Trade Tax, Part II: Calculation of the Individual Business Tax

How Do I Calculate the Trade Tax?

Basically, the tax office informs you about the final amount of business 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 (the 15th of February, the 15th of May, the 15th of August and the 15th of November).

However, if you want to be able to plan, it is helpful to know how the trade tax is made up in detail. The calculation is done as follows.

1. Determine Your Trade Income

To do this, take your annual profit and add the corresponding additions and deductions according to § 8,9 GewStG. The result is the trade income, which is rounded down to a full 100 Euros (100,260 Euros trade income is rounded down to 100,200 Euros).

2. Deduction of the Tax-Free Amount

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

3. The Tax Rate

Multiply the result by the tax rate of 3.5 percent. This gives you the tax assessment amount.

4. The Trade Tax Assessment Rate

The tax assessment amount from the last result is multiplied by the trade tax assessment rate of your municipality. The result shows you 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 rate of your municipality

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 Euro x 4.75 (Cologne) = 19,201.875 Euro

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