Taxation of Businesses

Since tax law is subject to fluctuations it is difficult to write down the state of the law. Following provisions will only give you a rudimentary primer on what you need for understanding. For more, detailed and up to date information consult your attorney or tax advisor.

This presentation is reaching out to SME not required to keep books. Since keeping books is a very formal and a sophisticated matter in general, and bigger companies will have their bookkeeping personnel anyway, no need for any such information is assumed here.

Computing the Taxable Income, pursuant to §2 EStG (N.B. This overview covers about 90% of the rules!)
	Turnover (earnings before operational deductions)	Umsätze (Einkünfte vor Abzug von Betreibsausgaben)
	earnings (= profit)	Einkünfte (= Gewinn)
minus	contribution to assistance for old-age	Altersentlastungsbeitrag
minus	relief for single parents	Entlastungsbeitrag für Alleinziehende
minus	€ 640 for income in forestry and agriculture	€ 640 bei Einkünfte aus Forst- und Landwirtschaft
	= total amount of earnings	= Gesamtbetrag der Einkünfte
minus	special expenses	Sonderausgaben
minus	extraordinary expenses	Außergewöhnliche Belastungen
	income	= Einkommen
minus	child benefits or exemptions	Kindergeld oder Kinderfreibetrag
	= income to be taxed or taxable income	= zu versteuerndes Einkommen

Why is the tax law and taxation in Germany so very complicated?

The law on taxes in Germany is as regular as the irregular verbs in the English language. This fact is due to the Germans’ attitude toward the fiscal authority. It is considered as a sport, comparable to a cat and mouse game, for a German to outwit the fiscal authority in order to reduce tax payments as much as possible. This corresponds with the difficulty of tax law. The eagerness for this game supposedly derives from the general dissatisfaction with Germany’s political and/or commercial situation.
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Do I not have to pay any value added or sales tax when I buy something? I have been always paying the price on the tag and nothing more.

Sure, you are paying value added tax. Here we typically have all inclusive prices. Taxes and service fees must be included in prices for the end consumer (§1 I 1 PAngV). As a businessman on the other hand, you will often find two or three sums as the “price” (net/gross sum, VAT). What ever the price structure may be, do take a good look for the final price.
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Being a businessman, which taxes do I have to pay?

This depends on the kind of businessman you are. All are subject to income tax (Einkommenssteuer) respectively corporate tax (Körperschaftssteuer) for incorporated companies, and VAT. Only those practicing a trade or industry (and not a free profession) will have to pay trade tax (Gewerbesteuer). Trade tax will always be imposed upon all corporations.
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For starting basics on taxation also read: