Is D&O insurance taxable salary for managing directors in Germany?
In short
Usually not. If the GmbH buys D&O insurance for its management as a whole and pays for it, the German tax authorities do not treat the premium as taxable salary (Arbeitslohn) for managing directors, and the company deducts it as a business expense. It becomes taxable salary if the company pays a personal policy for one director; then a EUR 1,000 premium is fully taxed.
Guide values for net premiums from published tariff examples, with the tax effect for the GmbH.
Example
Typical range
Small GmbH, EUR 2 million turnover, EUR 1 million limit
about EUR 750 to 1,100 net a year
GmbH with EUR 5 to 10 million turnover, EUR 2.5 million limit
about EUR 1,800 to 2,600 net a year
Personal D&O, one directorship, EUR 1 million limit
about EUR 1,100 a year including tax
Premium ranges as of October 2026 from publicly quoted 2025 tariff examples.
The tax burden of about 30 percent is a guide value from practice and depends on the local trade
tax rate.
Not individual tax advice.
Worked example
GmbH with two managing directors, company D&O with EUR 1 million limit
The tax effect when the GmbH insures the whole management under one policy.
Net premium
EUR 1,000
Insurance tax 19 percent
EUR 190
Business expense of the GmbH
EUR 1,190
Tax saving at about 30 percent
about EUR 357
Taxable salary for the directors
EUR 0
After tax the GmbH bears about EUR 830 a year, and the directors pay no tax on it.
Why company D&O is usually not taxable salary
In principle, insurance that an employer pays for an employee is taxable salary. For D&O insurance, the German tax authorities have taken a different view since 2002 where the company's own interest prevails. The premium is then not exempt salary but simply not salary at all.
The authorities look at several features: the D&O policy is financial loss liability cover that mainly protects the company against damages claims; the management is insured as a group, not one named person; the premium is calculated on the company's operating data; and the benefits economically belong to the company. This is set out in a directive of the Hanover regional tax office of 19 February 2002, and federal and state tax officials discussed the topic again in 2024.
How the D&O is set up
For the managing director
For the GmbH
Company policy for all directors, GmbH pays
not taxable salary
business expense
Personal D&O of one director, GmbH pays
taxable salary, with work expenses of the same amount
business expense as salary cost
Policy covers risks of an individual professional liability cover
taxable salary, with work expenses of the same amount
business expense as salary cost
When the D&O premium becomes taxable salary
If the set-up moves towards personal protection, the D&O premium becomes taxable salary. That happens when the company pays a policy that protects only one particular director, or covers risks normally insured under an individual professional liability policy. The premium then goes through payroll; under the Hanover directive, work expenses of the same amount offset it.
Stock corporations (AG) have a special rule: in the D&O, board members must carry a deductible of at least 10 percent of the loss up to one and a half times their fixed annual pay (§ 93(2) Stock Corporation Act). How private cover for that deductible is taxed is something a board member should settle with a tax adviser before buying it.
Shareholder-directors: avoid a hidden profit distribution
A controlling shareholder who is also managing director is often not an employee for tax purposes, yet is covered by the company D&O without any taxable benefit. The risk lies elsewhere: if the GmbH pays a personal D&O policy for this person without a clear agreement made in advance, the tax office may treat it as a hidden profit distribution (verdeckte Gewinnausschüttung).
Shareholder-directors should therefore buy D&O insurance as a company policy for all directors, record it in a shareholder resolution or the service agreement, and either pay any personal top-up policy themselves or agree it expressly as part of their pay.
What the GmbH deducts for the D&O premium
For the GmbH, the company D&O premium is a business expense, including the 19 percent insurance tax. There is no input VAT to reclaim, because insurance premiums are not subject to VAT. With a combined corporate and trade tax burden of about 30 percent, the real cost falls accordingly.
A limit of this page: the tax treatment of D&O insurance is an administrative interpretation, not a rule written in the statute. For unusual set-ups, such as a group policy covering directors of several companies, ask your tax adviser (Steuerberater) to confirm the treatment first.
Step by step
Check that the GmbH is the policyholder and all directors are insured.
Check in the policy that the premium is based on company figures.
Record personal top-up policies separately and decide who pays.
For shareholder-directors, agree any payment in writing in advance.
Confirm the treatment once with your tax adviser and in payroll.
Checklist
GmbH is the D&O policyholder
All directors insured, not one named person
Premium based on turnover or balance sheet of the company
Personal D&O paid privately or run through payroll
Agreement in the service contract or a shareholder resolution
Common mistakes
Paying a personal D&O through the company without running it through payroll
Treating a company-paid personal D&O like a company policy
Paying for a shareholder-director without a prior agreement
Reclaiming input VAT on the premium, which is not possible
Questions and answers
Frequently asked
Do I have to declare company D&O in my tax return?
Normally not, because no taxable salary arises.
If the company pays a personal policy,
the premium appears as salary on your annual payroll tax certificate.
Does this also apply to authorised officers (Prokuristen)?
Yes, if they are covered under the company D&O, the same treatment applies.
Is D&O subject to social security?
Only if it is taxable salary.
For a company policy covering the management, no contributions are due.
Can the GmbH always deduct the D&O premium?
Yes, as a business expense if it is business-related.
A personal policy for a shareholder without a clear agreement may count as a hidden profit
distribution.
I am a foreign director of a German GmbH. Does this apply to me?
If you are taxable in Germany on your director's pay, yes.
Where you live abroad, also check the rules of your home country.
