Are there differences in trade tax between sole proprietorships and GmbHs?
January 17, 2024 | 50,00 EUR | answered by Simon Schaaf
Dear tax advisor,
my name is Jan Schmid and I am the owner of a sole proprietorship that has been developing well in recent years. Now I am considering converting my business into a GmbH in order to benefit from the advantages of this legal form. In doing so, I am wondering if there are differences in trade tax between a sole proprietorship and a GmbH.
At the moment, as a sole proprietor, I pay trade tax on the profit I make at the end of the year. Since trade tax is levied on the trade tax liable person or business, I am wondering if this would change if I convert my business into a GmbH.
My concern is that the amount of trade tax could increase through the conversion into a GmbH and my current tax burden would rise. So, are there actually differences in the amount of trade tax between a sole proprietorship and a GmbH? And if so, what factors play a role in this?
I would greatly appreciate it if you could assist me in this matter. If there are differences, what options are available to optimize and potentially minimize the tax burden?
Thank you in advance for your support.
Sincerely,
Jan Schmid
Dear Mr. Schmid,
Thank you for your inquiry regarding trade tax in relation to converting your sole proprietorship into a GmbH. I understand your concerns and will try to provide you with all relevant information to help you with your decision.
In principle, there are indeed differences in trade tax between a sole proprietorship and a GmbH. As a sole proprietor, you pay trade tax on the profit you make at the end of the year. Therefore, trade tax is levied by the trade tax liable person, in this case by you as a sole proprietor.
When you convert your sole proprietorship into a GmbH, the situation changes. The GmbH is a separate legal entity that is liable for trade tax as such. This means that the GmbH must pay trade tax on its own profit. Unlike the sole proprietorship, where you as a natural person pay the trade tax, trade tax in a GmbH is levied at the company level.
The amount of trade tax depends on various factors, such as the company's profit, location, legal form, and other individual circumstances. It is possible that the trade tax burden may increase as a result of converting into a GmbH. A GmbH usually faces higher tax rates than sole proprietorships.
However, there are ways to optimize and minimize the tax burden. One possibility is, for example, to use tax planning options, such as choosing the right location for the GmbH, utilizing tax allowances, or structuring the company's profit.
It is advisable to consult a tax advisor or professional before converting into a GmbH to carefully examine the tax implications and identify possible optimization opportunities.
I hope that this information has been helpful to you. If you have any further questions or would like more detailed advice, I am at your disposal.
Best regards,
Simon Schaaf, Tax Advisor
