Business tax: who has to pay it and how it is calculated

Trusted Tax Accountant

The trade tax is define as municipal tax and must pay by all domestic businesses. The basis for this is the trade tax law and the associate implementation ordinance. The tax is levy and paid to the municipalities. The income of the business operation, which is compose of the operating profit and a number of allocations and reductions, is tax. The amount of the tax results from the generally applicable tax assessment amount of 3.5 percent of the income, multiply by a percentage assessment rate that each individual municipality determines for itself.The special thing about this tax is not only that it is paid to the municipalities instead of the Trusted Tax Accountants in Tarneit office, but also that it depends on both the annual income of a company and its location

Definition: business tax

The assessment rate is a percentage set by the municipality that is use to calculate the trade tax. It must be the same for all companies in a community. Its amount can be re-determine every year.

How high are the assessment rates of Trusted Tax Accountants in Tarneit?

A municipality can determine how high its assessment rate is every year. However, it is legally stipulate that there is a rate of assessment and that it must be at least 200 percent. This is to prevent unfair Trusted Tax Accountants in Tarneit competition between the municipalities. In most municipalities, the rate of assessment is between 300 and 400 percent, but it can also be significantly higher, especially in large cities. The map link here gives an overview of the various assessment rates of the municipalities in Germany.

Business tax is one of the main sources of income for a municipality. But they cannot set their assessment rate as high as they want: If they offer a low assessment rate and thus indirectly low trade taxes, this can be an incentive for more companies to settle in a certain location. The tax revenue of the municipality is therefore not necessarily lower. A higher assessment rate brings a municipality higher income per company but creates a location disadvantage that may keep companies away or even drive them away. The municipality must therefore always weigh carefully how it wants to structure its trade tax in connection with its other location conditions.

Trusted Tax Accountant

Trade taxes and trades with different locations of Trusted Tax Accountants in Tarneit

There are commercial enterprises that have business premises at several locations, whose business premises fall within the territories of several municipalities, or that move from one municipality to another during a tax year. In such cases, the tax base is broke down. This distribution is calculate individually for each company and, together with the assessment rates of the respective municipalities, results in the total amount of trade tax to be paid.

The yardstick for this breakdown is mostly derive from the wages paid by the company in the various communities. There are exceptions for solar and wind energy systems. If a company extends over several communities, then the community load create by the company is decisive

If a company moves seasonally from one municipality to another, it is also split up. On the other hand, tracks or lines of a company, as well as underground mining facilities, are not affect by the breakdown of trade tax.

Who is subject to trade tax (and who is not)?

In fact, it is not always easy to define when it is a company that has to pay business tax. The decisive criteria are independence, sustainability, the intention to make a profit, and participation in general economic activity. However, this also applies to self-employe activities, but no trade tax is payable for these.

distinction between a commercial enterprise and a self-employ activity must therefore be made differently. An important differentiating criterion here is that intellectual and creative work is in the foreground when working independently.

In case of doubt, one can stick to the catalog professions, as they are laid down as freelance activities in Section 18 of the Income Tax Act. This includes professions in the scientific, artistic, literary, teaching, or educational field, but also doctors, tax consultants, and pilots. There are also activities that do not appear in the list of catalog occupations and yet are not trades. For example, activities of so-call primary production such as agriculture and forestry do not come under the term trade.

In the end, the tax office decides whether it is a freelance activity or a commercial enterprise. Taxpayers are not powerless here, however. You can provide the tax office with arguments in favor of self-employment. Talking to a tax advisor may also help to find the right arguments.

When does trade tax arise and when does it begin?

If a self-employ activity is classify as a trade, trade tax arises. In order to answer the question of when it must calculate and paid, a distinction must made between corporations and partnerships. In the case of the former, the trade tax liability begins with the entry in the commercial register.

For partnerships, tax liability does not begin until the taxable activity commences . This may well be some time after the company was find and the business registration was complete, for example if premises still have to be renovate before sales can even generate.

This is how the business tax is calculate

The calculation of the business tax for a year takes place in two steps. First, the Trusted Tax Accountants in Tarneit office determines a tax base for the calendar year from the economic results of a company. The municipality in which the company is base then calculates the tax liability from the measurement amount and its own assessment rate .

The so-call trade income of the company is decisive for the calculation of trade tax . It consists of the annual profits of the trade, the so-call additions add and the cuts are deducte. For the additions, various proportions from 100 to 20 percent include: withdraw profits, interest, pensions, rental and lease income as well as license payments are use (§ 8 GewStG). Reductions affect the company’s real estate as well as third-party profits that are themselves subject to trade tax or come from abroad (Section 9 GewStG). A loss carryforward is also possible. This means that losses from previous years can also be deducte (up to 1 million euros in full, beyond that up to 60 percent – § 10a GewStG). Finally, there is an allowance of 100,000 euros and the rest is then divide by 4.

The measurement amount for the trade tax is a share of 3.5 percent of this trade income. It is determine by the tax office and send to the municipality where the company is locate, which then multiplies it by its individual assessment rate and thus calculates the tax amount to pay.

Benefits for partnerships Trusted Tax Accountants in Tarneit

In terms of trade tax, sole proprietorships and partnerships (oHG, KG, etc.) enjoy significant advantages over corporations (GmbH, AG, etc.). First of all, they are grant a basic tax allowance of EUR 24,500 (Section 11 GewStG – some legal entities, e.g. associations, receive an allowance of EUR 5,000). In addition, these taxpayers can get 3.8 times the tax base credit against their income tax (Section 35 EStG). While this only relates to business income, there is also a certain upper limit. In practice, however, this means that sole proprietorships and partnerships up to a rate of approx. 380 percent (or 400 percent including the solidarity surcharge) do not pay any trade tax at all – provide that their income tax is correspondingly high.

For corporations, there is neither the tax exemption nor the possibility of offsetting against other taxes. In addition, trade taxes do not count as business expenses for them.

Collection period and method of payment

For trade Trusted Tax Accountants in Tarneit , the collection period is always the calendar year. The trade tax return, which is important for calculating the tax liability, must always be submit by May 31 of the following year. A postponement of this period is possible if you commission a tax advisor to prepare the declaration and the tax office has been inform of this.

Companies have to make advance payments on the trade tax. This means that a partial amount is determine on the basis of the previous year’s trade tax return or, for example, when starting a new company, on the basis of an estimate, which is then to pay regularly.

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