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Trade tax, Part II: Calculation of individual trade tax

How do I calculate trade tax?

In principle, the tax office will inform you of the final amount of trade tax to be paid. Once the trade tax has been determined by the tax office, you make quarterly advance payments. These advance payments are always due in the middle of each quarter (February 15, May 15, August 15 and November 15).

However, if you want to have planning certainty, it is helpful to know how the trade tax is made up in detail. Proceed as follows for the calculation:

  • Determine your trade income

To do this, take your annual profit and add the corresponding additions and deductions in accordance with § 8.9 GewStG. The result is the trade income, which is rounded down to the nearest 100 euros (trade income of 100,260 euros is rounded down to 100,200 euros)

  • Deduction of the tax-free amount

If you do not run a corporation, you deduct the tax-free amount of EUR 24,500 from the trade income.

  • The tax base

Multiply the result by the tax base rate of 3.5 percent. This will give you the taxable amount.

  • The trade tax rate

The tax assessment amount from the last result is multiplied by the trade tax multiplier of your municipality. As a result, you can now see how much trade tax you have to pay to the tax office.

Simplified, this results in the following formula:

Trade tax = (trade income – 24,500 euros) x 3.5 % x trade tax multiplier of your municipality

Here you will find two calculation examples to help you better understand how the calculation of individual trade tax works.

Calculation example: Partnership with tax-free amount

Imagine you run a sole proprietorship based in Cologne. After offsetting all deductions and additions, your trade income is 140,000 euros. You do not have to round this amount to the full 100 euros. You then deduct the tax-free amount of 24,500 euros. This leaves 115,500 euros. Multiply this by the tax assessment rate of 3.5% and you get a tax assessment amount of EUR 4,042.5. Multiply this amount by Cologne’s trade tax multiplier, which is 475%. As a result, you have to pay trade tax of 19,201.875 euros for your company.

When used in the formula, it would look like this:

Trade tax = (140,000 euros – 24,500 euros) x 0.035x 4.75 (Cologne) = 19,201.875 euros

  1. Annual profit: 140,000 euros
  2. Taxable profit: 140,000 – 24,500 = 115,500 euros
  3. Trade tax assessment amount: 115,500 euros x 0.035 = 4,042.5 euros
  4. Trade tax: 4,042.5 euros x 4.75 (Cologne) = 19,201.875 euros

You can find out how you can deduct your trade tax from your income tax and how to submit your trade tax return in Part III on trade tax.

Conclusion:

In Part II on trade tax, you will find out how you can calculate your own trade tax for your company in order to have complete planning certainty.

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