These five taxes founders should know

Paying taxes is no fun and complicated. But it's part of being an entrepreneur. Start-up founders have a whole range of taxes that affect them. An overview of the most important ones.

The U.S. founding father Benjamin Franklin once wrote that nothing in life is certain - except death and taxes. No one knows this better than the Germans. According to some estimates, 80 percent of the world's tax literature is written in German. There are many reasons for this, but it is nevertheless an indication that the tax system here is extremely complex.

This already applies to private individuals, who have to observe and pay various levies ranging from property tax to tobacco tax to dog tax. If you then go among the founders and launch your own start-up, you will quickly discover that you have entered a whole new dimension of tax complexity.

Exactly which taxes affect founders naturally depends on a number of factors. The legal form of the company is crucial, but so is the industry and whether there are employees. In principle, entrepreneurs should seek professional advice on these issues. However, a few taxes affect almost everyone. A brief introduction to the jungle of regulations.

Sales tax

The sales tax - colloquially also called value added tax - is the most important source of income for the German treasury after the wage tax. This tax affects all legal forms. In principle, it applies to all goods and services, both those that the entrepreneur purchases and those that he offers. In practice, one simply adds the sales tax to the amount of one's own invoice. The regular rate is 19 percent, for some goods the reduced rate of seven percent applies (food, books). A few items are also completely exempt from VAT (services provided by doctors or cultural institutions). The sales tax paid to the company's own suppliers is then deducted from the sales tax collected by the company itself, the so-called input tax deduction.

So-called small entrepreneurs are exempt from the VAT obligation. This includes those with a turnover of 17,500 euros or less. In this case, the sales tax declaration is not required.

Income tax

All natural persons in Germany have to pay income tax. Income from self-employment, from a commercial enterprise and also from capital assets are taken into account. The basis is the taxable income, which is the income minus some deductions. These possible deductions include, for example, income-related expenses, i.e. costs incurred as a result of work. Also deductible are allowances for children or education allowances.

The income tax rate increases with income. Up to a taxable income of currently 9,744 euros, there is no tax at all. Those with incomes above this level are initially taxed at 14 percent. The tax rate can rise to 45 percent, but this only applies to incomes above 274,000 euros per year.

Trade tax

Trade tax is levied on the income of a business. It is levied by municipalities, for which it is the most important source of income. However, this also means that the trade tax burden can vary from one business location to another. The tax office first multiplies the calculated trade income by the tax measurement rate (currently 3.5 percent). The measured amount calculated in this way is then multiplied by the municipality's assessment rate, which is at least 200 percent but can be set at any rate above this.

For a trade income of 100,000 euros, this results in a measurement amount of 3,500 (x3.5%). If the assessment rate is the minimum 200 percent, this results in a trade tax burden of 7,000 euros.

There is also an allowance for trade tax, which currently amounts to 24,500 euros. Freelancers such as doctors, lawyers or architects do not have to pay it.

Corporate income tax

Corporate income tax affects legal entities, i.e. associations, cooperatives, but also corporations. Especially those who have organized their business in such a way have to deal with this tax. It is incurred in the same way as trade tax on earnings and amounts to 15 percent. The tax-free amount is 5,000 euros, for some agricultural cooperatives and associations even 15,000 euros. Non-profit, ecclesiastical and charitable corporations are exempt, provided they do not engage in any economic activity.

Wage tax

Wage tax applies to companies with employees. Strictly speaking, the employee himself is the debtor. In fact, however, the employer is responsible and must deduct it from the gross wage, withhold it and pay it to the tax office. The employer also withholds church tax and the solidarity surcharge. Exactly how much income tax has to be deducted also depends on the income tax bracket into which employees place themselves, especially depending on their marital status.