German Company Taxes

Commercial tax and trade tax provisions

The commercial tax is a non-personal tax, which is levied on all municipalities and holds a well of each municipality. The amount of the business tax can vary greatly from community to community.

Each community can set the so-called assessment rates for this tax themselves. Commercial Taxable are all companies with the exception of freelance people. The tax is paid on advance and will fulfill by a final payment if the advance payments are insufficient to cover the actually incurred business tax debt. Accordingly, it is useful and even prescribed for ordinary merchants to build a trade tax provision. This trade tax provision intended to ensure that residual debt after tax return can be settled. The obligation to recognize a trade tax provision is regulated by law for ordinary merchants. But companies which do not account should endeavor to create a trade tax provision.

The basis for the commercial tax is the current profit. This is first enlarged by additions and reduced by the cuts. A possible business loss is then subtracted from the result. The result is the operating profit, which is rounded to full hundreds. From this operation profit business tax deduction is subtracted. For business partnerships 24,500€ per year and for all other forms of enterprise that is 5000€. The resulting by this subtraction amount is the basis for determining the tax rate. It is multiplied by the uniform tax rate of 3.5%. This result will be multiplied by the multiplier of the community, resulting the amount of the trade tax. If you have made enough payments in advance, no further payments will be needed. Especially for the first time it is not easy to make a tax return for the commercial tax without professional help. Therefore, you should consult a tax advisor if you want to make the statements in the future itself.

Business tax credit

The term business tax credit is defined as the possibility for individual companies to offset the financial burden of the trade tax. It was introduced along with other simplifications. To take advantage of the business tax credit you are subject to trade tax and need to provide a tax declaration.

How does the business tax credit work?

First, the business tax credit is only carried out by individual companies and partnerships. Corporations are not entitled to this right. Commercial tax credit means that the income tax, which is attributable to the business income must be reduced 3.8 times. This is found in the trade tax assessment notice.
Only when in fact business tax for the company has been set, a business tax deduction can be made. This is the case if the allowance of 24,500 euros per year is exceeded. Then you need to create a tax return for the business tax. By applying the business tax credit, especially smaller companies benefit from it.