1. ACEE – Meeting Berlin 27. May 2011 Overview about the German Taxation Income from Trade or Business andSelf-Employment WP/StB Dipl.-Kfm. Hans-Dieter Vietmeier

2. 2 ACEE – Meeting Berlin 27. May 2011 Income Tax Rate structure (2010)€ % Pers.exemption< 8004 0 Progressiv zone< 52.882 14 – 42 1.Proportio.level> 52.882 42 2.P.level „rich-tax“>250.731 45 (+ solidarity surcharge 5,5 %) Double levels „splitting-tarif“ (couple)

3. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Income Tax Separate tax rates for Income from capital investments (>2009) 25,0% (+ solidarity surcharge 5,5 % = 26,375%) Not: capital gains from trade or business, only privat cap.gains

4. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 –Examples IncomeInc.taxsol.s.total IncomeInc.taxsol.s.total –Singles (basic) 50.00012.847 707 13.554 50.00012.847 707 13.554 100.00033.8281.861 35.689 100.00033.8281.861 35.689 –couples (splitting) 50.000 8.212 452 8.664 50.000 8.212 452 8.664 100.00025.6941.413 27.107 100.00025.6941.413 27.107

5. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 „Specials“ “Solidarity-Surcharge“ => tax x 5,5 % “Solidarity-Surcharge“ => tax x 5,5 % –max. 45,0 % x 5,5 % = 2,475% => total: 45,0 + 2,475 = 47,5 % „Church Tax“=> tax * 9,0 % „Church Tax“=> tax * 9,0 % –max. 45,0 % * 9,0 % = 4,05 %=> deductible tax 4,05 % - (45,0 % * 4,05 %) = 2,23% –Total: 47,475 % + 2,23 % = 49,7 %

6. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Income from Income from Trade or Business + Trade Tax Self-Employment no trade tax

7. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Trade Tax Exemptions Exemptions –natural persons and partnerships 24.500 –Corporates no ex. 0 Tax Basis: trade income (profit +/- modifications) Tax Basis: trade income (profit +/- modifications) Tax rate: 3,5% x municipal faktor (Berlin: 410%  14,35%) Tax rate: 3,5% x municipal faktor (Berlin: 410%  14,35%) reduces income tax (t.t. credit / indifferent faktor: 403%) reduces income tax (t.t. credit / indifferent faktor: 403%)

8. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Corporation tax Exemptions: normaly 0 Exemptions: normaly 0 Tax Basis: (trade-) income (profit +/- modifications) Tax Basis: (trade-) income (profit +/- modifications) Tax rate (2008 ff): 15,0 % Tax rate (2008 ff): 15,0 % + solidarity surcharge 5,5 % = 15,825% + solidarity surcharge 5,5 % = 15,825% + trade tax without tax-credit  15,825 + 14,35= 30,175% + trade tax without tax-credit  15,825 + 14,35= 30,175%

9. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Profit distribution (rounded) profit: 100 profit: 100 Corporate tax- 16 Corporate tax- 16 Trade tax- 14 Trade tax- 14 Net-profit 70 Net-profit 70 Inc. tax f. cap. - 18,5 + sol.s. = 26,375%) Inc. tax f. cap. - 18,5 + sol.s. = 26,375%) Net-income51,5 Net-income51,5

10. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Exemption: closing down business („once in a life“ / not shares) Taxpayer > 55 years old (or disabled) Taxpayer > 55 years old (or disabled) Exemption (benefit)45.000 € - reduces when > 136.000 € Exemption (benefit)45.000 € - reduces when > 136.000 € Reduced tax rate: 56% of normal taxation Reduced tax rate: 56% of normal taxation

11. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Exemption: capital gains on sales of a shares of a corporation Proportion: > 1% within the last 5 y. Proportion: > 1% within the last 5 y. Taxpayer > 55 years old (or disabled) Taxpayer > 55 years old (or disabled) Exemption (benefit)9.060 € - reduces when > 36.100 € Exemption (benefit)9.060 € - reduces when > 36.100 € Reduced tax rate: 56% of normal taxation Reduced tax rate: 56% of normal taxation

12. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Exemption: formation of reserves for sales of land, buildings Transferable amount: profit sales-price (+) book-value (-) sales-costs (-) Transferable amount: profit sales-price (+) book-value (-) sales-costs (-) Transfer rate: 100% on re-investment Transfer rate: 100% on re-investment Re-investment period: 4 y. old / 6 y. new real estate Re-investment period: 4 y. old / 6 y. new real estate

13. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Exemption (?): depreciations Goodwill: Goodwill: –Business/trade 15 years –Self Employ. (practice) 3-5 y. / 6-10 y. Investment deduction for SME (net-capital < 235.000): –Investment deduction amount for the future acquisition 40% / max. 200.000 –Transferable in follwing 3 years –Movable assets –Special depreciation: + 20% additional

14. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Example: SME buys a mashine (2.y.) Price / value 500.000 1. Year(40%)-200.000 300.000 300.000 2. Year depr.sp.20%- 60.000 depreciation, normal - 30.000 depreciation, normal - 30.000 book value (42%) 210.000 book value (42%) 210.000 depreciation over all : 58% depreciation over all : 58%

15. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Exemption (?): loss deduction Losses on trade or business (self.E.) equalize other income 100% Losses on trade or business (self.E.) equalize other income 100% Loss carryback: deduction of negative income in Y1 adjustes gross income of previous Y0 (optional) – max. 511.500 (double 1.023.000 for couples) Loss carryback: deduction of negative income in Y1 adjustes gross income of previous Y0 (optional) – max. 511.500 (double 1.023.000 for couples) Carryforward: not time-limit Carryforward: not time-limit –Losses 1 Mio. only 60% Also for „corporates“ Also for „corporates“

16. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Exemptions (?): expenses for cars, travel etc Cars > 50% business use  „asset“ Expenses: no real limit, all costs incl. depreciation (6 y. for new cars) correction: personal use a) 1% original list-price per month or b) documentary evidence (properly kept log book – real percentage of relation)

17. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Reimbursement business use by own car Reimbursement business use by own car –Documented costs (above)x,xx €/Km –Or flat rate0,30 €/Km Entertainement (lunch)deduct.= 70% Entertainement (lunch)deduct.= 70% Gifts/advertising items < 35,-€ p.p.y. Gifts/advertising items < 35,-€ p.p.y. Bribes/kickbacks –disallowance (crime) Bribes/kickbacks –disallowance (crime)

18. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Exemptions : inheritance/gift tax for business assets a) 85% privileged, when -7 years keeping business in operation -> 650% total payroll in 7 y. b) 100% privileged, when -10 years keeping business in operation -> 1000% total payroll 10 y. (risk!!)

19. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Tax allowance (bus.value)150.000 Tax allowance (bus.value)150.000 –decreases 50%amount > 150.000 Personal exemptions (tax classes 1-3) Personal exemptions (tax classes 1-3) –1. Spouse500.000 –1. Children400.000 –1. Grand-children200.000 –2. degree related 20.000 –3. All others 2.000 –3. Regist. partn. same-sex500.000

20. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Special pension allowance Special pension allowance –Spouses256.000 –Children different age 52.000 – 10.300 Tax rates % cl.1cl.2cl.3 Tax rates % cl.1cl.2cl.3 75.000 71530 75.000 71530 300.000112030 300.000112030 600.000152530 600.000152530 6.000.000193030 …… …… Above 26. Mio304350

21. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier ACEE – Meeting Berlin 27. May 2011 Conclusion: Germany is no tax haven, but „reasonable tax conditions“ work hard in reasonable German economic conditions, work hard in reasonable German economic conditions, leave business profits in your cash box – stay „poor“ personally, leave business profits in your cash box – stay „poor“ personally, be glad driving a beautiful - tax deductible - business car (so you look „rich“), be glad driving a beautiful - tax deductible - business car (so you look „rich“), leave a real rich widow (because you worked too hard!), leave a real rich widow (because you worked too hard!), so that SHE feels in Germany‘s „tax haven“ so that SHE feels in Germany‘s „tax haven“

22. WP / StB Dipl.-Kfm. Hans-Dieter Vietmeier Thanks to the audience for listening Thanks to the audience for listening Questions and remarks? Questions and remarks? Dipl.-Kfm. Hans-Dieter Vietmeier Wirtschaftsprüfer / Steuerberater Am Rutenwall 2 46535 Dinslaken Tel. 02064 / 4321 - 00 Fax …- 01 Dipl.-Kfm. Hans-Dieter Vietmeier Wirtschaftsprüfer / Steuerberater Am Rutenwall 2 46535 Dinslaken Tel. 02064 / 4321 - 00 Fax …- 01 E-mail: vietmeier@vbtax.com E-mail: vietmeier@vbtax.com