Trade Tax on Income in Germany

Every business run in Germany is subject to trade tax. There is an exemption for self-employed professionals (e.g. doctors architects or tax consultants), business set-ups in the farming and forestry sectors and non-profit making organisations.

Trade tax is a local tax and levied by communities or municipals on an annual basis. After filing a trade tax return the tax authorities will calculate an uniform trade tax assessment base (Steuermessbetrag). Each community or municipal has its own multiplier (so called tax factor = ‘Hebesatz’) and they will issue the final trade tax assessment. In general the trade tax factor in metropolitan areas is higher than in rural areas. The trade tax rate differs between 7% and 17% (depending on the multiplier of the community or municipal).

Trade tax paid by partnerships and individuals is partly or fully creditable against the individual income tax liability (depending on the multiplier if trade tax is fully or partly creditable).