Germany’s taxation system is known for its intricacies, and Gewerbesteuer—often referred to as the trade tax—is one of the key taxes you might encounter if you run a business. This tax primarily targets business profits, but specific rules exist for who must pay, how to file, and when payments are due. Whether you’re a sole proprietor, part of a partnership, or even an employee curious about your employer’s obligations, understanding Gewerbesteuer is important in ensuring compliance with German tax laws. Whether you’re new to Germany’s tax system or seeking clarity, this guide covers everything from tax-free allowances to payment schedules and tax-saving tips.
What is Gewerbesteuer?
Gewerbesteuer is a trade tax imposed on businesses operating in Germany. It is charged by the municipality (Gemeinde), where a company or self-employed professional has their business registered. Unlike other taxes (such as income tax or corporate tax), Gewerbesteuer flows directly into the local budgets of German cities and towns, making it a significant revenue source for municipalities.
Key points:
Gewerbesteuer is applied to commercial income (gewerbliche Einkünfte).
It funds local infrastructure, community projects, and essential municipal services.
The tax differs from income tax (Einkommensteuer) and VAT (Umsatzsteuer).
Who must pay Gewerbesteuer?
Any commercially active business in Germany can be subject to Gewerbesteuer. This generally includes:
Sole proprietors (Einzelunternehmen) who are classified as operating a trade (Gewerbe)
Partnerships (Personengesellschaften) such as GbR, OHG, or KG, if they are considered commercial
Corporations (Kapitalgesellschaften) such as GmbH or AG
Freelancers and Gewerbesteuer
If you are a freelancer (Freiberufler) in Germany—meaning you perform what the tax authorities classify as a “free profession” (e.g., teacher, writer, artist, software developer under certain conditions)—you are not generally obliged to pay Gewerbesteuer. However, you must ensure that your activity genuinely falls under the freelancing definitions outlined by German tax law. If you perform mixed activities (some tasks considered freelancing, others considered commercial), you might still be liable for Gewerbesteuer on the commercial portion of your income.
Key terms and concepts
Before diving deeper, let’s define some essential terms:
Gewerbeertrag (trade income): This is the taxable profit of your trade or business activity, adjusted for any relevant add-backs (Hinzurechnungen) or reductions (Kürzungen).
Steuermesszahl (tax rate/measurement figure): A fixed rate of 3.5% is applied to your Gewerbeertrag to determine the so-called “Steuermessbetrag” (tax base amount).
Hebesatz (municipal multiplier): Each municipality sets its own multiplier (often between 200% and 900%). You multiply the Steuermessbetrag by the Hebesatz to calculate the actual Gewerbesteuer due.
Freibetrag (tax-free allowance): Certain business forms, like sole proprietors and partnerships, can claim a tax-free allowance (currently EUR 24,500) on their Gewerbeertrag.
Hinzurechnungen (add-backs) and Kürzungen (reductions): Specific expense items and income items added or deducted to calculate Gewerbeertrag.
The importance of Gewerbesteuer for municipalities
German municipalities rely significantly on Gewerbesteuer to fund public services, such as:
Road maintenance and infrastructure
Public transportation
Schools, libraries, and other educational facilities
Public safety and emergency services
Because Gewerbesteuer revenues help finance local projects, municipalities have a vested interest in attracting businesses to their regions. Some areas keep Hebesatz (municipal multiplier) rates comparatively low to entice companies and encourage local economic development.
When and how to file Gewerbesteuer
Your Gewerbesteuererklärung (trade tax return) must be filed electronically (via ELSTER or tax software like Norman) with the tax office (Finanzamt). Here are the standard filing deadlines:
Regular deadline: July 31 of the year following the tax year.
Extension with tax advisor: If you use a tax advisor, the deadline often extends to the end of February or August next year (exact deadlines can vary).
After submitting your tax return, the Finanzamt will calculate the Gewerbesteuermessbetrag (tax assessment amount). Your local municipality then applies its Hebesatz to determine your final Gewerbesteuer.
Step-by-step filing process:
Prepare financial records: Gather profit and loss statements, receipts, and balance sheets (if applicable).
Calculate profit: Determine your yearly profit from your business.
Make adjustments: Apply any necessary Hinzurechnungen (add-backs) or Kürzungen (reductions).
Submit electronically: File using ELSTER (the official German tax platform) or a tax software solution like Norman.
Receive notice: The Finanzamt issues a Gewerbesteuermessbescheid (assessment notice).
Municipal calculation: Your municipality calculates the final tax bill based on its Hebesatz.
👍 Practical tip: Simplify your tax filing process with tools like Norman. Norman automatically tracks your income and expenses, sends timely reminders about important deadlines, and provides real-time insights into your tax returns or payments to the Finanzamt.
How to calculate Gewerbesteuer
To get a sense of how much Gewerbesteuer you might owe, it helps to understand the basic calculation formula:
Gewerbesteuer = (Gewerbeertrag − Freibetrag) × Steuermesszahl × Hebesatz
Gewerbeertrag: Your adjusted business profit
Freibetrag: Tax-free allowance (e.g., EUR 24,500 for sole proprietors and partnerships)
Steuermesszahl: 3.5% (fixed by federal law)
Hebesatz: A percentage set by your municipality (e.g., 400%)
The same formula applies to most businesses, but freelancers (Freiberufler) usually don’t go through this calculation because they are not liable for Gewerbesteuer (unless they engage in commercial activities).
Example calculation:
Let’s say your business is based in Berlin with a Hebesatz of 410%:
Annual profit: €100,000
Tax-free allowance (for sole proprietors): €24,500
Taxable profit: €75,500
Gewerbesteuer = €75,500 × 3.5% × 410% = €10,834.25
💡 Pro tip: Use Norman to estimate your tax burden based on location.
Gewerbesteuerhebesatz: Understanding municipal rates
Each municipality sets its own Hebesatz, which can vary widely:
In small towns or rural areas, it might be 200%
In large cities or certain municipalities, it can exceed 500% or even reach 900%
Why it matters
Choosing where to register your business can significantly affect your tax burden. Some entrepreneurs opt for lower Hebesatz municipalities to reduce costs, but you must balance that decision with other factors:
Availability of skilled labor
Customer proximity
Local infrastructure
Logistics and supplier access
Table: Some of the municipal Hebesätze in Germany
| City/Municipality | Hebesatz (%) |
|---|---|
| Berlin | 410 |
| Munich | 490 |
| Hamburg | 470 |
| Hessen | 530 |
Tax-free allowance (Freibetrag) and other deductions
If you operate as a sole proprietor or part of a partnership, you can deduct EUR 24,500 from your Gewerbeertrag. This means:
If your profit is below 24,500 EUR, you owe no Gewerbesteuer.
Only the portion above 24,500 EUR is taxed if your business profit exceeds this threshold.
For corporations (Kapitalgesellschaften), there is no tax-free allowance. They pay Gewerbesteuer on all their taxable profit.
Possible Hinzurechnungen (add-backs) and Kürzungen (reductions)
When calculating Gewerbeertrag, you may need to add back or subtract certain amounts:
Hinzurechnungen
Interest expenses and similar financing costs above certain limits
Rent and lease expenses for movable and immovable assets beyond a specific threshold
Royalties or license fees, if they exceed certain parameters
Kürzungen
Income from foreign permanent establishments (to avoid double taxation)
Certain dividends or gains from shareholding in subsidiaries, under specific conditions
Donations and grants, up to specified limits
Always consult Section 8 and 9 of the Gewerbesteuergesetz (GewStG) for the full list of Hinzurechnungen and Kürzungen
Gewerbesteuer vs. Freiberufliche Tätigkeit
Freelancers (Freiberufler)—like doctors, lawyers, engineers, artists, or writers—generally do not register a Gewerbe and are therefore not liable for Gewerbesteuer. However, any mixed activity that qualifies as a business operation under German law can make you partially liable.
For example, if you are a freelance writer who also runs a publishing side-business (selling books under your own imprint), the publishing component could be classified as a Gewerbe, potentially triggering Gewerbesteuer for that segment of your income. Maintaining separate bookkeeping is crucial if you engage in both freelancing and commercial activities.
Gewerbesteuer for different business forms
Sole proprietorships and partnerships:
Eligible for the 24,500 EUR tax-free allowance
Often face lower overall taxation if total profits aren’t extremely high
Must ensure accurate tracking of profit
Corporations (e.g., GmbH, UG, AG):
No tax-free allowance
Shareholders may face double taxation (corporate tax + individual taxation on dividends)
Still subject to the same formula for Gewerbeertrag calculation but without the Freibetrag
Mixed cases (e.g., Freelance + Gewerbe):
Only the commercial part of income is subject to Gewerbesteuer
Requires meticulous bookkeeping to separate earnings
Payment deadlines and advance payments
Just like income tax, you often need to pre-pay Gewerbesteuer in quarterly installments. These are typically due on:
February 15
May 15
August 15
November 15
The Finanzamt first determines a Gewerbesteuermessbetrag (assessment amount) based on your previous year’s returns or your forecast profit. The local municipality uses this to calculate your quarterly installment. After the tax year ends and the final figures are submitted, you either pay any remaining balance or receive a refund if you overpaid.
How Gewerbesteuer affects your overall tax burden
For sole proprietors and partnerships
You can credit a portion of your Gewerbesteuer against your personal income tax. Specifically, you can reduce your individual income tax by up to 3.8 times the Gewerbesteuermessbetrag. This measure helps prevent you from paying too much total tax.
For corporations
There’s no direct credit against personal taxes. Corporations pay Gewerbesteuer on their profits, then shareholders pay individual taxes on dividends received, leading to a higher combined tax burden in some scenarios.
Tips to reduce Gewerbesteuer legally
Choose the right legal form:
If you plan to remain a smaller operation with moderate profits, staying a sole proprietor or forming a partnership can be beneficial to use the 24,500 EUR Freibetrag.
Larger ventures might opt for a corporation to limit liability, though they lose the Freibetrag.
Select a favorable municipality:
Compare Hebesatz rates in different areas.
Weigh other important factors: customer base, logistic costs, and labor availability.
Separate freelance and commercial activities:
If part of your income is purely freelance, keep it distinct from commercial operations.
This helps you avoid paying Gewerbesteuer on freelance earnings.
Consider Holding Structures:
Advanced strategy for larger companies: a holding company may offset profits and losses among subsidiaries.
Use Allowances and Deductions Properly:
Familiarize yourself with Hinzurechnungen and Kürzungen to accurately calculate profits.
If you rent or lease large assets, plan to stay under certain thresholds where possible.
Frequently Asked Questions (FAQ)
Do I have to pay Gewerbesteuer if I am just a freelancer?
No. If you are classified strictly as a freelancer (Freiberufler) under German law, you do not pay Gewerbesteuer. However, ensure that none of your activities are considered commercial (gewerblich).
What happens if my profits are very low?
If you are a sole proprietor or in a partnership and your profits do not exceed 24,500 EUR per year, you pay no Gewerbesteuer. Corporations, however, do not benefit from this allowance.
Is Gewerbesteuer the same as corporate tax or income tax?
No. Gewerbesteuer is a municipal trade tax. Corporate tax (Körperschaftsteuer) and income tax (Einkommensteuer) are separate. Each has its own calculation rules and payment schedules.
How do I know what Hebesatz my municipality uses?
Check your municipality’s official website or contact the local Gewerbeamt (trade office). Many municipalities publish their Hebesatz directly, or you can find it via the Federal Statistical Office’s data.
Can I pay Gewerbesteuer in one lump sum instead of quarterly?
Usually, you must pay quarterly installments if your business surpasses certain profit thresholds. However, if your tax obligations are low, the Finanzamt might not require pre-payments. Consult them for specifics.
What happens if I miss a payment deadline?
Late or missed payments may incur penalties or surcharges. It’s crucial to stay organized and pay on time. Using software like Norman or setting calendar reminders can help you avoid these fees.
Do employees need to worry about Gewerbesteuer?
Gewerbesteuer is mainly the business owner’s responsibility. Employees do not pay Gewerbesteuer directly. However, some might be curious about it if they plan to start their own side business.
What if I’m running my business from home?
Home-based businesses must still register as a trade if they are commercial in nature and will be subject to Gewerbesteuer if profits exceed relevant thresholds (or if they are a corporation).
Is there a way to get a refund if I overpay?
Yes. After submitting your final annual tax return, the Finanzamt reconciles the pre-paid amounts with the actual tax due. Any excess is refunded to your bank account.
Conclusion
Managing Gewerbesteuer doesn’t have to be overwhelming. By understanding its basics, using exemptions wisely, and leveraging tools like Norman, you can minimize tax stress and focus on growing your business.
Stay compliant, save time, and let Norman handle the complexities of Gewerbesteuer for you.