determine the overall profitability of the entire company for taxation purposes. In order to so, the dominant (parent) company must have its business management headquarters situation in Germany and must be subject to regular taxation in Germany. It's irrelevant whether it is a German company or a permanent establishment of a foreign company in Germany, but it must meet the previous requirements. The fiscal unity concept does cover any corporate subsidiaries from Germany or any other EU/EEA member state, so long as they have their main place of business management in Germany. The dominant (parent) company in Germany must also hold in excess of 50% of the voting rights of all subsidiaries. As well as this, a profit and loss pooling agreement must be in place with a duration of at least five years. This agreement must be registered with the commercial register. Further clauses may apply.

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