New limit for cash transaction between entrepreneurs

With the January 1, 2017 the changes were introduced in the law on freedom of economic activity and income taxes (both of individuals and legal entities) in Poland. They implement exemption from tax deductible costs of those purchases that have not been dealt with cashless way. The limit for cash transactions between entrepreneurs has been fixed at 15 000 PLN, but the amount is not applicable to a single payment or invoice, but to a transaction, that may consist of multiple payments or invoices. In case of violation of this provision expense paid with violation of the law, i.e. in cash, will not be tax deductible.

Author: Tomasz Wikliñski, THOMAS Sp. z o.o.


Why changes in German VAT law lead to impounding of Swiss cars

Due to a change of German VAT law Swiss employers have to be sure, that their employees in leading positions are not living in Germany. OK, the thing is, that under German VAT law the use of a Swiss car by a person living in Germany leads to the fact that the Swiss company has to register for VAT in Germany. This fact alone is not really a big problem. But if the car is used by a leading employee there must also be paid customs on this car. If this is not made, the car might be impounded by the German customs while entering Germany.

Law changes in Switzerland as of 2014:

  • Switch on the light on your cars and motorcycles also during the day
  • No more tax on lottery wins
  • Shareholders have to proof the salaries of the board of directors, golden parachutes and golden welcomes are forbidden
  • Outdoor guides have to register

Look ahead:

  • USTR III (Reform of enterprise taxes, part 3): The fee on the issue of shares shall be waived; to improve international acceptance there shall not anymore be different taxation on income from abroad and from Swiss for Holdings and management companies.

Author: Christian Zeller, WIRTSCHAFTS-TREUHAND AG, Basel



Doing Business in Germany: Companies and partnerships

Traditionally Germany’s economy is based on small and medium-sized enterprises. These companies employ over 60% of the German work force. And these companies have a fair share in Germany’s position as second biggest exporting country in the world. Enterprises of other countries who want to establish business relations with German enterprises should not only concentrate on the big multinational enterprises. In certain industry sectors medium-sized companies can be the better choice to find a suitable business partner.

Large German companies have the legal form of an Aktiengesellschaft (AG), the German equivalent to an Incorporation in the Anglo-American legal systems. Small and medium sized businesses often choose the form of a Gesellschaft mit beschränkter Haftung (GmbH), equivalent to a Limited liability company. Both legal forms are corporations with own legal identity.

But a lot of small and medium sized enterprises in Germany are legally organised in the form of a trading partnership (Personenhandelsgesellschaft). This very often confuses business partners especially from Anglo-Saxon countries since there partnerships are seldom used for business purposes. The translation of the term Personenhandelsgesellschaft is a little bit misleading. A better translation would be not-incorporated trading company with partners as shareholders.

The basic forms of partnerships are the offene Handelsgesellschaft (oHG) and the Kommanditgesellschaft (KG). These legal forms require the unlimited liability of all partners (oHG) or of at least one partner (KG). Because of the unlimited liability of partners these legal forms are seldom used.

But often used is a GmbH & Co. KG. This is a combination of a GmbH and a KG. The KG is the operating unit. The GmbH’s only purpose is to be unlimited liable partner of the KG. Shareholders of GmbH and KG are in general the same persons.
legal-structure-of-a-gmbh-co
With this legal structure owners or investors can avoid unlimited liability but also use the less strict legal framework of partnerships.

The tax regime for corporations and partnerships is different.

Corporations (GmbH and AG) are subject to corporation income tax (Körperschaftsteuer / tax rate: 15%) and solidarity surplus charge (Solidaritätszuschlag / tax rate: 5.5% of corporation tax) and the municipal business tax. The combined tax rate on profits is between 28% and 32%. Dividends derived by individuals are taxed in general at a rate of 25% plus solidarity surplus charge. 95% of dividends to corporations are tax exempt. The latter applies also for foreign corporations.

Partnerships (oHG or KG) are treated for tax purposes as transparent entities. Consequently profits of partnerships are taxed as business income by individuals. Individual income is imposed at progressive income tax rates. Maximum income tax rate is 45% plus solidarity surplus charge. If partners are corporations their profit shares are taxed as regular income. The partnership itself is subject to business tax.

Business tax (Gewerbesteuer) is imposed by the municipalities. The taxable income for business tax is generally determined by the taxable income with certain adjustments. Municipalities can fix tax rates individually. This results in higher tax burdens in the big German cities and lower rates in surrounding areas. Sometime it might be suitable to situate own business activities outside of the big cities. The business tax rates vary from 13% to 17%.

Germany does not allow free choice of the tax regime for corporations and partnerships such as the US check-the-box-treatment.

Glossary

Corporation Körperschaftsteuer
Trading partnership Personenhandelsgesellschaft
Incorporation Aktiengesellschaft (AG)
Limited liability company Gesellschaft mit beschränkter Haftung (GmbH)
Unlimited partnership offene Handelsgesellschaft (oHG)
(Partly) limited partnership Kommanditgesellschaft (KG)
Limited partnership GmbH & Co. KG
Individual income tax Einkommensteuer
Corporation income tax Körperschaftsteuer
Solidarity surplus charge Solidaritätszuschlag
Business tax Gewerbesteuer

Author: Peter Scheller, Somann & Scheller, www.somannscheller.de


The first post

This is the first post from IAPA. In the future there will be blog-like information in this section. Everything around our claim „Audit, Tax and Accounting in Europe. And worldwide.“

You will find posts from Austria, Belgium, the Czech Republic, Denmark, France, Germany, Great Britain, Greece, Hungary, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden and Switzerland.

The information comes from dozens of Chartered Accountants and Tax Advisers from numerous European IAPA members. Have fun with their posts. Comments are deactivated but, please, feel free to contact any individual author or other member of IAPA for questions or further assistance.