Tax in Germany
As soon as you start your business, the tax office comes into play: they demand taxes. For taxes to be properly calculated, you must record your business activity and disclose it in your tax return. The exclusively digital submission of this declaration and the payment of taxes are subject to deadlines. Late payments are subject to surcharges and penalties. Companies in Germany can hardly do without advice when it comes to taxes. Therefore, seek tax advice early on and include tax payments and consulting costs in your financial planning.
There are basically two different types of taxes in Germany: direct and indirect taxes. Direct taxes are levied on the profit from your activity, which is roughly calculated as the difference between income and expenses from your business activity. There are several direct taxes in Germany. Indirect taxes, in contrast, are levied on every sale of goods or services and are already included in the purchase price. But here, too, there are different regulations, and they do not always have the same tax rate.
To calculate the profit on which you have to pay direct taxes such as income tax, subtract your operating expenses from your income. Since you have a lot of expenses in the start-up phase, you should collect all the invoices and receipts so that you can claim them from the tax office with your first tax return. Expenditures for long-lived assets usually cannot be deducted in full but are spread over several years.
Here is an overview of the most important taxes in Germany:
Trade tax must be paid by everyone who has registered a trade. Freelancers are exempt. Trade tax is levied by the municipality where your company is located and amounts to between 7 per cent and 17 per cent, depending on the municipality. Trade tax must be paid in addition to income or corporation tax but can be partially offset against income tax.
In contrast to direct taxes, indirect taxes are already included in the purchase price of the goods. The most important indirect tax is sales tax, levied on the sale of goods or services. In addition to sales tax, there are other indirect taxes, for example, tobacco tax on cigarettes, mineral oil tax on petrol, energy tax, electricity tax, beer tax or alcohol tax.
Since only sales tax is important for most self-employed people, we explain it in more detail:
Sales tax is levied on the sale of goods or services. Sales tax (also known as value-added tax) in Germany is currently 19 per cent, but for certain goods and services, it is 7 per cent, and some services are completely exempt from sales tax. As an entrepreneur, you show this tax on your invoices and pay it directly to the responsible tax office. Conversely, you can have the sales tax you paid for purchases or services reimbursed by the tax authorities as so-called input tax. Make sure that all invoices you receive are formally correct, otherwise you will not be reimbursed for input tax.
Up to a certain turnover limit - 22,000 euros in the past calendar year and probably not more than 50,000 euros for the current year - no sales tax is levied in terms of the so-called “small business regulation”. In return, these companies cannot claim any input tax from the tax office for services provided by other companies. This arrangement is often worthwhile for part-time start-ups.
One tax consultation for all cases
Surely you have already dealt extensively with taxes during the start-up process. The topic remains challenging throughout. The normal and recommended thing to do is to look for a tax advisor, just to be on the safe side. Beyond a certain turnover, with extensive or complex business activities, accounting is difficult to master without external help. Tax advice can also save you a lot of work, including payslips, advance sales tax returns, financial and payroll accounting, annual financial statements, and private tax returns. But don't hand over all the responsibility to your tax consultant. Always deal with your tax questions. Good to know: you can usually deduct the costs of tax advice from your taxes. You can find more information in the topic booklet GruenderZeiten: Steuern.
We have compiled and checked the information on this page carefully. However, because circumstances change frequently, we cannot guarantee the correctness and completeness of all content. In particular, this page does not replace professional advice: If you have any questions about your specific case, please contact an accountant and/or tax consultant.