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Trade tax Income tax

Crediting of trade tax with income tax

Udo Reuss
Tax Expert

Udo Reuss

The tax lawyer and business graduate Udo Reuß is responsible for tax issues at Finanztip. Before that, he worked for various business and specialist publishers such as Handelsblatt, F.A.Z.-Verlagsgruppe, Haufe-Lexware and Vogel Business Media - 14 years of which he worked as editor-in-chief of trade magazines. He draws the relevant judgments for tax savers from the complex tax law.

Sole proprietorships and partners in a partnership can face an overall tax burden that is well above the maximum income tax rate. This risk always arises when a company has to pay trade tax and the trade tax paid by the company cannot be sufficiently offset against income from business operations for the taxpayer.

In principle, the trade tax paid by the company is offset against the income tax liability of a sole proprietorship or a partner in a partnership. Since the assessment period 2008, this credit has been carried out at 3.8 times the company's trade tax base, i.e. the trade income multiplied by the trade tax base number. The credit is limited to a maximum of the trade tax actually paid.

However, this credit only relates to the pro rata income tax that is payable on income from business operations. If the creditable trade tax amount is higher than the income tax amount that would have to be paid for business income, the difference cannot be transferred to other types of income (self-employed work, agriculture and forestry). Carrying forward or backward carry-over to other assessment periods is also not possible.

Crediting of trade tax with income tax

For sole proprietorships and for partners in commercial partnerships, the tax reduction for income from commercial operations is automatically made in the assessment. What is meant by this is the following: The collectively agreed income tax is reduced through a flat-rate crediting of the trade tax insofar as it falls proportionally on business income included in the taxable income (Section 35 EStG). The aim is to largely relieve companies of trade tax. This also benefits co-entrepreneurs, i.e. natural persons as shareholders in a partnership.

The reduction amount is 3.8 times the relevant trade tax measurement amount. It is limited to the trade tax actually payable (Section 35 (1) EStG). This provision means that in places with a low assessment rate, the trade tax is set to zero in the tax assessment.

Example: In Hamburg, the entrepreneur would pay trade tax at a rate of 470 percent. If he moves to the periphery (for example to Rellingen), he remains arithmetically free of trade tax.

Reference is made to the BMF letter dated November 1, 2010 for tax reductions in accordance with Section 35 EStG for multi-storey partnerships Then the following applies:

If the taxpayer as sole proprietor or co-entrepreneur is to be allocated profits from several business operations, the respective trade tax measurement amounts must be determined separately for each business operation and for each co-entrepreneurship, multiplied with a factor of 3.8 and limited to the trade tax to be paid. In the case of negative commercial income from a company or from a participation, the associated trade tax measurement amount - resulting from additions - and the trade tax to be paid are not taken into account. The amounts determined in this way are to be combined to calculate the credit volume.

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