The trade tax is not one of the favorite taxes for almost all entrepreneurs. You very likely feel the same way about it. After all, with this tax you will get a good part of what you have earned with your work. But the legislature also gives you the right to be entitled to a trade tax allowance under certain conditions .
What is the business tax allowance?
The term trade tax allowance is used to describe a non-taxable amount . This amount is granted to you as a trader by law and is not affected by trade tax. You are referred to as a trader if you are obliged to pay taxes under the law for income tax for your commercial activity or as a corporation .
How high is the trade tax allowance?
In the trade tax law , the GewStG , the amount of this trade tax allowance is firmly anchored. Section 11 of the GewStG describes that there is an allowance of 24,500 euros for both natural persons and partnerships . Clubs, on the other hand, only have an allowance of 5,000 euros. Companies that are active in agriculture and forestry have a special position in the GewStG . In order to be taxed at all, you have to be registered with your company in the commercial register. In addition, the turnover you generate through commercial services must not exceed 5,000 euros.
The trade tax exemption also depends on the legal form or organizational form of your company. You can see exactly what this looks like in the table below.
|Legal form or organizational form||Amount of trade tax allowance|
|Natural people||24,500 euros|
|Other forms of organization (e.g. clubs)||5,000 euros|
|Corporations||No entitlement to a trade tax allowance|
How is the trade tax allowance calculated?
There is no separate calculation for the trade tax allowance . The exemption is always the same according to the conditions shown in the table. So it is completely independent how much turnover you make. The allowance always remains the same . In order to calculate the amount of your trade tax , you have to deduct this trade tax allowance from your sales.
How does the trade tax allowance reduce the trade tax?
So that you can find out how the trade tax allowance affects your trade tax, you have to calculate it first. If you stay correct, it is actually a trade income tax. The reason for this is that your trade income forms the basis for the amount of trade tax you pay. If necessary, you can make reductions or additions from your profit. You subtract your trade tax allowance from the resulting amount. This is then multiplied by the valid tax index and the assessment rate of your municipality. In many municipalities this rate is around 400%. The minimum lifting rate is 200% .
Changes after the 2008 trade tax reform
The tax base plays an important role in calculating the tax burden for trade tax. The tax index is very important for this. The tax index is a percentage that has been established nationwide. Before the commercial tax reform of 2008, the tax index was 5%, after the tax reform it is 3.5%. The saddle tariff that existed before the reform was abolished in the course of the reform. If you run a partnership or a sole proprietorship , you must note that the trade tax allowance of EUR 24,500 is deducted from the trade income before multiplying your trade income by 3.5%. This then results in the tax base.
It could look like this, for example.
You run a sole proprietorship. Your income amounts to 50,000 euros. There is no additional amount or a reduction amount. The assessment rate in your municipality is 400%.
Profit from business operations 50,000 euros
Additional amount 0 euros
Reduction amount 0 euros
Assessment rate in% 400
Legal form sole proprietorship
This results in the following calculation:
Commercial profit € 50,000.00
+ Additional amount € 0.00
– Reduction amount € 0.00
– Allowance € 24,500.00
Relevant commercial income € 25,500.00
× Business registration number 3.50%
= Tax assessment amount € 892.00
× rate of assessment 400.00%
Trade tax € 3,568.00
How is the trade income calculated?
To calculate your business income , you need to either add or subtract various amounts from your commercial profit. The basis is always the profit that is also incurred for determining income for the corresponding assessment period.
The following items, among others, can be considered for additions:
- Associated profit shares for contributions that come from one or more personally liable KgaA partners and that do not belong to the share capital.
- Remuneration due to shareholders through their exercise of management
- Shares in losses in partnerships.
- Reductions in profit resulting from partial depreciation
- Share of profits through dividends, which are tax-free after being offset against business expenses .
- Shares from a partnership or a corporation that is exempt from taxes.
To calculate the business income, you need to use the following formula.
Commercial profit – reductions + additions = business income – business tax allowance = remaining profit
Trade tax exemption when changing legal form
It can happen again and again that the legal form of a company changes during a survey period. This may be necessary, for example, when one or more shareholders leave the company if the company is then continued as a sole proprietorship. This leads to the fact that there is a change in the person of the tax debtor. Such cases have already led to a number of lawsuits, partly out of ignorance. The Federal Fiscal Court has therefore made the following regulations.
Trade tax allowance for a short fiscal year
As described in § 14 sentence 2 GewStG , the calendar year is always to be seen as the period for collecting trade tax . If there are reasons, for example the establishment during the current year or the cessation of business operations, the business income is not extrapolated for the whole year . Nevertheless, the trade income is decisive for the period in which it was obtained. In this case there is no conversion. This trade income must therefore also be used as a basis for the trade tax allowance without any change.
- Depending on the legal form of your company, the trade tax exemption is 25,000 euros or 5,000 euros .
- The trade tax exemption is a basic amount. As a trader, you do not have to pay tax on this basic amount .
- The trade income serves as the basis for calculating the amount of trade tax to be paid.
- You must always deduct the trade tax allowance from the trade income before calculating the trade tax to be paid.
- You have to adjust your trade income if necessary. These can be items such as additions or reductions.
The trade tax is not exactly the favorite tax for most entrepreneurs. Under certain conditions, you as an entrepreneur are legally entitled to a certain trade tax exemption. The trade tax exemption is regulated in § 11 GewStG, which states that this exemption is 24,500 euros for both natural persons and partnerships. A corporation, on the other hand, is not entitled to a trade tax allowance.