Every corporation that carries out a commercial activity must pay trade tax.
Corporations are particularly attractive for founders. When you set up a corporation, you should also keep an eye on all types of tax. Trade tax is one of them. Our team explains what you should bear in mind with regard to trade tax and how you can calculate it.
What is a corporation?
Corporations are a collective term for various legal forms. You should already be familiar with many of them: The Gesellschaft mit beschränkter Haftung (GmbH) and the Unternehmergesellschaft haftungsbeschränkt (UG haftungsbeschränkt). They all have one thing in common: they are limited liability companies. This brings with it a decisive advantage. The shareholders' private assets remain protected in the event of liability.
Trade tax: an overview
If you run a company that carries out a commercial activity, you have to pay trade tax. You can find out what you need to know about trade tax in the following overview:
- What is trade tax?
- Who has to pay trade tax?
- How is trade tax calculated?
- When business tax must be paid
What is trade tax?
Trade tax is paid by tradespeople in Germany and is based on your company's revenue. The tax is levied by the respective city or municipality in which your company is based. The legal basis for trade tax is the Trade Tax Act.
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Who has to pay trade tax?
All tradespeople in Germany must pay trade tax. You are deemed to be a trader if you register a trade as an entrepreneur and receive a trade licence. In principle, all corporations must pay trade tax. For sole traders, partnerships and natural persons, there is an allowance of 24,500 euros. This does not apply to corporations.
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How is trade tax calculated?
How high the trade tax rate is for a company varies greatly and depends on various factors:
- Trade income
- tax-free amount
- assessment rate
- Income tax reduction
- In principle, you can use the following formula as a guide:
Trade tax = (trade income + additions - reductions) x 3.5% x assessment rate.
If you would like to see examples and detailed explanations for calculating trade tax, take a look at our article on ‘Calculating trade tax: Simply explained’.
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