How does Gewerbesteuer (trade tax) work in Germany?

Gewerbesteuer is a municipal tax on business income levied on commercial enterprises (Gewerbebetriebe) operating in Germany. It applies to sole traders, partnerships, and corporations. Freelancers (Freiberufler) and farmers are exempt. For sole traders and partnerships, there is a statutory Freibetrag (exemption) of €24,500, so businesses with trading income below this amount owe no Gewerbesteuer.

The tax is calculated starting from the business's profit, adjusted by several add-backs and deductions prescribed by the Gewerbesteuergesetz (GewStG). The resulting Gewerbeertrag (taxable trading income) is multiplied by a federal Steuermesszahl of 3.5% to produce the Steuermessbetrag. Each municipality then applies its own Hebesatz (multiplier) to this amount. Hebesätze vary widely: major cities like Munich, Frankfurt, and Hamburg use multipliers of 400%-490%, while some rural areas go as low as 200%-250%. The effective Gewerbesteuer rate therefore ranges from approximately 7% to 17% of taxable business income.

For individuals, Gewerbesteuer paid can be offset against personal income tax up to 380% of the Steuermessbetrag, largely neutralising the Gewerbesteuer burden for lower and moderate earners. Corporations receive no such offset. Gewerbesteuer is a deductible business expense for income tax purposes, which also partially reduces the effective impact.

This is general information only, not professional tax advice. Consult a qualified tax professional for your specific situation.