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Trade Tax/ Gewerbesteuer

Trade Tax/ Gewerbesteuer. Prof. Dr. M. v. Wuntsch. 1. Introduction. Trade Tax is a business tax levied on behalf of the communities . Trade Tax load is influenced by a multiplier determined by the municipals (“Hebesatz” according to § 16 GewStG).

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Trade Tax/ Gewerbesteuer

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  1. Trade Tax/ Gewerbesteuer Prof. Dr. M. v. Wuntsch

  2. 1. Introduction • Trade Tax is a business tax levied on behalf of the communities. • Trade Tax load is influenced by a multiplier determined by the municipals (“Hebesatz” according to § 16 GewStG). • The municipals multiplier ranges from 200 to 490 %.

  3. 2. Taxpayer • Taxpayers are resident or non-resident individuals, partnerships or corporations earning income from trade and business, insofar as a domestic permanent establishment is maintained. • Generally, profits from trade and business(within the meaning of income tax law) are subject to Trade Tax. • Other sources of income are not subject to Trade Tax.

  4. Enterprises earning income from business and trade

  5. Case Mr. Roland Berger is an international consultant and tax advisor (profit = 1 mill. per year) Compare the cases: • A: Legal form is a corporation. • B: He is a freelancer (= self-employed person)

  6. 3. Taxable Income = Trade Income • Basis of assessment is the income from business and trade within the definition of EStG and KStG according to § 7 GewStG. • This income has to be adjusted by applying special add-backs(“Hinzurechnungen” - § 8 GewStG) and deductions(“Kürzungen” - § 9 GewStG). • The result of the calculation is the so-called trade income (“Gewerbeertrag”).

  7. Important add-backs (+)(New provision since 2010) Add the following items (pursuant to § 8 No. 1 GewStG): • (a) interestor other fees for the business operation`s long-term debts, • (b) pensions, • (c) profit share flowing to a silent partner, • (d) one fifth of rental or leasing expenses for usage of mobile long-term assets, • (e) half of rental or leasing expenses for usage of immobile long-term assets, • (f) one quarter of expenses paid for usage of rights (license). See exceptions in the tax act. Two steps of calculation: 1. Sum up items and apply a relief (“Freibetrag”) of € 100,000. 2. Add a quarter of the remaining sum

  8. Important add-backs (+): Add • Shares in losses from a partnership (pursuant to § 8 No. 8 GewStG).

  9. Important deductions (-): • Deduct an amount equivalent to 1.2 percent of the assessed tax value of real estateincluded in business property (pursuant to § 9 No. 1 GewStG). Explanation: The tax value of a real estate is based on a special assessment (“Einheitswert”). The assessed tax value amounts to 100 % always. For determining Trade Tax this tax value has to be multiplied by: 140 %, if the property is located in the old “Bundesländer” (see: § 121a BewG); 400 %, if the business property is located in the new “Bundesländer”  (see: § 133 BewG).

  10. Also deduct: • Profit shares from resident or non-resident partnerships (pursuant to § 9 No. 2 GewStG) • Dividends from resident or non-resident corporations if certain requirements are fulfilled (for instance: a minimum of fifteen percent holding) pursuant to § 9 No. 2a, 7 and 8 GewStG.

  11. 4. Multipliers • The determination of Trade Tax includes two different kinds of multipliers: (a)Trade income shall be multiplied by the: trade tax multiplier § 11 para. 2 GewStG: 3.5 % in general

  12. (b) Provisional Trade Tax (before municipal multiplier) shall be multiplied by the: municipal multiplier(“Hebesatz” - § 16 GewStG) • The municipalities apply the municipal multiplier. • This special multiplier is a fixed percentage, set by resolution of the municipalities. It differs from 200 % to 490 % and is currently 410 % in Berlin and 470 % in Hamburg.

  13. NEW SYSTEM - since 2008: Income from Business and Trade (§ 7 GewStG) plus: Add-Backs (§ 8 GewStG) less: Deductions (§ 9 GewStG)___________________________ = Trade Income („Gewerbeertrag”) round down to full € 100 (§ 11 para. 1 GewStG) less: € 24.500 tax relief („Freibetrag”) for individuals and partnerships only (§ 11 para. 1 Nr. 1 GewStG) = remaining Trade Income_______________________________ multiply by: 3.5 % = Trade Tax Multiplier (§ 11 Abs. 2 GewStG) = provisional trade tax (before municipal multiplier)____________ multiply by: given municipal multiplier (§ 16 GewStG ____________________________________________________ = effective Trade Tax ____________________________________________________

  14. OLD SYSTEM (till end of 2007) - not relevant for the exam! Income from Business and Trade (§ 7 GewStG) plus: Add-Backs (§ 8 GewStG) less: Deductions (§ 9 GewStG)___________________________ = Trade Income („Gewerbeertrag”) round down to full € 100 (§ 11 para. 1 GewStG) less: € 24.500 tax allowance („Freibetrag”) for individuals and partnerships (§ 11 para. 1 Nr. 1 GewStG) = remaining Trade Income_______________________________ multiply by: Trade Tax Multiplier (§ 11 Abs. 2 GewStG) 5 % for corporations sliding scale for individuals and partnerships_____________ = provisional trade tax (before municipal multiplier)____________ multiply by: municipal multiplier (§ 16 GewStG____________ = provisional Trade Tax apply: divisor or 5/6-methode_________________________ = effective Trade Tax

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