Taxation of Partnerships
A partnership is created when at least two natural and/or legal persons join up to achieve a common goal and provide capital. A partnership has only restricted legal capacity. The most important forms of partnership in Germany are the German GbR (Gesellschaft buergerlichen Rechts - civil-law association), the German OHG (Offene Handelsgesellschaft - general partnership) and the German KG (Kommanditgesellschaft - limited partnership).
A major characteristic of partnerships is the personal liability of the partners with their private assets (exception is the limited partner of the limited partnership) for company liabilities. Because of the takeover of a share of the business risk and the decision-making powers, the partners of a partnership are fiscally termed as co-partners (Mitunternehmer).
The operating assets are comprised of the partnership assets and the assets which are in the ownership of one partner. These are called extraordinary operating assets (Sonderbetriebsvermögen) and must be kept separately for tax purposes.
The bases of taxation are determined on the level of the partnership, however the tax is not levied on the company but on the partners. The bases of taxation are determined for each partner at the tax office in whose district the partnership is located. The profit shares subject to taxation are apportioned to the partners and then reported on to the tax office responsible at the place of residence of each partner.
The distribution of the profit shares depends on the commercial law regulations. Distribution criteria for the profit apportionment are, in addition to the provided equity capital and economic goods, also the personal work performance of the partner in the service of the company.
On application, any profits not withdrawn are taxed at a flat rate equalling that levied on corporations. If these profits are subsequently withdrawn, tax arrears are likewise charged at a flat rate.
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