Germany imposes certain taxes on profits of domestic and foreign corporations with a permanent establishment in Germany. There are federal taxes such as corporation income tax (tax rate: 15%) and solidarity surplus charge (tax rate: 5,5% on corporation income tax rate). The combined tax rate is 15,83%.
In addition to this there is a local business tax. Subject to this tax is everybody who carries out business or trade activities. Companies are always presumed to carry on a business. Taxable income for business tax is detemined in the same manner as for income tax purposes. But this income is subject to certain adjustments. Some adjustments increase the taxable income other reduce it. For example the following expenses are not deductible if they exceed together a threshold of € 100,000:
- Financing costs (100%)
- Rental costs for real estate (20% of rent)
- Rental or leasing costs for cars, trucks, IT-Hardware, other equipment (50% of rental and leasing costs)
Example:
|
€ |
% |
€ |
|
| Income for corporation tax purpose (Profit) |
100,000 |
||
| Financing costs (interests) |
50,000 |
100 |
50,000 |
| Rent for office and warehouse space |
100,000 |
20 |
20,000 |
| Leasing costs (Trucks, equipment) |
100,000 |
50 |
50,000 |
| Threshold |
(100,000) |
||
| Income for business tax purposes (tax base) |
120,000 |
There are deductions especially to avoid double taxation senarios such as for profits of foreign permanent establishments or dividends derived from qualified shareholding investments.
Before mentioned tax base is multiplied by a federal rate of 3,5% and results in a basic tax amount. This basic tax amount is multiplied by a special rate set by each city or municipality. The current multiplier for major German cities are for example:
- Berlin: 410%
- Frankfurt am Main: 460%
- Hamburg: 470%
- Munich: 490%
Smaller towns might have considerable lower rates. The tax burden in general varies between 14% to 17% of profits. Business tax like other income taxes are not deductible for tax purposes.
| Business Tax | Gewerbesteuer |
| Corporation Income Tax | Körperschaftsteuer |
| Solidarity Surplus Charge | Solidaritätszuschlag |
| Business Tax Base | Gewerbeertrag |
| Federal Rate | Gewerbesteuer-Messzahl |
| Basic Tax Amount | Gewerbesteuermessbetrag |
| Municipal Multiplier | Gewerbesteuerhebesatz |
You have to know that Germany’s Gewerbesteuer (Business Tax) is one of the oldest in the country. Therefore its archaic and the system is hard to understand.
The whole system of financing local infrastructure (cities, boroughs, municipalities) is based on this tax
… and on Real Estate Tax (Grundsteuer). Every owner of real estate property (private or business) is liable to this tax.
There are other local taxes which vary from town to town and village to village:
such as Hundesteuer (Dog Tax) or
Zweitwohnungsteuer (Tax on secondary homes).
But Gewerbesteuer and Grundsteuer are the backbone of local public financing.
This question baacislly is looking to see if you should itemize your deductions or take the standard deduction.When you itemize, one of the things itemized is how much in taxes you paid to the states last year. They can figure out how much you paid from your paystub. They also want to know though, if you owed any money on your 2006 tax return that you paid then, because that counts towards „income taxes paid in 2007“ for itemized deduction purposes.So what this question is asking is:- Did you owe any income tax on last years return that you paid.- Did you pay any back income taxes on last years return.- The key is that it’s *state* income taxes. They don’t care whether you owed / paid any federal income tax last year.Nothing too sinister.