Income tax (Einkommenssteuer), trade tax (Gewerbesteuer), input tax and sales tax (Vor- und Umsatzsteuer) – as a start-up you have to deal with numerous types of tax. Which taxes are relevant for you depends on the legal form you choose. Generally it can differentiated between 3 categories:

1. Taxes for partnerships
2. Taxes for corporations
3. Taxes for freelancers

Taxes for partnerships

Partnerships include, among others, sole proprietor, merchant, GbR, KG, OHG. Relevant taxes for self-employed persons of this legal form include:

1. Income Tax (Einkommenssteuer)

   The profit of a partnership is not subject to direct taxation, but the partners must declare and pay tax on the profit to which they are entitled on a pro rata basis in their personal income tax return. This profit share is usually regulated in the partnership agreement. In this case, the amount of tax for self-employed persons depends on the proportionate profit of the company. The tax rate is progressive. Thus, you pay a higher income tax the higher the profit of the company is. In addition, a solidarity surcharge of 5.5% is levied on the income tax, depending on the amount of turnover.

2. Trade Tax (Gewerbesteuer)

   If the partnership is managed as a trade (Gewerbe), taxes are incurred for start-ups in the form of trade tax. The amount depends on the trade income and the assessment rate of the respective municipality. An allowance of € 24,500 is creditable. The trade tax can be offset against income tax.

3. Input and Sales Tax (Vor- und Umsatzsteuer)

   A partnership is liable to sales tax like any entrepreneur. The amount of sales tax is 19% on the sales generated (in exceptional cases 7%). Input tax can be offset against the VAT liability, i.e. VAT paid on purchased goods and services. VAT must be declared and paid on a monthly basis.

Taxes for corporations

Corporations include, for example, the UG, GmbH or Aktiengesellschaft. The relevant taxes for start-ups of this legal form include:

1. Corporate Income Tax (Körperschaftssteuer)

   Corporations pay corporate income tax on their profits. The amount of tax for self-employed persons in this case is 15% of the profit. In addition to these taxes for self-employed persons, corporations must pay a solidarity surcharge of 5.5% on the corporate income tax. When profits are distributed to shareholders, a final withholding tax of 25% is due + 5.5% solidarity surcharge on the tax.

2. Input and Sales Tax (Vor- und Umsatzsteuer)

   Corporations must also pay VAT at the rate of 19% on the sales generated (7% in exceptional cases).

Taxes for freelancers

Freelancers can claim many expenses related to their activities from the tax office. Therefore, freelancers should also pay special attention to the topic of taxes for start-ups. Taxes for start-ups in the case of freelancers include:

1. Income Tax (Einkommenssteuer)

   Income tax is one of the most important taxes for self-employed persons working as freelancers. It refers to the personal sources of income, i.e., the profits of the freelancer. The amount of income tax depends on the profit of the freelancer and is determined by the personal income tax of the freelancer. Here, freelancers can deduct business expenses such as company car, workroom, entertainment, gifts or advertising costs.

2. Input and Sales Tax (Vor- und Umsatzsteuer)

   Freelancers must also pay VAT at the rate of 19% on the sales they generate (7% in exceptional cases).

Taxes for employees

If you employ staff, you do not have to pay any further taxes, but you must comply with the following obligations:

You are obliged to withhold the wage tax, the solidarity surcharge and, if applicable, the church tax when paying the wages and to pay them to the tax office. This must be done by the 10th of each month.

We hope that we could give a first overview about business taxes in Germany. For detailed advice, we always recommend reaching out to a professional tax advisor. While tax advisors are relatively expensive in Germany, they will save you a lot of money in the long run. They can not only register your business for you and take care of your tax returns, but first and foremost will help you avoid costly mistakes.

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