In principle, all companies have to pay trade tax. Unless, of course, they are exempt from it. The trade tax return defines exactly what income the company had in the past year. Income and expenses are compared and the profit is determined. But – from when do I have to submit a trade tax return? Where do I hand them in? And how do I even create a trade tax return?
Trade tax liability – who has to submit a trade tax return?
- Every self-employed person in Germany has registered a business and is therefore subject to trade tax according to Section 2 (1) GewStG .
Excluded from this are various professional groups that are exempt from trade tax:
- all freelance activities
- all farms
Anyone who pursues an economic activity, makes a profit and demonstrably does not belong to the group of freelancers must register a trade . As soon as you make a profit, the so-called income tax is due. This is based on the amount of profit , minus various allowances and other deductions.
And: Anyone who runs a business must pay trade tax. Means: The submission of the trade tax return is due. But what exactly is trade tax?
What is the business tax?
In Germany, every business person is also subject to trade tax. That’s the principle. Just like every business has to file a tax return. The tax itself is levied by the municipality responsible for your company . The trade tax is also referred to as the municipal business tax.
Here, based the amount of tax for individuals in the profits . The profit of your company therefore not only provides the assessment basis for your income tax , but also for your trade tax.
And: The municipality also has an influence on the amount of tax for your business. This is where the so-called trade tax multiplier applies , as will be explained later.
Why is trade tax levied?
Companies are a financial burden for municipalities. To compensate for this, companies have to pay trade tax. The tax is also intended to ensure that the municipalities themselves have an interest in approving companies in their area .
Smaller businesses are accordingly excluded from trade tax . This is ensured by the relatively high tax allowance . An unnecessarily high tax burden is thus prevented.
Who pays trade tax?
Anyone who does a freelance job does not have to submit a trade tax return . All others have to pay trade tax, depending on the amount of trade income. Whether you are a trader yourself can be determined based on your activity.
Various professional groups pay no trade tax regardless of their income, such as:
- tax consultant
However, if you have a trade license, you have to pay this tax. Because then you are automatically subject to trade tax . The tax exemption per year (2020) is 24,500 euros . This is valid for all partnerships or sole proprietorships . Corporations do not have an allowance .
Freelancers do not have a tax advantage
Freelancers only pay income tax. The business tax return for small businesses is an additional burden, isn’t it?
These or similar thoughts come up quickly. And one would like to think that freelancers would have a tax advantage or would be preferred. This view is wrong, however , because traders can claim the trade tax in their income tax return. And that can make a lot of money. So, from a financial point of view, traders are not at a disadvantage .
This is how you can calculate the business tax
The calculation of business tax is actually very simple. First you calculate your profit . Now you can set your trade tax base . In the second step, you use your trade tax multiplier. This differs depending on the municipality and location.
Tip: You can find the trade tax multiplier that applies to you on the website Gewerbesteuer-hebesatz.de . All regions in Germany are shown there with their respective assessment rates.
Phase 1 – Calculate the tax burden
In the first phase of your calculation, the tax office determines the trade tax base. This works by reporting your profit from last year to your tax office. Of course, the tax exemption of 24,500 euros will be deducted from this amount . The entitlement to deduct tax exemptions is justified in Section 25 (1) GewStDV . Now you get your taxable profit. The specified number is then multiplied by the taxable profit. You will receive your trade tax base, also called the tax base number or tax base amount.
- Profit – tax exemption = taxable profit
- Taxable profit x 3.5% = trade tax base
You will make a profit of 70,000 euros in 2019 . Less the tax exemption of 24,500 euros, you will receive a taxable profit of 45,500 euros.
The legally stipulated number is currently 3.5%. If you multiply the taxable profit of 45,500 euros by 3.5%, you get a trade tax base of 1,592.50 euros.
70,000 – 24,500 = 45,500 x 0.035 = 1,592.5 euros trade tax base
Phase 2 – business tax multiplier
Now the municipality determines the business tax in the second phase of your calculation. The basis for this is the trade tax base. This is multiplied by the relevant assessment rate. Depending on the municipality, the rate of assessment can vary considerably and be between 200 and 500 percent . The result then represents the amount of trade tax . The municipality accordingly issues a trade tax assessment. You then have to pay the sum to your community.
Trade tax base x rate of assessment = trade tax
Your trade tax base was calculated at 1,592.50 euros. The assessment rate your church is at 300% . If you multiply these two numbers together, you get the sum of your trade tax of 4,777.5 euros.
1,592.5 x 3.0 = 4,777.5 euros
When and how often do I pay trade tax?
Once you have determined the trade tax amount for your company, your annual advance payment will then be determined. This is also called business tax prepayment. The advance payment to your community is then made quarterly, i.e. quarterly and always on the 15th of each month . However, the prepayment reduces your financial burden, as you have already paid part of your tax with it. And the same applies here: if you pay too much, you get tax money back . If you pay too little, you will receive a notification of the corresponding additional payment.
When do I have to submit the trade tax return?
Very simple: Always on May 31st of the following year . This is regulated by the law in Section 149 (2) AO , with one exception . If a tax advisor takes care of your trade tax return, a deadline of September 30th applies . In other exceptional cases, the tax advisor can even apply for a further extension of the deadline until February 28 of the following year .
Where do I have to transfer the business tax?
Your responsible municipality is the one in whose area of responsibility your company lies. You can either pay the trade tax directly to the municipality or submit it to the tax office. In most cases, however, you will find detailed information about the transfer on your trade tax certificate. Otherwise you can also find the bank details of your community on the Internet.
Trade tax and income tax
Those who are subject to trade tax must still pay income tax. That sounds like a considerable additional burden at first. To self-employed and small businesses but to relieve here, there is the possibility that trade tax with the income tax claims to make . Again, you have to do some math to get the amount that you can take into account in your income tax return.
The income tax reduction was set at a maximum of 380% . You multiply your tax assessment amount by, for example, 3.8 and receive your income tax reduction.
Calculation example from the example above:
- The trade tax base is 1,592.50 euros.
- This is multiplied by 3.8%.
So: 1,592.50 x 3.8 = 6,051.50 euros maximum income tax reduction .
This means that your business tax can be fully offset against your income tax. However , if the trade tax multiplier is above 380%, the trade tax will not be fully amortized. Nevertheless, it is a considerable relief.
Facts about trade tax at a glance
- The business tax return is mandatory, if the profits of a trade over 24,500 euros is
- Freelancers and farmers are exempt from trade tax
- The deadline for submitting the trade tax return is May 31 of the following year
- Trade tax prepayments are made quarterly
- The trade tax to be paid is calculated from the profit income x 0.035 x the assessment rate
- The currently valid tax index is 3.5%
- The assessment rate of trade tax varies depending on the municipality strongly
- Large cities usually have a higher rate of assessment than smaller municipalities
- The income tax reduction relieves smaller companies
- In the event of a move , the income is calculated precisely to the quarter for the respective location
Fill in the trade tax return
For the business tax return you can Use the form. The five- to six-page document you can look on the Internet for free download or via ELSTER form submit to the tax office.
Important information on the trade tax return is:
- General information on the company and your person
- Profit from business operations
- Trade tax additions
- Profits from shares in certain corporations
- Contributions (donations and membership fees)
- Trade income
- Information about the going concern bound vortragsfähigem commercial loss
- Loss assessment information
- Date, place and signature
The trade tax return is compulsory for every business , provided they do not belong to certain professional groups or are below the tax exemption limit. This is regulated by the trade tax law. However, the trade tax does not represent an additional burden for companies that earn more than 24,500 euros a year. It can sometimes be fully offset against income tax . For municipalities, the trade tax is an incentive to promote companies in their municipality . You can now calculate your trade tax to be paid yourself and know what information you need to provide on your trade tax return.