The corresponding rate of trade tax depends on two components:
- The tax base rate (3.5 percent throughout Germany)
- The multiplier (Hebesatz) stipulated individually by every municipality
The taxable income of the company is multiplied with the tax base rate (3.5 percent) which results in the so-called tax base amount. The tax base amount is then multiplied with the corresponding municipal multiplier; which results in the sum total of trade tax which is due.
The multiplier is set by each municipality. On average, it is between 350 and 400 percent but may not total less than 200 percent. There is no upper limit for the municipal multiplier. It is generally higher in urban areas than it is in rural areas, although it does currently not total more than 490 percent in any of the large cities.
- Company A with annual taxable earnings of EUR 1,000,000 is based in city B.
- City B has stipulated a municipal multiplier of 400 percent.
- The tax base amount for company A is 3.5 percent of its annual taxable earnings or EUR 35,000.
- The EUR 35,000 is multiplied by the municipal multiplier of 400 percent, resulting in a total trade tax for company A of EUR 140,000.
Partnerships have an annual tax free allowance for trade tax of EUR 24,500.
The solidarity surcharge is NOT levied on trade tax.