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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.
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.
Disclaimer and Copyright
This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG. Distribution to third persons is prohibited without our express written consent in advance.
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