Understand trade tax liability. In principle, all profit-oriented companies are subject to trade tax. The trade tax is a property, real or property tax similar to property tax. This is not about the performance that a person provides, but about the business and the income that is generated by it. The business tax is to be paid to the municipality in which the business enterprise is based.
It should be noted that the trade tax liability arises either immediately after the establishment of a company or only when the company takes part in economic activities.
Immediate tax liability exists, for example, in the case of commercial enterprises Kraft legal form, including, for example, corporations . Freelancers generally do not pay any trade tax, so they are not subject to trade tax.
Trade tax liability: what to watch out for
There are also exemptions for trade tax, which amount to € 24,000 annually for partnerships or natural persons. In this class, the calculation is based on the graduated principle, so allowances of up to € 72,000 are possible here. There is no tax exemption for corporations. The rate due in each case is to be paid every three months to the responsible tax office; an annual statement must also be submitted in a calendar-year statement. This means that the annual statement of the previous year must be submitted for the current year.
How much trade tax do I have to pay?
According to GRADINMATH, the amount of trade tax depends on the assessment rate of the respective municipality, which is at least 200%, but on average the assessment rate is between 300 and 400%, although it can be higher in large cities, for example Hamburg with 470%. The trade tax represents the main income of the municipalities and is levied on the respective income of a company. The calculation is based on 3.8 times the trade tax measurement amount. For commercial enterprises this means that the business tax does not actually represent a financial burden up to a rate of assessment of 380%. The calculation is based on Section 35 of the Income Tax Act. The assessment rate currently averages 330% in the individual federal states. Whereby it has the lowest level in Mecklenburg-Western Pomerania and in Berlin, NRW and Saarland have the highest level with up to 428% (as of October 2015). One can use one Business tax calculator, which is available online free of charge, calculates how high the taxes are , the current exact assessment rate can be obtained from the local municipality.
Use our business tax calculator to calculate your business tax for free.
Where is the trade tax lowest?
In our infographic you can see where the lowest trade tax rates are charged in Germany. This can be the decisive factor in favor of a federal state – especially for entrepreneurs positioned close to the border. For example, those who settle their company not in Hamburg but in Schleswig-Holstein save over 140 percent trade tax. However, the overview does not save a closer look, because each municipality sets the trade tax multiplier individually. This is a fact wanted by politicians, so municipalities can attract companies with lower assessment rates and subsidize them indirectly.
How to calculate the business tax?
The set of rules for calculating trade tax liability is as follows:
- Additions according to § 8 GewStG
- gives sum X
- divided by reductions according to § 9 GewStG
- results in total X trade income – round this down to 100 € in accordance with Section 11 Paragraph 1 Clause 3 GewStG
- divided by the respective exemption € 24,500 or € 5,000 – see Section 11 (1) sentence 3 EStG
- gives sum X
- this is multiplied by the tax index 3.5 according to § 11 para. 2 GewStG
- results in the tax assessment amount this is now multiplied by the assessment rate of the respective municipality according to § 16 GewStG
- this results in trade tax total X
The example in numbers, it is assumed that the business is a sole proprietorship subject to trade tax that achieved a profit of € 130,050. Add 48,000 €. The municipality has a tax rate of 400%, which results in the sum of € 17,290 that the municipality has to pay as property tax.
When does the trade tax obligation begin?
The trade tax liability begins for individual traders and partnerships at the point in time at which they first meet all the requirements that are necessary for accepting a business. The trade tax liability is not yet justified by renting a business premises, which first has to be renovated. Even with the completion of a factory building in which production is to take place, there is no trade tax liability.
In the case of companies that are to be entered in the commercial register according to the German Commercial Code (HGB), the time of entry is irrelevant for the start of trade tax liability. In the opinion of the tax authorities, tax liability only begins when the business is started.