German Trade Tax (Gewerbesteuer): Who Pays and How It Works

Who pays Gewerbesteuer, and who does not?

Whether your own activity counts as "commercial" depends on legal form and, for individuals, on the activity itself. A GmbH or UG is always fully commercial by legal form under Section 2 GewStG, whatever it actually does. A sole trader or partnership is normally commercial only if the activity is a Gewerbe rather than a recognised profession (freiberufliche Tätigkeit) under Section 18 EStG, such as many doctors, lawyers and architects. For partnerships, the special rules on commercial tainting or commercial character under Section 15(3) EStG can also cause the income as a whole to be treated as commercial.

This is narrower than the everyday words "self-employed" or "freelancer" suggest. Many freelance consultants, developers and designers are, for German tax purposes, commercial (gewerblich) rather than Freiberufler, because their specific activity falls outside Section 18 EStG; a side business alongside employment is judged the same way, with no automatic exemption. See our freelancer guide for that classification question in more depth.

The €24,500 allowance: what it actually covers

It is also a genuine Freibetrag, not a cliff edge: crossing €24,500 doesn't tax the whole amount, only the portion above it. Liability, an actual payment, and a filing obligation are three separate questions: a business can be liable in principle while owing nothing this year, and still have a filing duty. Accounting profit also isn't automatically the trade-tax base; statutory additions and deductions (next section) can move the two apart.

How to calculate trade tax, step by step

1. 1Start with tax profit. The profit as determined for income or corporation tax purposes.
2. 2Apply additions and deductions. Sections 8 and 9 GewStG add back and remove specific items, arriving at the Gewerbeertrag (trade income).
3. 3Offset trade-tax loss carryforwards. Section 10a GewStG lets earlier years' trade losses reduce this year's trade income, under their own rules.
4. 4Round down to full €100. Section 11 GewStG rounds the resulting trade income down to the nearest €100.
5. 5Subtract the allowance, where available. €24,500 for natural persons and ordinary partnerships; nothing for a GmbH/UG.
6. 6Apply the 3.5% Steuermesszahl. This gives the Steuermessbetrag, a fixed percentage of the post-allowance base.
7. 7Apply the municipal Hebesatz. The Steuermessbetrag × the municipality's own Hebesatz (as a fraction of 100%) gives the trade tax owed.

Worked examples: sole trader versus GmbH

Trade tax before relief, at a glance

For scale, an ordinary sole trader with €22,800 trade income owes no trade tax once the €24,500 allowance applies. That doesn't settle whether a return still has to be filed, or say anything about other taxes.

How trade tax reduces your income tax

Two limits cap how much of that lands: the reduction can't exceed income tax attributable to commercial income (a proportion of total positive income), and, often more relevant, Section 35 EStG restricts it to trade tax actually payable. At a low enough Hebesatz, four times the Steuermessbetrag can exceed the trade tax itself, and only the smaller figure is usable.

Continuing the sole-trader figures above at a hypothetical 450% Hebesatz instead of 400%: trade tax becomes €6,914.25, while four times the Steuermessbetrag stays €6,146.00 (it doesn't depend on the Hebesatz). If the full €6,146.00 is usable, €768.25 of trade tax remains as the residual cost here, not the person's total tax bill. Even at exactly 400%, where the two figures coincide, full relief still depends on the income-proportion limit and on enough income tax existing to offset it against.

Paying the municipality and claiming this relief on the income-tax return are separate processes on different timetables, which can create a real cash-flow gap even when the relief is usable in full. Trade tax itself is also not deductible as a business expense (Section 4(5b) EStG): Section 35 is a credit against income tax, not a deduction from profit.

Which municipal rate applies?

Where a business operates matters: a permanent establishment (Betriebsstätte) generally creates the local claim, and Section 28 GewStG allocates the base across municipalities when there's more than one. A mailbox address alone doesn't establish that. Section 16 GewStG also sets a statutory minimum: 200% for 2026, rising to 280% from 2027 under the law dated 29 June 2026 (Section 36(5b) GewStG), not applied retroactively to 2026.

Filing, assessment notices and payment dates

The process runs in two stages: an electronic return goes to the Finanzamt, which determines the Steuermessbetrag and issues a Steuermessbescheid; the municipality then applies its own Hebesatz, issues the actual assessment, and collects payment. City-states can administer this differently, so follow the authority named on your own notice.

A filing obligation isn't simply the mirror of "tax is due": corporations must generally file regardless of the result, a loss carryforward can create a filing duty alone, and the tax office can request a return too. Don't assume every sole trader below the allowance is automatically excused, or obliged, without checking Section 25 GewStDV and Section 149 AO.

Statutory advance-payment dates (Section 19 GewStG)

1. 15 February

   First advance payment

   Based on the most recently assessed Steuermessbetrag, credited against the final bill.

2. 15 May

   Second advance payment

   Same basis as the first instalment.

3. 15 August

   Third advance payment

   Same basis, midway through the year.

4. 15 November

   Fourth advance payment

   The final instalment before the annual assessment settles the difference.

As a general framework, Section 149 AO gives seven months after year-end without a tax adviser, or the end of February of the second following year with one; both shift for holidays and can be affected by transitional rules. Confirm the current deadline for your specific situation before relying on either figure.

Practical next steps