In principle, all companies must 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 expenditure are compared and the profit is calculated.
But - when do I have to file a trade tax return? Where do I submit it? And how do I prepare a trade tax return at all?
What you can expect today:
- Trade tax liability - who has to file a trade tax return?
- What is the trade tax?
- Who has to pay trade tax?
- How to calculate the trade tax
- When and how often do I pay business tax?
- Where do I have to transfer the trade tax?
- Trade tax and income tax
- Facts on trade tax at a glance
- Fill out the trade tax return
Trade tax liability - who has to file a trade tax return?
- Each self-employed person in Germany has registered trade and is therefore subject to trade tax according to § 2 Abs. 1 GewStG.
Excluded from this are various occupational groups, which are exempt from the trade tax obligation:
- all freelance activities
- all agricultural holdings
Whoever 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 becomes due. This is based on the amount of the profit, minus various free allowances and other deductions.
And: Whoever runs a business must pay trade tax. Means: The delivery of the trade tax declaration results. But what exactly is the trade tax actually?
What is the trade tax?
In Germany, every trader is also subject to trade tax - this is the principle. Exactly the same as every trade has to submit a tax return. The tax itself is levied by the community responsible for your business. One calls the trade tax also as municipality economy tax.
Here the amount of the tax for the individual is based on the profit. The profit of your company is not only the basis for your income tax, but also for your trade tax.
And: Also the municipality has an influence on the amount of tax for your business. This is where the so-called trade tax rate of assessment comes into play, as will be explained later.
Why is trade tax levied?
Companies represent a financial burden for communities. In order to create a balance here, companies must pay trade tax. Furthermore, the tax is intended to ensure that the municipalities themselves have an interest in approving companies in their area.
Smaller companies are accordingly excluded from the trade tax, which is ensured by the relatively high tax-free amount. An unnecessarily high tax burden is thus prevented.
Who pays trade tax?
Anyone who works on a freelance basis does not have to file a trade tax return. All others have to pay trade tax, depending on the amount of trade income. Whether you are a tradesman yourself can be determined on the basis of your activity.
Various professions pay no trade tax, regardless of their income, such as
- Tax consultant
Who has however a trade license, must pay this tax. Because with it you are automatically trade tax liable. The tax-free amount per year (2020) is 24.500 Euro. This is valid for all partnerships or individual entrepreneurs. Corporations do not have a tax-free allowance.
Freelancers do not have a tax advantage
Freelancers only pay income tax. The trade 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 an advantage in tax matters or would be preferred. But this view is wrong because tradesmen can claim the trade tax in their income tax return again. And that can make a lot of money. Traders are therefore not at a disadvantage financially.
This is how you can calculate the trade tax
Actually, the calculation of the trade tax is quite simple. First, you calculate your profit. Now you can determine your trade tax base. In the second step, you use your trade tax rate. This differs depending on the municipality and place.
Tip: You can find the valid trade tax rate for you on the website gewerbesteuer-hebesatz.de. There, all regions in Germany are shown with their respective assessment rates.
Phase 1 - Calculate tax burden
In the first phase of your calculation, the tax office determines the trade tax amount This works by informing your tax office of your profit from the last year. From this amount, the tax-free amount of 24.500 Euro is deducted. The right to deduct the tax-free amount is justified in § 25 Abs. 1 GewStDV. Now you will receive your taxable profit. The defined figure is then multiplied by the taxable profit. You will receive your trade tax assessment amount, also known as tax index or tax assessment amount.
- Profit - tax-free amount = taxable profit
- Taxable profit x 3.5% = Trade tax base
Phase 2 - Trade tax rate
Now the municipality determines the trade tax in the second phase of your calculation. The basis for this is the trade tax assessment amount, which is multiplied by the respective assessment rate. Depending on the municipality, the rate of assessment can vary considerably, ranging from 200 to 500 percent. The result then represents the amount of the trade tax. The municipality will therefore issue a trade tax assessment. Afterward, you have to pay the amount to your municipality.
- Trade tax amount x assessment rate = trade tax
Of course, you can also use a free trade tax calculator from the Internet. But it is quite easy to calculate your tax burden yourself.
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 be calculated. This is also called trade tax prepayment and is paid to your municipality quarterly and always on the 15th of the month. The advance payment reduces your financial burden because you have already paid a part of your tax. And also here applies: Who pays too much, gets tax money back. If you pay too little, you will get a notice about the corresponding back payment.
When do I have to file my trade tax return?
Quite simply: Always by 31 May of the following year. This is regulated by law in § 149 (2) AO, whereby there is an exception. If a tax consultant takes care of your trade tax return, there is a deadline until 30 September. In further exceptional cases, the tax consultant can even apply for a further extension of the deadline until 28 February of the following year.
Please note: Your municipality can only issue a trade tax assessment if it has the necessary data from your trade tax return. For this, you need a trade tax return form or a sample trade tax return. Various tax software can also help you fill out the declaration. And tax consultants are also available to assist you.
Where do I have to transfer the trade tax to?
Your competent municipality is the one in whose jurisdiction your company is located. So you can either pay the business tax directly to the municipality or transfer it to the tax office. In most cases, however, you will find the exact details for the transfer on your trade tax certificate, otherwise, you can also find the bank details of your municipality on the Internet.
Trade tax and income tax
Those who are subject to trade tax must still pay income tax. This sounds at first like a considerable additional burden. In order to relieve the burden on self-employed persons and smaller companies, however, there is the possibility to claim the trade tax from the income tax. Again, you have to do some calculations to arrive at the amount you can take into account in your income tax return.
Facts about trade tax at a glance
- The trade tax return is obligatory if the profit of a trade exceeds 24.500 Euro
- Freelancers and farmers are exempt from trade tax
- The deadline for submitting the trade tax return is the 31.05. of the following year
- Advance payments of trade tax are made quarterly
- The trade tax to be paid is calculated from profit income x 0.035 x assessment rate
- The currently valid tax rate is 3.5%
- The height rate of the trade tax varies strongly depending on the municipality Large cities usually have a higher collection rate than smaller municipalities
- The income tax reduction relieves smaller companies
- In case of a movement, the income is calculated for the quarter exactly for the specific location
Fill out trade tax return
For the trade tax return, you can use a prepared form. You can download the five to six-page document free of charge from the Internet or send it to the tax office by ELSTER form.
Important details for the trade tax return are
- General information about the company and your person.
- Profit from commercial enterprise
- Trade tax Additions Gain from shares of certain entities
- Gifts (donations and membership fees)
- Trade income
- Information on the carry-forward commercial loss to be carried forward
- Loss determination data
- Date, place, and signature
The trade tax return is obligatory for every business enterprise unless they belong to certain occupational groups or are below the exemption limit. This is regulated by the Trade Tax Act. However, the trade tax does not represent an additional burden for companies that earn more than 24,500 Euro per year. It can sometimes be fully offset against the income tax. For communities, the trade tax is an incentive to encourage companies in their community to support them. You can now calculate your trade tax payable yourself and know what information you have to provide on your trade tax return. Practical accounting programs support you in this.