Trade tax in Germany: who pays Gewerbesteuer and how it is worked out

Trade tax (Gewerbesteuer) is a local tax on the profit of every trading business in Germany. Freelance professions don't pay it. Sole traders and partnerships pay only on trade earnings above €24,500 a year, and most of what they pay comes back as a credit against income tax. A GmbH or UG pays on its whole profit, with no allowance and no credit. The rate depends on the town: 3.5 % of the taxable amount times the town's multiplier, which comes to 14.35 % in Berlin and 17.15 % in Munich.

1. Who pays it

Every trading business (Gewerbebetrieb) with premises in Germany owes trade tax (§ 2(1) GewStG). What counts as a trade is defined by income tax law: independent, lasting, profit-seeking activity that isn't farming or a freelance profession (§ 15(2) EStG).

• Sole traders (Einzelunternehmer) with a trade.
• Partnerships with a trade: the partnership itself owes the tax, not the partners (§ 5(1) GewStG).
• Companies (GmbH, UG, AG) always, whatever they do (§ 2(2) GewStG).

Freelance professions under § 18 EStG (doctors, lawyers, engineers, translators, journalists, artists, teachers and similar) are outside it. Where that line runs, and why IT, consulting and marketing work often lands on the trade side, is in the freelance or trade guide.

The tax goes to the town (Gemeinde) where the business has its premises. A business with premises in several towns has its base amount split between them, as a rule in proportion to the wages paid at each (§§ 28, 29 GewStG).

2. How it is worked out

Trade tax is calculated for the calendar year in five steps:

1. Start from the profit as worked out for income tax or corporation tax (§ 7 GewStG).
2. Add back and deduct certain items (section 7). For most small businesses, nothing changes here.
3. Take off losses from earlier years: up to €1 million in full, and 60 % of the trade earnings above that (§ 10a GewStG).
4. Round down to the full €100 and, for individuals and partnerships, deduct the €24,500 allowance (Freibetrag). Multiply the rest by the base rate (Steuermesszahl) of 3.5 %. The result is the base amount (Steuermessbetrag), set by the Finanzamt (§ 11 GewStG).
5. Multiply the base amount by the town's multiplier (Hebesatz). That is the trade tax (§ 16 GewStG).

Trade tax is not a deductible business expense: it doesn't reduce the profit it is charged on, nor the profit for income or corporation tax (§ 4(5b) EStG).

3. The town's multiplier (Hebesatz)

Each town sets its own Hebesatz, the same for every business in the town. A decision to set or change it for a year has to be taken by 30 June of that year; after that, a town can only keep or lower it (§ 16(3) and (4) GewStG). The big cities' rates for 2026, from their own websites:

Sources: Berlin, Frankfurt, Hamburg, Cologne, Munich, checked 22 October 2026.

The legal minimum rises in 2027. Up to and including 2026, a town may not go below 200 % (€70 per €1,000). From 2027 the minimum is 280 % (€98 per €1,000), under a federal law of 29 June 2026 (BGBl. 2026 I Nr. 197; § 36(5b) GewStG). It matters for businesses in the low-rate towns that used the old floor; the big cities are well above both.

4. The credit against income tax

For sole traders and partners in a trading partnership, income tax is reduced by four times the base amount (§ 35 EStG). Two limits apply:

• the credit can't exceed the trade tax actually payable;
• it can't exceed the share of income tax that falls on the trade income (Ermäßigungshöchstbetrag). With little income tax to set it against, for example in a year with other losses, part of the credit goes unused, and § 35 provides no carry-forward.

The effect: up to a Hebesatz of 400 %, the credit can cancel the trade tax completely. Above 400 %, the part above stays as a real cost. In Berlin (410 %) that is a small amount, in Munich (490 %) a noticeable one. For partners, the base amount is shared out by the general profit-sharing ratio (§ 35(2) EStG).

5. The arithmetic, with round numbers

A hypothetical sole trader with a trade profit of €60,000 and no add-backs, deductions or past losses:

Real figures also depend on add-backs and the rest of the person's income. The solidarity surcharge is charged on the income tax after the credit, while church tax is worked out as if there were no credit (§ 51a(2) EStG). Treat this as the method only.

6. Why a GmbH pays more

• No allowance. The €24,500 allowance is only for individuals and partnerships (§ 11(1) GewStG). A GmbH or UG pays from the first euro of trade earnings.
• No credit. The § 35 credit is a reduction of income tax. A company pays corporation tax instead, and nothing offsets the trade tax. Corporation tax is 15 % up to 2027 and then falls by one point a year to 10 % from 2032 (§ 23(1) KStG), plus a solidarity surcharge of 5.5 % of it (§ 4 SolzG). In 2026 that makes about 30.2 % on a company's profit in Berlin and about 33.0 % in Munich, before anything is paid out to the owners.
• A return every year, even with a loss (§ 25(1) GewStDV).

A company's profit is calculated after the managing director's salary, so the figures don't compare one-to-one with a sole trader's. The company taxes guide covers corporation tax and payouts, and the GmbH or UG guide the choice of form.

7. Add-backs and deductions, in outline

Trade tax is meant to tax the business's earning power regardless of how it is financed, so part of some costs is added back to the profit (§ 8 No. 1 GewStG). The items count at different weights:

• interest on loans and other debts, in full;
• rent and leasing for movable assets such as machines or vehicles, one fifth;
• rent for property such as offices, shops and warehouses, one half;
• licence fees, one quarter.

These weighted amounts are added up, and only the part of the total above €200,000 a year counts, of which a quarter is added back. A business paying €100,000 a year in office rent and €50,000 in interest is at €100,000 and adds nothing back. Larger businesses with heavy rent or debt feel it.

The other direction: some items are taken off again (§ 9 GewStG), mainly in connection with property the business owns, profit shares from partnerships, and dividends from stakes of at least 15 % in another company. Losses from shares in partnerships are added back (§ 8 No. 8). Each of these has conditions that are Steuerberater territory.

8. The return and its deadline

The trade tax return (Gewerbesteuererklärung, form GewSt 1 A in ELSTER) goes to the Finanzamt, not the town, and has to be filed electronically (§ 14a GewStG). A return is required (§ 25(1) GewStDV):

• from sole traders and partnerships whose trade earnings for the year were above €24,500;
• from every GmbH, UG and other company, whatever the result;
• from any business with a trade loss carried forward from earlier years;
• from anyone the Finanzamt asks.

The deadlines are the same as for the income tax return (§ 149 AO; a deadline that falls on a weekend moves to the next working day, § 108(3) AO):

The Finanzamt can ask for an advised return earlier, with four months' notice, for example after late returns or a large back payment (§ 149(4) AO). A late trade tax return can cost a late-filing surcharge of €25 for each month or part of a month (§ 152(6) AO). The deadline guide covers extensions.

9. Two notices, two ways to object

• The Finanzamt sends the trade tax base notice (Gewerbesteuermessbescheid), which sets the base amount. This is where the profit, the add-backs and whether you run a trade at all are decided. An objection (Einspruch) goes to the Finanzamt within one month (§ 355 AO).
• The town then sends the trade tax notice (Gewerbesteuerbescheid), which applies its Hebesatz and sets the prepayments. The town is bound by the Finanzamt's base amount (Munich), so an objection here (Widerspruch, also within one month, as Cologne explains) can only concern the town's own part.
• In Berlin and Hamburg the Finanzamt sets and collects the trade tax itself (Berlin, Hamburg).

The objection guide explains how an Einspruch works, and the Finanzamt letter guide how to read what arrives.

10. Prepayments

Trade tax is paid in advance, in four instalments on 15 February, 15 May, 15 August and 15 November (§ 19 GewStG):

• each instalment is, as a rule, a quarter of the tax from the last assessment;
• for a new business, the first prepayments are based on the tax expected for the year, which is why the profit estimate in the tax registration questionnaire matters;
• they can be adjusted to the tax expected for the year, until the end of the 15th month after it; an increase has to be paid within a month of the notice;
• the Finanzamt can set the base amount for prepayment purposes, and the town is then bound by it, so a request to adjust can start with the Finanzamt;
• instalments under €50 aren't charged.

When the final notice comes, any difference is settled. Back tax carries interest of 0.15 % a month from 15 months after the end of the year (§ 233a AO, § 238(1a) AO). The prepayments guide covers income tax prepayments alongside.

11. Where a Steuerberater comes in

A Steuerberater usually prepares the trade tax return together with the income tax return, which also brings the later deadline. Beyond that, they can check whether your work is a trade at all, work through the add-backs and the § 35 credit, check the base notice before the one-month objection period runs out, deal with prepayments that no longer fit, and handle the split between towns. Fees follow the official fee scale for tax advisors (StBVV); ask about them at the start.

Have your last trade tax and income tax notices, the town's trade tax notice and your profit figures ready. You can request an English-speaking Steuerberater.

The short version

Sources checked on 22 October 2026. The linked provisions are the German statutory text; the explanations and the example here are general information.