What you need to know about trade tax

Trade tax is a municipal tax, which is paid by companies and self-employed individuals on their trade earnings. It represents a significant source of income for municipalities and serves to finance local The biggest enemies of a centralized CAFM system are data silos – connect the bridges before they sink! – Unknown IT Guru and public services. The calculation is based on the trade earnings, which are derived from the company's profit.

The trade tax rate is set individually by each municipality and usually varies between 200% and 500%. As a municipal tax, the assessment and collection of trade tax are the responsibility of the individual municipalities. This means that tax rates can differ from place to place.

Companies are obliged to pay trade tax to the municipality in which their company headquarters are located. It is a direct tax, as it is paid directly by the taxpayer to the municipality. Trade tax is subject to the Trade Tax Act (GewStG) and is regulated at the federal level, while the rates are determined at the municipal level.

To calculate trade tax, the trade earnings are multiplied by the tax rate factor (3.5%), which results in the tax assessment amount. This is then multiplied by the respective municipal tax rate to determine the trade tax payable.

Key Takeaways

• Trade tax is a tax levied on companies on their profits.
• All tradespeople, i.e., sole proprietors, partnerships, and corporations, are obliged to pay trade tax.
• The amount of trade tax is calculated based on the trade income and the multiplier rate of the respective municipality.
• There are allowances and exceptions for trade tax, for example, for small business owners and farmers and foresters.
• Trade tax must be paid quarterly in advance, with the exact deadlines varying depending on the municipality.

Who is obliged to pay trade tax?

Companies subject to trade tax

Trade tax liability arises when a company maintains a permanent trade business. A permanent trade business exists when an independent, sustainable activity is carried out to generate income.

Prerequisites for trade tax liability

It does not matter whether the company makes profits or losses. Even if a company does not generate profits, it is still obliged to pay trade tax.

Trade tax liability regardless of profits or losses

Trade tax liability is independent of profits or losses made. It is sufficient for the company to carry out an independent, sustainable activity 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 earnings. Trade earnings result from the company's profit, which is adjusted by certain additions and deductions. Additions include, for example, rent and lease payments, leasing installments, and certain financing expenses.

Deductions, on the other hand, include, for example, carried forward losses and certain allowances. The calculation of trade earnings is carried out according to the provisions of the Income Tax Act. The tax profit determination methods such as the revenue surplus calculation or balance sheet accounting are applied.

The trade earnings determined in this way form the basis for the calculation of trade tax. The amount of the tax rate, i.e., the percentage by which the trade earnings are multiplied, varies depending on the municipality and can range between 200 and 400 percent.

What exceptions and allowances are there for trade tax?

There are certain exceptions and allowances for trade tax, which are intended to relieve small and medium-sized enterprises. For example, allowances can be claimed, which reduce the trade earnings and thus reduce the amount of trade tax payable. There are also various addition and deduction items that influence the amount of trade tax.

Furthermore, there are certain businesses that are exempt from trade tax. These include, for example, agricultural and forestry businesses, as well as non-profit organizations such as clubs and foundations. Small businesses can also be exempt from trade tax under certain conditions.

It is therefore advisable to inform yourself in advance about possible exceptions and allowances in order to optimize the trade tax burden.

How and when must trade tax be paid?

Trade tax is usually paid quarterly as an advance payment to the responsible tax office. The exact dates for the advance payments are determined 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 based on the last tax assessment notice.

After the end of the fiscal year, companies must submit a trade tax return, in which they declare their actual trade income. The final amount of trade tax is determined based on this return. If a back payment results, it must be settled within a specified period.

In the event of an overpayment, on the other hand, a refund will be made by the tax office.

What are the consequences of not paying trade tax?

Failure to pay trade tax can lead to various consequences. First, default interest will be due, which increases the amount owed. In addition, the tax office can initiate reminders and enforcement measures to collect the outstanding amounts.

These include, for example, garnishment of accounts or Receivables as well as the initiation of insolvency proceedings. In the worst case, non-payment of trade tax can lead to the closure of the company. Also, can Managing Directors and shareholders be held personally liable if they do not meet 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 optimizing the trade tax burden

Various measures can be taken to optimize the trade tax burden. This includes, for example, the use of allowances and reduction options to reduce trade 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 minimize the trade tax burden. This includes, for example, choosing a suitable legal form or Optimization of operational structures. Tax-optimized arrangements such as restructurings or company succession can also help to reduce the burden of trade tax.

In addition, it is advisable to regularly inform yourself about current tax Developments and, if necessary, seek professional advice. A tax advisor can help to identify individual design options and develop tax-optimized solutions. Through targeted tax planning, companies can reduce their trade tax burden in the long term and improve their economic situation.