The business tax does not apply to all self-employed. The legislature differentiates between two groups for the self-employed. One group is tradespeople, the second group is freelance.
- The business tax does not apply to all self-employed. The legislator distinguishes between two groups: traders and freelancers
- Unlike income tax or VAT, the municipalities set the amount of the tax themselves. The business tax is the municipalities’ most important source of income.
- If a company is represented at several locations, the business tax must be broken down on these locations based on the distribution of the income.
Business tax for freelancers
Who can be assigned to the group of freelancers can be seen from a list of the tax authorities. These include lawyers, architects and editors. This professional group does not have to register a trade and is therefore also exempt from business tax. The situation is different with all those people who deal in goods or services and are not artistically creative. In this case, a trade must be registered with the local authority and a business tax return must also be submitted as part of the income tax return. According to abbreviationfinder, CBT stands for Corporation Business Tax.
Business tax is a municipal tax
Internationally, business tax is a German exception. Unlike income tax or VAT, the municipalities set the amount of the tax themselves. The so-called business tax base is decisive for this. Since the fluctuations in the level of business tax are extremely high, the federal government has set at least a lower limit. The rate of assessment must be at least 200 percent. As a rule, the assessment rates in the cities are significantly higher than in the surrounding communities.
The importance of business tax
For the municipalities in Germany, the business tax is the most important source of municipal income. Since it is up to the municipalities to set the assessment rate, they can use it to attract companies in a targeted manner or to counteract the expansion of commercial space. For companies, the question of location depends not least on the amount of tax to be paid. If a company is represented at several locations, the business tax must be broken down on these locations based on the distribution of the income. For the municipalities, however, the disadvantage of business tax is that it cannot be calculated as it is incurred depending on the economic development.
Calculating the tax liability
The interplay between the measurement amount, the assessment rate and the trade income should be illustrated using an example:
A company in the form of a partnership generates a profit of 100,000 euros, the business tax base is 3.5 percent, the municipal tax rate is 400 percent. The tax exemption for natural persons and partnerships is set at a uniform rate of EUR 24,500 per year; it does not apply to legal entities. There is an allowance of 5,000 euros for clubs.
Profit: 100,000 euros
tax exemption: 24,500 euros
Result: 75,500 euros * tax base 3.5% = 2,642.50 euros.
This amount is now multiplied by the assessment rate, here 400 percent. This results in a tax liability of 2,642.5 * 400% = 10,570 euros. This is reduced by any business tax prepayments.
There is no taxation of speculative profits through a special speculative tax in Germany. Speculative taxation takes place through income tax. First of all, it is important to clarify when a speculative profit arises. Most consumers think of securities transactions when they make a speculative profit. But it is precisely these that are excluded from speculative taxation in the classic sense. The final withholding tax generally applies. Every profit from a securities transaction, regardless of whether it is made within four weeks or three years after the introduction of the final withholding tax, is subject to a uniform 25 percent tax.
- Speculative profits are profits from a private sale.
- In the case of real estate, the legislature has massively extended the deadlines for speculation taxation.
- Income from sales transactions is nothing other than income. Income is subject to income tax.
Speculative profits are profits from a private sale transaction that have several characteristics:
- The basis for this are goods that are not subject to wear and tear, but rather increase in value over time, such as real estate, works of art or antiques.
- Another characteristic of a speculative transaction can be the shortage of a good and the resulting increase in value.
- A speculative profit is determined based on the difference between the buying price and the selling price of a good.
- The purchase and sale must have taken place within a time frame, the sale period, which allows the presumption of an intention to make a profit.
The sale periods
In the case of real estate in particular, the legislature has massively extended the deadlines for speculative taxation. A residential unit rented to third parties can only be sold after ten years without speculative taxation taking place. The situation is somewhat different with a property you use yourself. This can be sold again after a period of three years without any potential profit having to be taxed.
In the case of movable assets, the holding period is one year in order to avoid the presumption of speculation. However, if the holding period was more than a year and the asset was used at least once as a source of income, the one-year disposal period no longer applies.
The taxation of speculative transactions
Income from sales transactions is nothing other than income. Income is subject to income tax. There is no speculative taxation through a special type of tax, only the income subject to income tax increases. There is no additional taxation if the capital gain is already attributable to another type of income. A car dealer who trades in vintage cars already pays taxes on these quasi-speculative profits through his business. The one-time sale of a property rented to someone else before ten years, for example, would have another, unpleasant side effect. The sales proceeds would push the income significantly upwards once for this year and thus also increase the tax progression for all other income. For the following year.