Calculating trade tax in Germany: formula, allowance, Hebesatz and income tax credit

Who has to pay trade tax – and who doesn’t?

Trade tax (Gewerbesteuer) is a municipal tax on the income of every commercial business in Germany (§ 2 GewStG). A commercial business is any independent, sustained activity with the intention of making a profit that is not a liberal profession, agriculture or forestry, or pure asset management. Typical examples: trading, online shops, crafts, catering, estate agents, brokers, many agencies. GmbH and UG are always subject to trade tax – by virtue of their legal form, even if they provide freelance services.

Freelancers under § 18 EStG – such as doctors, lawyers, tax advisors, engineers, architects, journalists, translators, artists, teachers and many IT consultants – pay no trade tax. The distinction is not always easy and can be worth several thousand euros a year; it is explained in detail in the guide Freiberufler or Gewerbe. If you register a trade, you will find the steps in the guide registering a trade (Gewerbe anmelden).

• Beware of mixed activities: if a freelancer also sells goods on the side, this activity may be commercial. For sole traders both activities can usually be separated; for partnerships a commercial activity can “infect” the whole partnership as commercial (§ 15 Abs. 3 Nr. 1 EStG).
• Small businesses under § 19 UStG (Kleinunternehmer) are exempt from VAT, not from trade tax – but they are usually below the allowance.
• No profit, no trade tax: the allowance ensures that small businesses with up to €24,500 trade income pay nothing.
• Trade registration and trade tax are connected but not the same: registering at the trade office automatically informs the tax office, which then sends you the tax registration form (Fragebogen zur steuerlichen Erfassung). Whether trade tax is actually due is only decided by your profit.

Calculating trade tax: the formula step by step

The calculation always follows the same scheme from the Trade Tax Act (Gewerbesteuergesetz). The basis is the profit determined under income tax law – for most sole traders, the profit from the Anlage EÜR (see preparing your EÜR).

• Step 1 – profit from the business (§ 7 GewStG): profit according to the EÜR or balance sheet. Trade tax itself is not a business expense and does not reduce it (§ 4 Abs. 5b EStG).
• Step 2 – add-backs (Hinzurechnungen, § 8 GewStG): certain financing portions such as interest, rents and licence fees, but only insofar as together they exceed €200,000.
• Step 3 – deductions (Kürzungen, § 9 GewStG): e.g. for your own business properties that are already subject to property tax.
• Step 4 – round trade income down to the full €100 and deduct the €24,500 allowance (sole traders and partnerships only).
• Step 5 – tax base amount (Steuermessbetrag): result × 3.5% base rate (§ 11 GewStG). The tax office sets this amount in the trade tax base assessment (Gewerbesteuermessbescheid).
• Step 6 – trade tax: tax base amount × the municipality’s Hebesatz (§ 16 GewStG). The municipality then sends the trade tax assessment (Gewerbesteuerbescheid).

Add-backs: do they affect you at all?

Add-backs are meant to prevent a business from reducing its trade tax through debt financing or renting instead of buying. Certain expenses are added up at a percentage, an allowance of €200,000 is deducted, and 25% of the rest is added back to profit.

For most self-employed people and small businesses the add-back therefore remains €0: only when the total of the “counted” column exceeds €200,000 is anything added back. Example: a café pays €36,000 rent and €8,000 loan interest a year. Counted are €18,000 (50% of the rent) + €8,000 = €26,000 – far below €200,000, so no add-back.

Hebesatz: why your business location matters

Each municipality sets its own multiplier (Hebesatz); it must be at least 200% (§ 16 Abs. 4 GewStG). In many smaller municipalities it is between 300 and 400%, in large cities often between 400 and 490% – Munich, for example, charges 490%. You can find the current Hebesatz on your municipality’s website or at the IHK.

What counts is the municipality where your place of business (Betriebsstätte) is located – for self-employed people without their own office usually their home. If you have places of business in several municipalities, the tax base amount is split according to wages (Zerlegung, §§ 28 ff. GewStG). Because the credit against income tax ends at 400%, every percentage point above that directly increases your burden.

Credit against income tax under § 35 EStG

Sole traders and partners in partnerships get a large part of trade tax back via income tax: the income tax according to the tax scale is reduced by 4.0 times the trade tax base amount. At a Hebesatz of 400% this corresponds exactly to the trade tax; at lower rates the credit is limited to the trade tax actually payable.

A second limit is the maximum reduction amount (Ermäßigungshöchstbetrag): at most the income tax attributable to your commercial income is credited. If your income tax is low – for example due to losses from other types of income, high special expenses or income splitting with a partner without income – part of the credit is lost; it cannot be carried forward to other years. The credit also reduces the solidarity surcharge; church tax, on the other hand, is calculated on income tax before the credit. Corporations (GmbH, UG) get no credit. How income tax is calculated is explained in the guide income tax for the self-employed.

Worked example: trade tax at a Hebesatz of 400% and 490%

For a sole proprietorship without add-backs or deductions, the table shows the tax base amount, trade tax and credit at different profit levels. The last column is the actual extra burden at 490% – what remains after the credit. At 400% it is €0 throughout, as long as your income tax is high enough for the full credit.

In detail for €80,000 profit in Munich: €80,000 − €24,500 = €55,500; × 3.5% = €1,942.50 tax base amount; × 490% = €9,518.25 trade tax. Income tax falls by 4.0 × €1,942.50 = €7,770. That leaves €1,748.25 actual extra burden compared with a freelancer with the same profit. If the business were in a municipality with 400%, it would pay €7,770 trade tax and get exactly €7,770 credited.

Filing the trade tax return via ELSTER

Sole traders and partnerships must file a trade tax return (Gewerbesteuererklärung) if their trade income exceeds €24,500 or the tax office asks them to; corporations always. You submit the return (form GewSt 1 A) electronically via ELSTER to the tax office – not to the municipality. The deadline is the same as for the income tax return: for 2025, 31 July 2026, with a tax advisor 1 March 2027. All dates are in the guide tax deadlines for the self-employed.

The process has two stages: the tax office sets the tax base amount in the trade tax base assessment and sends it to the municipality. The municipality multiplies it by its Hebesatz and sends you the trade tax assessment. If you want to challenge the profit or the add-backs, you file an objection against the base assessment with the tax office – within one month. What to check in the assessment is explained in the guide checking your tax assessment.

Trade tax prepayments

As with income tax, you pay trade tax quarterly in advance – on 15 February, 15 May, 15 August and 15 November (§ 19 GewStG). The basis is the most recently assessed tax base amount, in the year of founding your profit estimate from the tax registration form. Prepayments below €50 are not set.

With €60,000 profit and a 400% Hebesatz you pay 4 × €1,242.50 to the municipality, while your income tax prepayments fall accordingly. If your profit drops, you apply to the tax office for a lower tax base amount for prepayment purposes; the municipality then adjusts the instalments. The whole process including the reduction application is explained in the guide tax prepayments; how much you should set aside overall in the guide tax reserves.

Trade tax with Kontelio

Kontelio compiles the trade tax return (GewSt 1 A) for every commercial business from your bookkeeping: the profit comes directly from the EÜR, you check the details, finalise the return and, in the Business and Pro plans, send it directly to the tax office after validation with the official ELSTER software. You record trade tax prepayments from your assessments in Kontelio and keep track of what is still due. More on the page trade tax with Kontelio.

Frequently asked questions