16 September 2021
September 2021

The new "Law on the Modernization of Corporate Income Tax Law" passed by the German Bunderat on June 25, 2021 is intended, among other things, to eliminate unequal tax burdens by harmonizing the taxation procedures for partnerships and corporations.  This is intended to strengthen the international competitiveness of the legal form of partnerships.

Harmonization of taxation procedures is to be achieved by implementing an option for corporate income tax for partnerships and partnership companies. Under the new Section 1a of the German Corporate Income Tax Act (KStG), partnerships can, upon an irrevocable application, be treated in the same way as a corporation for taxation purposes. As a result, after exercising the option, a partnership will then be taxed like a corporation. For the partners of the partnership, the option means, among other things, that distributions from the partnership are taxable as dividends. The law will come into force on January 1, 2022.

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