Appointment of directors

A significant advantage of the legal form of a limited liability company is that you can be appointed a director of your own company. The allocation of director remuneration for tax purposes depends on the amount of share capital held:

  • If the holding is no more than 25 per cent, revenue subject to income tax ( is generated.
  • For a holding over 25 per cent, the director’s salary is by contrast classified as income from independent work (Section 22 (2) Einkommensteuergesetz 1988 – EStG 1988). This means that you cannot claim tax benefits for special payments (13th and 14th salary) and that the revenues are subject to assessment. In any case, 6 per cent of the salary can be deducted as flat-rate business expenses (basic flat rate), alongside compulsory contributions to the statutory social security funds. In addition, for a profit up to 33,000 Euro, you are entitled to a tax-free profit allowance of 15 per cent (this would be a tax-free amount of up to 4,950 Euro). If no flat rate is used, for profits in excess of that an investment-related profit allowance can be claimed with corresponding investment coverage.

In limited liability companies, director remunerations constitute business expenses, provided that these are determined at arm’s length and do not exceed 500,000 Euro. They thus reduce the profit subject to corporation tax, while the managing shareholders are subject to wage or income tax.

For a limited liability company, there are two different levels: that of the company and that of the shareholder. As long as the profits remain in the limited liability company, only 23 per cent of corporate income tax is payable. If all or some of the profits are distributed to the shareholders, a capital yield tax of 27.5 per cent is withheld from the distribution amount (Section 93 paragraph 2 (1) EStG 1988 in conjunction with Section 95 paragraph 1 EStG 1988) and paid to the tax office responsible for the limited liability company. In this way, income tax is paid by the recipient shareholder. The overall tax burden on profit distribution in this case totals 44.18 per cent. However, it is also possible to apply for progressive taxation as part of the recipient shareholder’s income tax declaration. But this is generally only sensible if the shareholder’s overall income (including dividends) is low.

Please note

Earnings from work as a management representative of a company (e.g. Director of a limited liability company) and from highly personal work are to be assigned to the natural person providing the service, where the service is invoiced by a corporation under the influence of this person and which has no independent business separate from this work (Section 2 paragraph 4a EStG). Highly personal work refers only to that of artists, writers, academics, athletes and lecturers.

Legal bases

Sections 222, 93 and 95 of the Einkommensteuergesetz (EStG)

Translated by the European Commission
Last update: 1 January 2024

Responsible for the content: Federal Ministry of Finance

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