GmbH Business Expenses in Germany 2026: What's Deductible and What's Not

Business expenses (Betriebsausgaben) are all costs with a direct connection to your GmbH's operations. They reduce taxable profit and lower corporate income tax (15%) plus the solidarity surcharge and trade tax. Unlike sole traders, a GmbH has no personal tax-free allowance: every euro of profit is taxed. That makes capturing every allowable deduction essential.

Most business expenses are fully deductible (salaries, rent, software, vehicle costs, depreciation). Some are partially deductible (entertainment 70%, gifts up to €50 per recipient per year). And some are not deductible at all: above all private costs, fines, and the dreaded constructive dividend. In every case the rule is the same: document the business purpose, archive receipts in full, and separate private portions cleanly.

What Can a GmbH Deduct in Full?

Most ongoing costs reduce profit at their full amount. The key categories:

The input VAT on these purchase invoices is reclaimed separately as Vorsteuer via the VAT return; it is a pass-through item, not part of the cost.

What Is Only Partially Deductible?

For a few items, § 4 (5) EStG deliberately caps the deduction because a private element is involved. You need these 2026 limits:

The €50 gift threshold is strict: one cent over it and the entire expense is disallowed, including the input VAT deduction. With entertainment only 70% of net costs are deductible, while the VAT can be reclaimed in full. Purely internal catering (e.g. in-house training) stays 100% deductible.

What Is Not Deductible at All?

Not everything the GmbH pays reduces its tax. These items are fully excluded:

• Personal expenses disguised as business costs: trips without a business purpose, private purchases on the company card
• Constructive dividends (vGA): excessive director salary, interest-free shareholder loans, above/below-market rents
• Gifts above €50 per recipient per year
• Meals without a qualifying business trip
• Fines, penalties and administrative fees
• Corporate income tax and trade tax themselves (non-deductible under § 10 KStG)

The Constructive Dividend Trap (vGA)

The constructive dividend (verdeckte Gewinnausschüttung, vGA) is the most expensive tax risk for GmbH founders. It arises when the GmbH grants a shareholder (or a related party) a benefit it would not grant an unrelated third party. The tax authority adds the vGA back to profits and also taxes it at shareholder level as capital income (25% Abgeltungsteuer plus solidarity surcharge), resulting in double taxation.

Typical triggers:

• Managing director earns €15,000/month when the industry average is €5,000
• GmbH sells goods to a shareholder significantly below market price
• GmbH provides an interest-free loan to a shareholder
• Rental contract with the shareholder priced above the local market rent

The best protection is the arm's-length test: any dealing between the GmbH and a shareholder must be structured as it would be with an unrelated third party: in writing, agreed in advance, and at market terms. For more on director pay and reasonableness, see Managing Director Salary in a GmbH.

Company Car: Private Use and Tax

If the managing director uses a company car privately, a benefit-in-kind arises that is treated as additional taxable salary. Vehicle costs remain fully deductible at GmbH level; only the private portion is added to pay. There are two valuation methods:

The 0.25% rule for electric company cars applies in 2026 up to a gross list price of €100,000 (raised from €70,000 in 2025); above that the 0.5% rule applies. That makes an EV company car far more attractive for tax than a combustion vehicle. Full details are in Company Car Tax in a GmbH.

Depreciation and GWG: Spreading Purchases Correctly

Fixed assets are not deducted in full immediately but written off over their useful life (AfA): a laptop over three years, office furniture over thirteen. The exception is low-value assets (geringwertige Wirtschaftsgüter, GWG):

• Cost up to €800 net: fully deductible in the year of purchase
• Between €250.01 and €800: choice between immediate write-off and pooled depreciation over five years
• Above €800: regular depreciation over the useful life

The €800 threshold refers to the net amount excluding VAT. How to use the limit and when a pool makes sense is covered in The GWG Threshold and Immediate Write-Off.

No Deduction Without a Receipt

Every business expense needs a proper invoice or receipt showing date, invoice number, names and addresses of both parties, description of goods or services, and amount including VAT.

GmbHs must use double-entry bookkeeping; a cash book is not enough. GoBD rules also require records to be archived promptly, in order, and in tamper-proof format. For a full overview, read GmbH Bookkeeping in Germany 2026. Software like Norman lets you capture receipts by photo, auto-categorize them, and prepare everything for your tax return, with clean separation of private portions.

FAQ

Can a GmbH deduct the managing director's salary in full? Yes, provided the salary is reasonable and backed by a written employment contract. The excess part of an unreasonably high salary is treated as a constructive dividend and is not deductible.

Are entertainment costs 100% deductible? No. For entertaining business partners, only 70% of the net cost is a business expense, but the input VAT is 100% deductible. Purely internal catering (e.g. staff training) is fully deductible.

Up to what limit are gifts deductible? Up to €50 net per recipient per year. It is a threshold, not an allowance: exceed it by even one cent and the entire gift becomes non-deductible.

Can the GmbH deduct purchases immediately? Only low-value assets up to €800 net are fully deductible in the year of purchase. More expensive assets are depreciated over their useful life.

Are taxes a business expense of the GmbH? Corporate income tax and trade tax are non-deductible under § 10 KStG. Deductible, by contrast, are business-related secondary taxes and the VAT reclaimed as input tax.

Summary

Getting business expenses right is critical for GmbH managing directors, both for tax optimization and to avoid the costly vGA trap. The golden rule: document the business purpose, keep personal and company finances strictly separate, respect the caps on entertainment, gifts and GWG, and archive every receipt without gaps. For more levers, see GmbH Tax Optimization 2026. Clean, ongoing bookkeeping with Norman is the foundation; it makes sure no deductible euro is left on the table at year-end.