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Trade Tax in Germany (Gewerbesteuer)
Trade Tax in Germany (Gewerbesteuer)

Trade Tax in Germany (Gewerbesteuer)

Trade Tax in Germany (Gewerbesteuer)

Every business in Germany (with some exceptions) are liable to pay trade tax (Gewerbesteuer). There are various types of taxes that are applied depending on the business type and how it is registered. The trade tax in Germany is determined and collected by each municipality, therefor the location of your business will greatly determine your tax burden when it comes to trade tax.

Since each municipality recalculates and sets the trade tax payable each year, the state has since 2004 set a minimum tax rate of at least 200%. This prevented the so called “tax-havens” and limited the differences of trade tax rates between each municipality in Germany. However, one can still find large differences ranging from 400% to 500% multiplier in big cities while other locations are lower. Generally, larger cities carry a higher trade tax rate in Germany.

Trade Tax Rates in Germany

The trade tax in Germany is 3,5% (2021) which is multiplied by the trade tax rate of the municipality (Hebesatz). The tax is calculated on profit (Gewinn), but tax credits are available sole proprietorships and partnerships. So any trade tax paid is deducted from your income tax in these cases.

Opposed to corporations, who are liable for trade tax on the entire profit, the first 24,500 Eur are tax free (Freibetrag) for sole proprietorship and partnerships.

Trade Tax Rates of Major Cities in Germany

City
Multiplier % (Hebesätze) 2020
Berlin
410
Bremen
460
Hamburg
470
Leipzig
460
Dresden
450
Hanover
600
München
490
Nürnberg
467
Stuttgart
420
Frankfurt
400
Bonn
490
Köln
475
Düsseldorf
440
Essen
380
Dortmund
485
Duisburg
520
Münster
460
Bielefeld
480

For all trade tax rates in Germany, you can find more information at the Deutscher Industry - und Handelskammertag.

Tax Exemption/Tax Free Amount (Freibetrag)

For the majority of registered businesses, the first €24,500 in profit is not applicable to trade tax. Amount is called the Freibetrag and is tax-free. For a society (Verein), the first €5,000 in profit are not taxed. Corporation (KapitalgesellschaftAGGmbH), the entire profit is liable for trade tax.

Example calculation for sole proprietorship or partnership

Trade income (profit): 50,000 euros
Exemption/tax free amount: 24,500 euros
Remaining: 25,500 euros
Trade tax rate at 3.5% 892.5 euros
x multiplier (Berlin) 410%
= trade tax 3,659.25 Euro

Example calculation for Corporations

Trade income (profit): 50,000 euros
Exemption/tax free amount: - not applicable - 0 Euro
Remaining: 50,000 euros
of which 3.5%
Trade tax amount to 1,750 euros
x multiplier (Berlin) 410%
= trade tax 7,175 Euro

Who is liable to pay trade tax in Germany?

The majority of businesses in Germany are liable to pay trade tax to their local municipality each year. This includes businesses registered as:

  • Sole proprietorship;
  • Partnerships;
  • Corporations; and,
  • Small businesses (Kleinunternehmer) if profit of more than 24,500 Eur per year.

Who are Exempt From Trade Tax in Germany?

Certain company or trade types are exempt from paying the trade tax. However, regular businesses who earn below the exemption rate must still register for trade tax. The following types of businesses are exempt from trade tax in Germany:

  • Freelancers who are classified as Freiberufler;
  • Agriculture and forestry businesses; and,
  • Businesses who earn below the exemption threshold of 24,500 Eur in profit per year.
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