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 tax assessment rate (= 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 collection rate - Hebesatz).

The tax assessment 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 collection rate (Hebesatz).

By law, the municipal collection rate must be at least 200 percent (resulting in a minimum total trade tax burden of seven percent). There is no statutory ceiling; therefore the collection rate in conurbations can be as high as 490 percent. The average municipal collection rate is somewhere between 350 percent and 400 percent, and collection rates tend, as a rule, to be higher in urban areas than in rural areas.

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.