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Trade Tax for all Commercial Business Operations

All commercial business operations in Germany (regardless of legal company form) are subject to trade tax (Gewerbesteuer) with respect to their taxable earnings.

The applicable trade tax burden depends on two factors:

The standard trade tax base rate (according to German trade tax code)
The trade tax collection rate stipulated individually by every municipality (called the municipal multiplier - Hebesatz).

The trade tax base rate has been lowered from its previous five percent level to 3.5 percent for corporations, partnerships, and all other business operations.

The resulting trade tax base amount is then multiplied by the applicable municipal multiplier (Hebesatz).

Example:

Company A with annual taxable earnings of EUR 1,000,000 is based in city B.
City B has stipulated a municipal multiplier of 400 percent.
The trade tax base amount for company A is 3.5 percent of its annual taxable earnings or EUR 35,000.
The EUR 35,000 is multiplied by the municipal multiplier of 400 percent, resulting in a total trade tax burdenfor company A of EUR 140,000.

Annual taxable earnings of up to EUR 24,500 are trade-tax-exempt for partnerships. No solidarity surcharge is levied on trade tax payments!

Germany’s reform of company taxation has improved the option to offset trade tax payments against personal income tax. Previously, partnerships and sole proprietorships could offset trade tax payments against their personal income tax burden with a weighting factor of 1.8. of the trade tax base amount.

Under the company taxation reform, this weighting factor has been more than doubled to 3.8. Accordingly, the personal income tax of a partnership or sole proprietorship can be reduced by 3.8 times the trade tax base amount.

Example:

Partnership A has a trade tax base amount of EUR 35,000 (3.5 percent of its annual taxable earnings).
This trade tax base amount can be offset against personal income tax payments with a weighting factor of 3.8; amounting to EUR 133,000 (35,000 x 3.8).
Accordingly, partnership A can offset EUR 133,000 against personal income tax payments.

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Trade Tax for all Commercial Business Operations

Trade Tax for all Commercial Business Operations

Example:

Example:

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