Trade tax: simply explained
What is trade tax?
Trade tax (GewSt for short) is a tax on commercial income. It therefore refers to the profit of your company. It is classified as real or property tax.
Trade tax is one of the municipal taxes.
It is levied by the municipality in which your company is based on the objective earning power, i.e. on your profit . The amount of trade tax is then calculated from the profit per financial year.
The trade tax rate is set by each municipality itself, which means that there are major regional differences. The Trade Tax Act (GewStG) regulates how much trade tax you have to pay.
The most important things in a nutshell:
Who?
– Every business operator must pay trade tax. Freelancers are exempt (e.g. lawyers, doctors, journalists and artists)
What?
– This is an income tax. The amount of tax depends on the company’s income or profit.
How high?
– The trade tax rate is 3.5% of taxable income. The assessment rate of the municipalities varies, but is at least 200%.
How much?
– Corporations must pay tax on their full income. Partnerships, including sole proprietorships, have an allowance of 24,500 euros.
When?
– The trade tax return is due by July 31 of the following year.
To whom?
– Trade tax is a municipal tax: the tax recipient is the municipality responsible for your company’s registered office.
Who has to pay trade tax?
If you register your business, you are automatically liable for trade tax. You are always considered to be trading if you have to apply for a trade license for your company. Sole proprietorships, partnerships and corporations are also obliged to pay trade tax. There are differences with regard to the tax-free allowance and the regional assessment rate of the municipalities for trade tax.
Freelancers (e.g. lawyers, doctors, journalists and artists) are exempt from this. In addition, agricultural and forestry businesses are also exempt from paying trade tax. However, you can ask your local tax office at any time whether your activity is classified as freelance or not.
Trade tax and the tax-free amount
There is an allowance not only for income tax, but also for trade tax. This is currently 24,500 euros according to the Trade Tax Act. In principle, you only pay tax on the amount that exceeds the tax-free amount. So if your annual trade income is still below this amount before rounding down to the full 100 euros and before deducting the tax-free amount, you do not have to pay trade tax.
Only sole proprietorships and partnerships are entitled to this tax-free allowance. Corporations, on the other hand, may not deduct any tax-exempt amounts from their profits. So if you operate an AG or a GmbH/UG, the trade tax rate applies to your entire profit.
What is the trade tax rate?
The individual trade tax in your company is calculated using the tax base rate and the trade tax multiplier . The tax rate is 3.5% nationwide. In practice, this means that you pay 3.5% of your trade income to the tax office.
Section 11 GewStG defines the trade tax rate. The trade amount including additions and deductions is the basis for the calculation (§ 7-9 GewStG).
What is the trade tax rate?
In addition to the tax base rate , you should know what the trade tax multiplier is. Trade tax is a municipal tax that calculates an assessment rate in addition to the tax rate of 3.5 %. This can vary from municipality to municipality, but is always at least 200%. This means that your total trade tax is at least 7 percent. On average, however, depending on the location of your company, you can expect around 15 percent in total.
You can find out how to calculate your individual trade tax yourself at Part II: Calculating trade tax.
- What is trade tax?
- The most important things in a nutshell:
- Who has to pay trade tax?
- Trade tax and the tax-free amount
- What is the trade tax rate?
- What is the trade tax rate?
How is trade tax calculated? Here you can find out step by step how to calculate your trade tax amount - including a simple formula and calculation example!
The EU-wide ‘One-Stop-Shop’ (OSS) procedure is a further development of the ‘Mini-One-Stop-Shop’ and relates specifically to European VAT regulations.
Virtual shares are also an attractive alternative from a tax perspective, allowing employees to participate financially in the increase in value of the company. This is mainly due to the fact that the tax effects of the virtual shareholding can be predicted with certainty. In addition, virtual shares eliminate the dry income problem. The basic idea of motivating employees to perform well is therefore not jeopardised by tax charges incurred in advance. Taxes are only incurred when payments are actually made to employees.
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