German Local Trade Tax
Why would we say that trade tax is of German characteristics? Because it is different from the corporate income tax, which is charged by the German Federal Government and it is difficult to find a similar tax from other countries to compare with. The trade tax is set by local authorities. Although part of it has to be forwarded to the higher authority, it is still a great amount of income for the local government.
It is calculated in a simply way as follows:
The taxable income of the company, which is based on personal income tax law or corporate income tax law and added or deducted with some other items, is multiplied with the tax base rate (3.5%), and results in the so/called tax base amount. The tax base amount is then multiplied with the corresponding municipal multiplier (from 200% to 500%), which results in the sum total of trade tax which is due.
Due to the importance of the tax income to the local community, the items added or deducted are complicated and multifarious, which are more strictly defined than the corporate tax calculation.
Each local community/municipality can set its own multiplier. In General, the multiplier is higher in big cities than in rural areas; in western area than in eastern area.
Munich as a big city has the multiplier set to 490%, which is one of the highest in Germany. On average, the multiplier is between 240% and 360%, but may not less than 200%. There is no upper limit for the multiplier. With this power, the local community can regulate its policy as a company location. A lot of small communities or rural areas have lower multiplier than cities, which may attract more investment. For the local it is an essential income for the authority. For example, if a big corporate locates in a small village. It will bring a great amount of trade tax to the community, whose residents will profit from it. With this fund the village could offer free kindergarten or renovate the theatre. On the other hand, it may be fatal to the finance of the local government if the big corporate goes bankrupt or simply moves away.
The trade tax multiplier in eastern part of Germany is lower than in the western part. The reason is that after the reunification the federal government has given them a lot of development funds, which made the trade tax not so vital to the community income and they could lower the multiplier to attract more investment.
If a company has many subsidiaries or operating sites in different communities in Germany, it will be treated as a whole entity when it refers to calculating the tax base amount for trade tax. The different communities will then share the trade tax.
The local trade tax cut the profit of the company, while it is an important income to the local authority. This expectancy arose many fierce discussions about local trade tax, such as cancellation of the local tax suggested by the companies, or other way of taxation for the local community such as increase of VAT rate etc. However, none of them got approved.
Trade tax is an important element for companies when it comes to location selection in Germany.
The law firm was established in 2003 by Dr. Artur Bunk, an Attorney-at-Law. Qualified in 1995, he was admitted to the Frankfurt Bar in 1997 after obtaining an LL.D. in European Law at the University Viadrina in Frankfurt (Oder). During his career he has worked with the German law firm Pünder, Volhard, Weber & Axster (now Clifford Chance), was Head of Office at Rödl & Partner in Poland, and Senior Legal Counsel at the Legal and Restructuring Department of KfW. In addition to German, he also speaks fluent English and Polish.
Our offices are based around 45 minutes from Frankfurt/Main International Airport in and approx. the same distance from Frankfurt City.
Thanks to the professional experience and background of our Principal and our Attorneys we are in a position to meet the highest requirements and expectations of international clients. The decisive focus on international clients, which forms an integral part of our business philosophy, enabled us to establish a profound know-how base on international matters unmatched by law offices of comparable size and background. With our network of external consultants (auditors, tax advisors), we are well equipped to perform advisory services usually only found in much larger law offices. Our comparatively low overheads and flexibility enable us to provide our services on a competitive basis.
bunk-alliance has established a close cooperation with law offices in Italy, India, Poland, Slovakia, with auditors and tax advisory offices in Germany and Poland and various governmental agencies.
Phone: +49 6241 972 49 0
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