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German Commercial Tax

All commercial enterprises in Germany are subject to a commercial tax regardless of their legal form. The tax rate is determined individually by the municipalities and can therefore vary from one municipality to another but is generally the same for all companies within a municipality.

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Overview

Calculation of commercial tax
Crediting the commercial tax on income tax
Calculation of commercial tax

The respective business tax rate is dependent on two components:

The tax rate (3.5% uniform nationwide)
And the commercial tax rate (differs locally).

The company's taxable income is multiplied by the tax rate (3.5%), resulting in the so-called tax base amount.

This tax base amount is then multiplied by the respective municipal commercial tax rate and thus gives the amount of commercial tax due. The commercial tax rate is set individually by each municipality. On average, it is between 350% and 400%, but not less than 200%. The assessment rate in urban areas tends to be higher than in rural areas. There is no statutory limit for the rate, but it is currently no more than 490% even in large metropolitan areas.

Commercial enterprise A in municipality B has a taxable income of EUR 1,000,000.
The municipal assessment rate in municipality B is 400%.
Due to the uniform tax rate of 3.5%, the tax base amount for commercial enterprise A results in EUR 35,000.
This tax base value of EUR 35,000 will be multiplied by the municipal assessment rate, resulting in a commercial tax load of EUR 140,000, which corresponds to a commercial tax rate of 14%.

An annual commercial tax exemption amounting to EUR 24,500 is available for partnerships. No solidarity surcharge is levied on the commercial tax.

Crediting the commercial tax on income

Partnerships may offset parts of the commercial tax paid on income tax – equivalent to 3.8 times the tax base amount.

In effect, this means that no effective commercial tax is levied on companies in municipalities with an assessment rate below 380%. Although a commercial tax has to be paid to the municipalities, it can be offset against income tax.

For partnership A, a tax base amount of EUR 35,000 results (due to the 3.5% tax rate on annual earnings).
This tax base amount can be credited with a factor of 3.8 to the income tax. This results in an offset amount of EUR 133,000.
Accordingly, partnership A can deduct an amount of EUR 133,000 on their income tax liability.