What Is Gewerbesteuer (Trade Tax) in Germany?
Trade tax = 3.5% × your city's Hebesatz (min 200%). Who pays, the €24,500 allowance, §8/§9 add-backs, and the §35 credit a GmbH can't use.
If you have seen a "Gewerbesteuer" line on a draft computation, or you are deciding whether to register a Gewerbe or form a GmbH, the trade tax is the piece most foreign founders misunderstand. It is a municipal tax on commercial-business profit, not a corporate tax, and its effective rate is never a single number: it is two numbers multiplied together, 3.5% set by federal law and a Hebesatz set by your town or city. Who actually pays it, and whether any of it can be recovered, depends on your legal form. This guide explains the mechanics from the primary law (the Gewerbesteuergesetz and the Einkommensteuergesetz), in plain English. It is an explainer, not individual tax advice.
Gewerbesteuer in one sentence
The Gewerbesteuer is a municipal tax on the profit of a commercial business operation (a Gewerbebetrieb), levied by the town or city where the business is located and governed by the Gewerbesteuergesetz (GewStG §1). It is separate from the federal Körperschaftsteuer (corporate income tax) and Einkommensteuer (personal income tax) and runs on its own rules.
Key point: trade tax is the single most important own-revenue source for German municipalities, which is exactly why each one sets its own multiplier (the Hebesatz). Two businesses with identical profit can owe very different amounts of trade tax purely because they are based in different towns. [GewStG §1; gtai.de, accessed 2026-06-10]
Gewerbesteuer: the key numbers
How much is trade tax? The 3.5% × Hebesatz formula
The effective rate is the product of two figures:
Effective trade tax = 3.5% (fixed base rate) × your municipality's Hebesatz
The first figure is the Steuermesszahl, fixed nationwide at 3.5% of trade profit (§11(2) GewStG: "Die Steuermesszahl für den Gewerbeertrag beträgt 3,5 Prozent"). The second is the Hebesatz, set by each municipality, with a statutory floor of 200% (§16(4): the rate is 200% if the municipality has not fixed a higher one). In practice Hebesätze run from roughly 250% to 580%, so the effective trade tax works out at about 8.75% to 20.3%.
At a typical big-city Hebesatz of 400%, trade tax is 3.5% × 400% = 14%. Note the discipline this imposes: never quote a single "trade tax rate" without tying it to a Hebesatz, because the rate is meaningless without the municipal multiplier. [GewStG §11/§16; taxsummaries.pwc.com, accessed 2026-06-10]
How Gewerbesteuer is calculated (the three steps)
The calculation runs in three steps:
- Find the trade profit (Gewerbeertrag). Start from the income-tax or corporate-tax profit (§7 GewStG), then apply the add-backs (§8) and deductions (§9) described below. Round down to the nearest full €100.
- Apply the 3.5% base rate. Multiply the trade profit by the 3.5% Steuermesszahl to get the Steuermessbetrag (base amount, §11).
- Apply the municipal Hebesatz. Multiply the base amount by your town's Hebesatz (§16) to get the tax due.
There is one fork before step 2: sole traders and partnerships first subtract the €24,500 allowance from their trade profit. A corporation does not, and is taxed from the first euro. [GewStG §7/§11/§16, accessed 2026-06-10]
Worked example: GmbH €100,000 profit at 400% (and 250/490/580%)
A GmbH has no allowance and is liable from euro one. On €100,000 of trade profit the base amount is €100,000 × 3.5% = €3,500, and the bill scales with the Hebesatz:
| Hebesatz | Steuermessbetrag (×3.5%) | Trade tax | Effective rate |
|---|---|---|---|
| 250% | €3,500 | €8,750 | 8.75% |
| 400% | €3,500 | €14,000 | 14% |
| 490% | €3,500 | €17,150 | 17.15% |
| 580% | €3,500 | €20,300 | 20.3% |
Same profit, same federal rules, but the bill more than doubles between a low-Hebesatz town and a high one. Figures are illustrative, not advice. [derived from GewStG §11/§16, accessed 2026-06-10]
Worked example: sole trader with the €24,500 allowance + §35 credit
A sole trader earning the same €100,000 first deducts the €24,500 allowance, leaving €75,500:
- Base amount: €75,500 × 3.5% = €2,642.50
- Trade tax at 400%: €2,642.50 × 400% = €10,570
- §35 EStG credit: roughly four times the base amount, €2,642.50 × 4 ≈ €10,570, capped at the trade tax actually paid
At a Hebesatz around 400%, the §35 credit broadly neutralises the trade tax for the individual. Contrast this with the GmbH above, which gets neither the allowance nor the credit. [derived from GewStG §11/§16 and EStG §35, accessed 2026-06-10]
Who has to pay trade tax?
Every Gewerbebetrieb operating in Germany is liable. A GmbH, AG or UG is always treated as a commercial business by its legal form ("gilt stets und in vollem Umfang als Gewerbebetrieb", §2 GewStG), so it is liable from the first euro, with no allowance and no §35 credit. Sole traders and commercial partnerships (Einzelunternehmen, OHG, KG, GbR) are liable too, but they receive the €24,500 allowance and the §35 credit. Members of the liberal professions (Freiberufler under §18 EStG) are not a Gewerbebetrieb at all and pay no trade tax.
| Legal form | Liable? | €24,500 allowance | §35 credit |
|---|---|---|---|
| GmbH / AG / UG | Yes (from euro 1) | No | No |
| Sole trader | Yes | Yes | Yes |
| OHG / KG / GbR | Yes | Yes | Yes |
| Freiberufler (§18 EStG) | No | n/a | n/a |
[GewStG §2/§11; EStG §35; taxsummaries.pwc.com, accessed 2026-06-10]
Are freelancers exempt? Freiberuflich (§18) vs gewerblich (§15) and the Abfärbung trap
Yes, genuine freelancers are exempt. The liberal professions under §18 EStG include doctors, dentists, vets, lawyers, notaries, tax advisers, auditors, engineers, architects, journalists, and scientific, artistic, literary or teaching activity. Income from these activities is freiberuflich, not a Gewerbebetrieb, so it carries no trade tax.
The line that matters is between freiberuflich income (§18) and gewerblich (commercial) income (§15 EStG). Two cautions:
- Whether a given activity is freiberuflich or gewerblich is fact-specific. The label you choose does not control it; the nature of the work does.
- Mixing commercial activity into a freelance practice can "infect" all of the practice's income, making the whole lot taxable as commercial. This is the Abfärbung (colouring-off) trap.
Because classification turns on the facts, leave the call to a Steuerberater rather than self-assessing. [EStG §18/§15; gtai.de, accessed 2026-06-10]
Add-backs (§8) and deductions (§9): why trade profit ≠ income-tax profit
Trade tax targets the "objective" earning power of the business, independent of how it is financed. So the income-tax profit is adjusted upward by add-backs (§8) and downward by deductions (§9) to arrive at the trade profit (Gewerbeertrag). This is why your trade-tax base can differ from your income-tax profit.
Hinzurechnungen (§8): 25% of financing/rent/lease/royalty over €200,000
Under §8, 25% of a basket of financing-related expenses is added back, but only to the extent the basket exceeds a €200,000 allowance. The basket includes:
- 100% of interest on debt
- the financing portion of rents and leases for movable assets (20%)
- the financing portion of rents and leases for immovable assets (50%)
- licence and royalty fees (25%)
Flag for debt-heavy or rent-heavy businesses: add-backs can raise the trade-tax bill even when the income-tax profit is low, because the tax is reaching past your financing structure to the underlying earning power. [GewStG §8, accessed 2026-06-10]
Kürzungen (§9): the 1.2% real-estate deduction, the ≥15% dividend deduction, and the erweiterte Kürzung
Three deductions matter most:
- Real-estate deduction (§9 no.1 s.1): 1.2% of the Einheitswert (assessed value) of business real property.
- Dividend deduction (§9 no.2a): profit shares from a holding of at least 15% are deducted (this ties into the §8b KStG participation exemption).
- Extended property deduction (erweiterte Kürzung, §9 no.1 s.2): a company that exclusively manages and uses its own real estate can deduct the entire property income, which effectively means no trade tax on rental income. The conditions are strict (only qualifying activities are permitted), but this rule is the core driver behind many property-holding GmbHs.
The erweiterte Kürzung is one reason a German holding company is structured the way it is for real estate. [GewStG §9, accessed 2026-06-10]
Can you get trade tax back? The §35 EStG credit, and why a GmbH can't use it
For sole traders and partners only, income tax is reduced by about four times the Steuermessbetrag (the base amount). The credit is capped at the trade tax actually paid and at the income tax attributable to the trade income. At a Hebesatz around 400%, this broadly neutralises the trade tax for an individual (§35 EStG).
A GmbH gets no §35 credit. Worse, trade tax has not been a deductible business expense since 2008 (§4(5b) EStG). So for a corporation the trade tax is a permanent extra cost with no offset, stacking on top of the 15.825% federal burden (corporate income tax 15% plus the 5.5% solidarity surcharge) to produce a typical combined burden of around 30%.
This contrast is the single most important takeaway when comparing a GmbH with operating as an individual: the trade tax that an individual largely recovers is a real, permanent cost for the company. For how the layers stack, see German corporate taxes and our deeper German corporate tax rates explained. [EStG §35/§4(5b); taxsummaries.pwc.com, accessed 2026-06-10]
Why your city changes the bill (Hebesatz comparison)
Because the Hebesatz is municipal, identical profit costs about 8.75% at a 250% Hebesatz versus about 20.3% at 580%. Low-Hebesatz towns actively court registrations on this basis. For a GmbH, which gets no §35 credit, the difference is a permanent cost rather than something that washes out.
Treat the city figures below as indicative and changing annually (the mechanism is stable, the percentages are not, so verify per municipality):
| City | Approx. Hebesatz | Approx. effective trade tax |
|---|---|---|
| Munich | ~490% | ~17% |
| Frankfurt | ~460% | ~16% |
| Hamburg | ~470% | ~16.5% |
| Berlin | ~410% | ~14.4% |
| Cologne | ~475% | ~16.6% |
| Low-tax towns | ~250–300% | ~8.75–10.5% |
On a combined-burden basis, PwC puts Berlin at roughly 30%, Frankfurt at roughly 32% and Munich at roughly 33%. [taxsummaries.pwc.com; gtai.de, accessed 2026-06-10]
How trade tax fits the ~30% total burden
For a GmbH, the picture is: trade tax (around 14% at a 400% Hebesatz) is non-deductible and stacks on the 15.825% federal corporate rate (15% corporate income tax plus the 5.5% solidarity surcharge) to reach the typical combined ~30%. The dividend withholding tax (26.375%) and the §8b participation exemption sit on top of that and are covered on the German corporate taxes page rather than repeated here. [taxsummaries.pwc.com, accessed 2026-06-10]
Get this computed correctly: work with an English-speaking German Steuerberater
The mechanics above are the explainer; the numbers on your return depend on your facts. Under §3 of the Steuerberatungsgesetz (StBerG), only a licensed Steuerberater (or other §3-authorised person) may give reserved tax advice and file your Gewerbesteuer declaration.
gmbh-germany.com is not a Steuerberater or a law firm and does not itself give reserved tax advice. What we do is coordinate the engagement in English with a licensed German Steuerberater who computes and files the GewSt declaration, so nothing is lost in translation. If you would like that handled, you can work with an English-speaking tax advisor in Germany.
Author: Anna Müller, Legal Consultant, gmbh-germany.com.
Approximate effective trade tax by city
Frequently asked questions
It is a municipal tax on the profit of a Gewerbebetrieb (commercial business operation) under the Gewerbesteuergesetz; it is separate from corporate income tax and personal income tax, and it is the municipalities' top own-revenue source. [GewStG §1; gtai.de, 2026-06-10]
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