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3. Taxing profit shares, dividends and other income from sources (4) to (7)

3. Taxing profit shares, dividends and other income from sources (4) to (7). Topics : Partnerships Dividends Tax allowances Other Income. Company Taxation: Partnership. → Business entity is no legal person. English Term: General commercial partnership Limited commercial partnership.

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3. Taxing profit shares, dividends and other income from sources (4) to (7)

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  1. 3. Taxing profit shares, dividends and other income from sources (4) to (7) Topics : Partnerships Dividends Tax allowances Other Income

  2. Company Taxation: Partnership → Business entity is no legal person English Term: General commercial partnership Limited commercial partnership German Term: Offene Handelsgesellschaft (oHG) Kommanditgesellschaft (KG)

  3. Taxing partners § 15 (1) Nr. 2 EStG covers: • Profit share of the partner + • Other payments flowing from the partnership to the partner (These other payments are not qualified as income from employment, capital investments or from property!)

  4. Taxing partners - § 15 (1) Nr. 2 EStG Example: Profit from business before tax = 100 A limited commercial partnership has: • two limited partners (A, B) with a 20 % rate of participation per person and • a general partner (C) with a 60 % rate of participation

  5. Income from business A B C and trade Profit: 60 + 60 + 20 + 20 + 20 + 20 + 100 + 20 + 20 + 60 Only the legal persons A, B and C are liable to income tax, but not the partnership itself ! The profit share from business and all other payments are qualified as income business and trade !

  6. Taxing partners pursuant to § 15 (2) Nr. 2 EStG

  7. Taxing partners pursuant to § 15 (2) Nr. 2 EStG • Going on with the case: • Partner (C) is managing the partnership and receiving a management fee totalling 50. This expense is included in the profit & loss statement • Which source of income is effected?

  8. Income from business A B C and trade Profit: 60 + 60 + 20 + 20 + 20 + 20 Fee + 50+ 50 + 150 + 20 + 20 + 110 The management fee is qualified as income from business and trade , when dealing with a partnership !

  9. Income from capital - § 20 EStG Main sources of income from capital investments: • Dividends - § 20 (1) No. 1) • Interest - § 20 (1) No. 7) • Income from silent partnerships - § 20 (1) No. 4 • Capital gains from the sale of assets - § 20 (2) No.1

  10. Corporation / Limited Company: → Business entity is a legal person English Term: Limited liability comp. Stock corporation GermanTerm: Gesellschaft mit beschränkter Haftung (GmbH) Aktiengesellschaft (AG) • Corporation is liable to Corporation Tax •IndividualShareholder are liable to Income Tax → Problem of double taxation

  11. Company level:Corporation Tax in Germany Profits before tax CT 25 % (till 2007) CT 15 % Profits after tax Withholding tax 20 % Withholding tax 25 % Net dividend = Cash dividend former system 100 - 25 75 - 15 60 from year 2009 100 - 15 85 - 21.25 63.75

  12. Shareholder level:Private dividends Net dividend Gross up: Withholding tax = Gross dividend tax free: 50 % taxable income (Assessment) Half-Income system (former system) 60 + 15 75 37.5 37.5 Abgeltungsteuer (from year 2009) 63.75 0 Marginal income tax (45 %) tax credit Withholding tax payable income tax Total tax load (CT + WT) 16.87 - 15 1.87 26.87 36.25

  13. „Abgeltungsteuer“(§ 32d para. 1)= Withholding Tax (without Assessment) The new system must be considered for: • private dividends, • interest • income from silent partnerships, • capital gains from the sale of assets • other capital income pursuant to § 20 EStG

  14. Exceptions(§ 32d para. 2 No. 1b and 3a EStG) Abgeltungsteuer = Withholding Tax (without assessment) does not apply for: • Dividends, if the shareholder is holding at least 25% of shares, • Interest and silent income paid by a corporation, if at least 10 % of shares are being held

  15. Shareholder level:Dividends received within a business Net dividend Gross up: Withholding tax = Gross dividend tax free: 50 % tax free: 40 % taxable income (Assessment) Half-Income system (former system) 60 + 15 75 37.5 37.5 Part-Income system (from year 2009) 63.75 + 21.25 85 34 51 Marginal income tax (42 %) Marginal income tax (45 %) tax credit Withholding tax payable income tax 15.75 - 15 1.75 22.95 - 21.25 1.7

  16. Income from capital - § 20 EStG As far as the „part-income-system“ applies a savings allowancepursuant to § 20 (9) EStG (singles: € 801 / married couples: € 1,602) is deductible. Itemised income-related expenses and the standard allowance are not deductible anymore (see: § 20 para. 9 EStG).

  17. Income from Employment§ 19 EStG Deductible expenses are: • Itemised income related expenses pursuant to § 9 EStG • A standard allowancepursuant to § 9a No. 1a EStG (920 € per person)

  18. Other incomepursuant to § 22 EStG Since year 2009, this provision covers short term gains from the disposition of real property or personal property where the holding period was less than: • 10 years (for real property) • 1 year (for personal property). Tax free: a gain below 600 €.

  19. Income tax rate • Scale of charges (see: § 32a (1), (5) EStG) • Top marginal rate: 42 % / 45 % • Additional solidarity charge: 5.5 % of income tax • Joint assessment for spouses (see: splitting table)

  20. Deductible taxes - § 36 (2) Nr. 2 EStG

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