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The key features of the proposed tax reform are listed below. More detail on certain items is provided by article no. 184.
- abandonment of the current split-rate imputational system of corporate taxation, under which corporation tax paid by a distributing corporation is fully creditable to domestic dividend recipients, who include the credit amount in their income; adoption of a "classical" system under which corporate profits would be subject to a definitive, non-creditable 25 % corporation tax
- 100 % dividends-received exemption for corporations on domestic and foreign dividends, regardless of holding period, percent stake, activity requirements, or tax treaty
- 100 % capital gains exemption for corporations on sales of shares in domestic and foreign corporations, regardless of holding period, percent stake, activity requirements, or tax treaty
- application of the 25 % corporation tax, the dividends-received exemption, and the capital gains exemption to domestic permanent establishments of foreign corporations and to dual resident corporations
- relaxation of tax consolidation requirements for corporation tax purposes (but not for purposes of trade tax and VAT)
- 50 % dividends-received exemption for individuals on domestic and foreign dividends, regardless of holding period, percent stake, activity requirements, or tax treaty
- 50 % capital gains exemption for individuals on sales of shares in domestic and foreign corporations, regardless of holding period, percent stake, activity requirements, or tax treaty
- elimination of step-ups on reorganisation of a corporation as a partnership and elimination of write-downs with tax effect on shares held in a corporation
- tax relief for business operated in non-corporate form through either:
- a flat-rate trade tax credit against personal income tax or
- a "check-the-box" option for taxation as a corporation
- phased tax rate reductions for individuals (lower minimum and maximum tax rates, increases in zero bracket amounts, more gradual tax rate progression for low and middle income taxpayers; maximum personal tax rate to fall to 45 % in 2003)
The trade tax and solidarity surcharge remain in effect at the previous rates. The solidarity surcharge currently amounts to 5.5 % of corporate or personal income tax.
The 50 % exemptions for corporate dividends received and for capital gains on the sale of corporate shares is referred to in our articles as the "half-income" or "50 % exemption" system (Halbeinkünfte-verfahren).
For further information, please send a fax or an e-mail stating your inquiry to KPMG Frankfurt, attn. Christian Looks: Fax +49-(0)69-9587-2262, e-mail cLooks@kpmg.com. You may also send an e-mail to KPMG Germany by clicking the Contract Contributor button on this screen.
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