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Trade Tax in Germany

Definition, Explanation

Municipalities charge each trader a trade tax proportional to the trade’s earnings. Each municipality has an own levy rate which multiplies with the base tax amount. The municipalities use the trade tax, along with the land tax, to finance their expenses. Legal basis of trade tax levied is the trade tax act (Gewerbesteuergesetz). The tax is justified by the fact that a trade settling in the area causes expenses for the infrastructure.

Who pays trade tax:

• Sole proprietorships and business partnerships carrying out a trade
• Corporations (Aktiengesellschaft, GmbH)
• Agriculture and forestry companies, if
  • registered in trade register or
  • turnover from trade services exceeds 5,000 Euros per year

Requirements:

• The trade is run within Germany
• The business has been registered in the locally responsible trade register

Who does not pay trade tax:

• Liberal-professionals
• Farmers (exceptions see above)

Amount:

• Basis is the trade earnings, being normally the profit of a trade, whereas 100,000 Euros per year are tax-free. Additional charges include 25 % tax on interests, pensions, rents, leases. The resulting amount is reduced by amounts like e.g. the basic value of a company’s piece of land
• The basic amount of trade earnings is rounded down to the next multiple of a hundred Euros
• Natural persons and business partnerships (OHG, KG) are charged trade tax only from earnings of 24,500 Euros. Other juristic persons like associations owning an economic business have an annual tax-free amount of 3,900 Euros
• The trade earnings, minus the respective tax-free amount of e.g. 24,500 for business partnerships is multiplied by the basic federal tax rate of 3.5 %
• The resulting assessed amount, multiplied with the municipal trade tax levy rate (between 200 and 500 %), results in the final trade tax amount

Tips, Checklist

• Trade tax has to be paid to the municipality each quarter in advance. The due dates are February 15, May 15, August 15 and November 15, on which ¼ of the last assessed tax amount is due
• After a calendar year has ended, send a trade tax declaration to the revenue declaring the annual trade tax
• The trade tax assessment notification is made by the municipality
• Trade tax is not an operating expense, and therefore cannot be set off against corporate tax. However, it can be set off against a private person’s income tax, up to a trade tax levy rate of 380 %
• Especially when you are starting a business, you should take into account different municipalities’ levy rates for calculating your expenses and choose your location accordingly

German Trade Tax Calculator

Gewerbeertrag: Trade earnings
Hinzurechnungsbetrag: Additional charges
Kürzungsbetrag: Reduced amount
Hebesatz in %: Levy rate
Haftungsausschluss: Disclaimer of liability
berechnen: calculate

Last update: 04/13/2010