Calculating German Trade Tax: Allowance, Base Amount, Multiplier
German trade tax is the only major business tax whose level is not set by the federal government but by the local municipality. That is exactly what makes it confusing: two businesses with identical profits can pay several thousand euros differently depending on where they sit. This guide walks you through the complete route — from profit through the trade income to the credit against income tax — and shows with concrete figures where the levers are. You can run your own numbers alongside in the Trade Tax Calculator.
Who pays trade tax at all?
Trade tax applies to every standing commercial business operated in Germany. That covers registered sole traders, partnerships such as the GbR, OHG and KG, and every corporation — a GmbH counts as a commercial business by virtue of its legal form alone, regardless of what it actually does. Outside its scope are freelance activities under sec. 18 EStG, so doctors, lawyers, architects, tax advisers and teaching professions, and likewise agriculture, forestry and purely asset-managing activities. Anyone mixing freelance and commercial work inside a partnership should be careful: even a small commercial share can taint the entire income as commercial.
Step 1: from profit to trade income
The starting point is the profit from the business as determined under income or corporation tax law. Because trade tax is meant to capture the yield of the business regardless of how it is financed, that profit is corrected: additions under sec. 8 GewStG raise it, reductions under sec. 9 GewStG lower it. The provision that matters in practice is sec. 8 no. 1 GewStG: one quarter of the sum of certain financing components is added back — interest at 100 per cent, rents and lease payments for movable assets at 20 per cent, for immovable assets at 50 per cent and licence fees at 25 per cent.
The decisive detail is the €200,000 allowance deducted from that sum. A trade business with €12,000 of interest, €50,000 of machine leasing and €120,000 of shop rent arrives at 12,000 + 10,000 + 60,000 = €82,000 of financing components — comfortably below €200,000. Its addition is nil. Only above that does it bite: with €280,000 of financing components, €80,000 remains, one quarter of which is a €20,000 addition. On the other side, sec. 9 no. 1 GewStG reduces the trade income by 1.2 per cent of the relevant assessed value of business real estate — a rule meant to soften the double burden with property tax.
Step 2: rounding down and the allowance
The trade income is then rounded down to full 100 euros (sec. 11 para. 1 sentence 3 GewStG), so €55,487 becomes €55,400. A sole trader or partnership then deducts the allowance of €24,500 — but at most up to the rounded trade income. The allowance therefore never creates a loss; it can only push the base down to nil. Corporations do not receive it: a GmbH pays from the first euro of trade income.
Step 3: the tax base amount
The remaining base is multiplied by the base rate of 3.5 per cent. The result is the tax base amount, which the tax office establishes in a separate assessment and passes on to the municipality. Take a trade income of €80,000: after the allowance, €55,500 remains, and 3.5 per cent of that gives a base amount of €1,942.50. This figure is the pivot of the whole procedure — it decides not only the tax itself but also the credit. Note in passing that since the 2008 business tax reform trade tax is no longer a deductible business expense (sec. 4 para. 5b EStG), so it does not reduce the trade income.
Step 4: the municipal multiplier
Only now does the municipality enter. It multiplies the base amount by its multiplier, which it sets itself by by-law. The statutory minimum is 200 per cent (sec. 16 para. 4 GewStG); there is no upper limit. In large German cities rates typically sit between 410 and 540 per cent, and the average for municipalities above 20,000 inhabitants was most recently 438 per cent. Our example business therefore pays 1,942.50 × 4.0 = €7,770 at a multiplier of 400 per cent. The same business in a city at 490 per cent would pay €9,518.25 — almost €1,750 more for exactly the same profit.
Step 5: the credit under sec. 35 EStG
For sole traders and partners in a partnership the most important part now follows, and many calculators leave it out. Under sec. 35 para. 1 EStG the income tax is reduced by four times the trade tax base amount. In our example that is 4 × 1,942.50 = €7,770 — exactly the trade tax at a multiplier of 400 per cent. That is precisely why the 400 per cent mark counts as the threshold: below it, trade tax is arithmetically neutral for a sole trader, merely moving money from the tax office to the municipality.
Three caps operate at the same time and the lowest wins: four times the base amount, the trade tax actually paid, and the maximum relief amount, that is the income tax attributable to the business income. On €80,000 of taxable income the 2026 basic tariff produces around €22,464 of income tax — plenty of headroom. At a multiplier of 490 per cent the business pays €9,518.25 of trade tax but still only €7,770 is credited. The difference of €1,748.25 remains as a genuine extra burden. That excess is what the Trade Tax Calculator reports as your effective burden.
What to take away
Trade tax follows a clear chain: profit plus additions minus reductions, rounded down to €100, minus the €24,500 allowance, times 3.5 per cent, times the multiplier. For sole traders and partnerships it stays largely neutral up to a multiplier of 400 per cent; above that you really do pay. Corporations get neither the allowance nor the credit, so for them it is a real cost in full. Note also that the municipality collects the tax quarterly in advance, on 15 February, 15 May, 15 August and 15 November (sec. 19 GewStG) — keep a buffer in good years. Check your own case in the Trade Tax Calculator and have the figures reviewed professionally before any binding decision; this article is orientation, not advice.