Local Business Tax (Gewerbesteuer)
The local business tax (Gewerbesteuer) is applied as a tax on the profits of business and the objective profitability of a business operation. It is the most important original source of income for cities and towns in Germany.
General / Persons liable to pay tax
Businesses are subject to the tax who are registered as a legal corporation or whose business activity is recorded as part of income tax law (sole proprietorships and partnerships).
Basis for taxation
Taxation is based on the profit from the balance sheet or surplus income statement of each company, which is corrected on the basis of income tax and corporate tax law.
Additionally, there are extra calculations and reduction in the profit that apply only to local business tax, for example:
- Expenses for interest and rent
- Share income and loss from shares in corporations and partnerships
Sole proprietorships and partnerships are also allowed an exempt amount of 24,500 Euro.
Rate of tax
From the taxable business profit, a business tax assessment amount is set at 3.50 percent of the business profit. The amount thus calculated is multiplied by the municipal multiplying factor of the city or town in whose area of administration the business operation has its location.
The municipal multipliers can be determined freely by the cities, although a minimum of 200% is prescribed. The rate of multipliers is very different between the regions, because this also plays a part in location politics. For example, in Munich the multiplier is 490 percent, whereas only 13 kilometres away in the suburb of Gruenwald, it is only 280 percent. This makes the effective business tax liability in Munich approximately 17.15 percent and in Gruenwald only about 9.80 percent.
The rate of local business tax is therefore significantly connected to the choice of location.
Reporting and payment
Local business tax is reported to the jurisdictional tax office after the end of the calendar year. Because it is a communal tax, as already mentioned, due taxes are set and collected by the local city or town.
As with the income tax and the corporate tax, local business tax generally also must be paid in advance each quarter.