Do I have to pay trade tax as a small business owner?
October 14, 2023 | 40,00 EUR | answered by Eva Heuser
Dear tax consultant,
I am Rolf König and have been running a small sole proprietorship in the IT services sector for several years. So far, I have been operating as a small business owner and have benefited from the VAT exemption according to § 19 UStG. However, I have heard that small business owners may still have to pay trade tax if their profit exceeds a certain amount.
My current annual profit is around 35,000 euros, and I am wondering if I, as a small business owner, have to pay trade tax. This additional tax burden would significantly impact my financial situation, and I am concerned whether I need to set aside reserves to cover these costs.
Could you please explain to me whether I have to pay trade tax as a small business owner and if so, at what profit level this applies? Are there possible solutions to minimize or avoid this tax burden? I appreciate any help and advice.
Thank you in advance.
Best regards,
Rolf König
Dear Mr. King,
Thank you for your inquiry regarding trade tax as a small business owner in the IT services sector. It is correct that small business owners are exempt from sales tax according to § 19 UStG. However, this does not automatically mean that they are also exempt from trade tax.
Trade tax is a local tax imposed on business owners on their profits. It is determined by the municipalities and is a percentage of the trade income. Small business owners are generally also required to pay trade tax if their profit exceeds a certain threshold.
The trade tax exemption threshold for natural persons is €24,500 per year. This means that as a small business owner, you must pay trade tax if your profit exceeds €24,500. In your case, with an annual profit of €35,000, €10,500 would be taxable.
There are ways to minimize or even avoid the trade tax burden. One option is to create reserves in your company to cushion the additional tax costs. Additionally, you can also check if you are eligible for certain exemptions or tax reductions to reduce your tax burden.
It is advisable to seek advice from a tax advisor to find individual solutions for your tax situation. A professional tax advisor can help you optimize your trade tax burden and stabilize your financial situation.
I hope this information was helpful to you. If you have any further questions, please feel free to contact me.
Best regards,
Eva Heuser
Tax Advisor
