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The trade tax is a municipal Taxwhich is paid by companies and the self-employed on their business income. It is an important source of income for municipalities and is used to finance local infrastructure and public services. It is calculated on the basis of business income, which is derived from company profits.
The trade tax rate is set individually by each municipality and usually varies between 200% and 500%. As a municipal tax, the collection and determination of trade tax is the responsibility of the individual municipalities. As a result, the tax rates can vary from place to place.
Companies are obliged to pay trade tax to the municipality in which their registered office is located. This is a direct Taxas it is paid directly by the taxpayer to the municipality. Trade tax is subject to the Trade Tax Act (GewStG) and is regulated at federal level, while the assessment rates are determined at municipal level.
To calculate the trade tax, the trade income is multiplied by the tax base rate (3.5%), resulting in the tax base amount. This is then multiplied by the respective municipal assessment rate to determine the trade tax payable.
Key Takeaways
- Trade tax is a tax levied by companies on their profits.
- All traders, i.e. sole traders, partnerships and corporations, are obliged to pay trade tax.
- The amount of trade tax is calculated on the basis of the trade income and the assessment rate of the respective municipality.
- There are allowances and exemptions for trade tax, for example for small businesses and farmers and foresters.
- Trade tax must be paid quarterly in advance, although the exact deadlines may vary depending on the municipality.
Who is obliged to pay trade tax?
Companies subject to trade tax
The trade tax liability arises if a company maintains a standing business. A standing business is deemed to exist if an independent, sustainable activity is carried out to generate income.
Requirements for trade tax liability
It does not matter whether the company makes a profit or a loss. Even if a company does not make a profit, it is still obliged to pay trade tax.
Trade tax liability regardless of profits or losses
The trade tax liability is independent of the profits or losses realised. It is sufficient for the company to carry out an independent, sustainable activity in order to be liable for trade tax.
How is the amount of trade tax calculated?
The amount of trade tax is calculated on the basis of the trade income. The trade income is derived from the company's profit, which is adjusted for certain additions and deductions. The additions include, for example, rental and lease interest, leasing instalments and certain financing expenses.
Reductions, on the other hand, include loss carryforwards and certain allowances. Trade income is calculated in accordance with the provisions of the Income Tax Act. The tax-based profit calculation methods such as the income statement or balance sheet are applied.
The trade income determined in this way forms the basis for calculating the trade tax. The rate of assessment, i.e. the percentage by which the trade income is multiplied, varies depending on the municipality and can be between 200 and 400 per cent.
What exemptions and allowances are there for trade tax?
| Exception/exempt amount | Amount |
|---|---|
| Tax allowance for partnerships | 24,500 euros |
| Tax-free allowance for natural persons | 24,500 euros |
| Tax-free allowance for agricultural and forestry businesses | 24,500 euros |
| Exception for non-profit organisations | tax-free |
There are certain exceptions and allowances for trade tax that serve to reduce the burden on small and medium-sized companies. For example, allowances can be claimed that reduce the trade income and thus reduce the amount of trade tax payable. There are also various additions and reductions that influence the amount of trade tax.
There are also certain businesses that are exempt from trade tax. These include, for example, agricultural and forestry businesses as well as non-profit organisations such as associations and foundations. Small businesses can also be exempt from trade tax under certain conditions.
It is therefore advisable to find out in advance about possible exemptions and allowances in order to optimise the trade tax burden.
How and when must trade tax be paid?
Trade tax is generally paid quarterly as an advance payment to the relevant tax office. The exact dates for the advance payments are set by the tax office and communicated to the companies. The amount of the advance payments is based on the expected trade income for the current year and is determined on the basis of the last tax assessment notice.
At the end of the financial year, companies must submit a trade tax return in which they present their actual trade income. The final amount of trade tax is determined on the basis of this declaration. If this results in an additional payment, this must be paid within a certain period.
In the event of an overpayment, however, the tax office will make a refund.
What are the consequences of non-payment of trade tax?
There are various consequences for non-payment of trade tax. Firstly, interest on arrears is due, which increases the amount owed. In addition, the tax office can initiate reminders and enforcement measures to collect the outstanding amounts.
This includes, for example, seizures of accounts or Receivables as well as the initiation of insolvency proceedings. In the worst case scenario, non-payment of trade tax can lead to the closure of the company. Managing directors and shareholders can also be held personally liable if they fail to fulfil their payment obligations.
It is therefore extremely important to adhere to the payment deadlines for trade tax and to seek dialogue with the tax office at an early stage in the event of payment difficulties.
Tips for optimising the trade tax burden
Various measures can be taken to optimise the trade tax burden. These include, for example, the utilisation of allowances and reduction options to reduce trade tax income. Investments in the company can also be claimed for tax purposes in order to reduce the assessment basis for trade tax.
Furthermore, forward-looking tax planning can help to minimise the trade tax burden. This includes, for example, the choice of a suitable legal form or the Optimisation of business structures. Tax-optimised structures such as restructuring or company successions can also help to reduce the trade tax burden.
It is also advisable to regularly inform yourself about current tax Developments and, if necessary, seek professional advice. A tax consultant can help to identify individual structuring options and develop tax-optimised solutions. Through targeted tax planning, companies can reduce their trade tax burden in the long term and improve their economic situation.
